PLUS's performance10 Feb 2019 18:38
Two very good post from Dumbbunny & Chucko1 on ADVFN today
Elcapital 2018,
You infer in your recent posts that Plus500’s risk model of internalizing all of its customer’s trades results in some kind of a conflict of interest or sinister activity that results in an inferior outcome for the customer, over the models its rivals use, that include some form of external hedge. Well, this simply isn’t true. The evidence confirms that whichever risk model a CFD firm selects to operate, the outcomes for the customer (as seen in customer loss ratios) are near identical for all models and all CFD firms.
It appears most firms are operating within the range prescribed in the FCA's standard risk warning that states “between 74-89% of retail investor accounts lose money when trading CFD’s”.
Most firms are clustered around 80% as the data in the link below confirms. IG Group and Plus500 are almost neck-in-neck at 81% and 80.6% respectively. This should be no surprise. After all, CFD products are homogeneous and the mathematical workings of a CFD product are, in general, the same irrespective of who is selling it.
The risk warning loss ratios prove that the use of either of the two different risk models provides the near identical financial outcomes for their customers.
The risk model adopted does not affect customer outcomes – and if they do, its only by a few, immaterial, percentage points.
Firms selecting to externally hedge some of its customer’s trades don’t improve customer outcomes. It’s a myth. Mostly, spread about by those firms who use a model that involves some form of external hedging, and undoubtedly believed by some people who have a short interest in Plus500 stock.
www.financemagnates.com/forex/brokers/which-brokers-house-the-most-winning-clients-post-esma/
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Dumbbunny, you focus on the customer outcomes being equal and that is not surprising. The reason for this is that the extent of the market spreads is tiny in comparison to the market moves, and so PLUS making markets reflecting an on average greater risk position would have only a very small effect (for the client).
But it has a large effect on its own performance. If 70 trades in some market are executed one way and 30 the other within some period where PLUS are happy to manage the risk, they will end up hedging the net 40% as opposed to taking no risk (nearer to the IG model) and hedging the entire 100%.
What surprises me is that the hedge funds would not understand this simple logic - after all, many of them will have descended from banks’ trading desks etc. where this should be understood. It’s a game of statistics and the bull argument on PLUS is that they fully understand these stats. After all, it has been calculated that their models for determining optimal advertising timings and spending have yielded vast returns over their lifetime. Smart spending generated by smart tech gu
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