Plus500 Review

Plus500 Ltd was founded in 2008. It’s headquartered in Israel with subsidiaries in the UK, Australia, Singapore, and Cyprus. The trading app was founded by Israeli alumni students. It lets users trade via the ‘contracts for difference’ (CFD) vehicle. 

In this guide, we cover how CFDs work and also review Plus500.

At a Glance — Pros and Cons

If you’re looking for a clear-cut overview of the upsides and risks of trading CFDs, then this is the section for you.

Pros

✔️ Trade in either direction. This means that it does not matter if you are in a bearish or bullish market; whether you make a profit or not depends on if the direction of your order in the world of money was right or wrong, contextually. 

✔️ No handling of underlying assets. You will not own the actual underlying asset. CFD contracts simply speculate on that derivative. This means, for instance, you can make bulk trades on commodities without taking possession of gold, silver, oil and so on.

✔️ Use leverage. One of the major benefits of trading CFDs is that you can trade on margin using leverage. You can invest a small amount of cash upfront and get a much larger ROI, but there is also the possibility of capital losses.

Cons

❌️ Rigid. There is a certain inflexibility to contracts for difference. With traditional stocks, you can take advantage of tiny increases or decreases in price movements. But CFDs necessitate that traders stick to specific entry and exit points before they can fulfil the contract.

❌️ Amplifies the tiniest of movements. You could lose all of your account funds very quickly. ‘Negative balance protection’ feature is very important, so that you don’t go massively into the red. It is a regulatory requirement with which Plus500 complies. Also, use stop losses.

Plus500 Review — Its History, Creation and Progress up to 2023

So who is this company, where did they come from and what have they been up to over the last few years? In this section, we find out.

Some CFD trading platforms do not operate legally and these will not have FSCS insurance or regulatory oversight by the FCA. 

Plus500, however, is a well-known player in the CFDs market. The company now has a yearly revenue that is over half £1 billion in size, steadily growing into 2023.

Plus500UK Ltd authorized & regulated by the FCA (#509909). 

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According to Wikipedia, the company was founded in 2008 by a group of alumni students from the Israel Institute of Technology. They formed the company by pulling together an initial investment of more than £300,000. 

The first platform iteration was released for Windows. Then in 2010, the full platform launched as a web browser version, which let Linux and Mac users also trade online. And in 2011, an app was released for iPhone and iPad. A year later, an app was released for android smartphones and tablets. The company went public in 2013, entering the London Stock Exchange. And in 2014, a Windows app was launched. 

However, the stock took a massive hit in May 2015. Plus500 lost almost half of its value after it froze British trade accounts. This freezing occurred because the British FCA ordered the company to freeze accounts, in order to investigate the quality of its anti-money-laundering controls. The majority of customers were able to gain access to their funds within two months.

In the years after, Plus500 was able to gain regulatory licences to operate in Singapore (by the Monetary Authority of Singapore) and Israel (by the Israeli Security Authority). In 2018, the company launched an Economic Calendar, letting its users track key financial events and trends worldwide. These were fed by the Dow Jones and also provided information on how key instruments were affected by economic events.

Market cap

Plus500 went public in 2018, listed on the London Stock Exchange and FTSE 250 index. The index amalgamates the highest-performing stocks for medium cap companies. Today, the company has revenue of £500+ million and a net income of over £200 million.

In 2021, Plus500 began the process of acquiring Cunningham Commodities and Cunningham Trading Systems, which was completed by the end of the year. Cunningham is a digital trading platform that offers futures for the North American market. That same year, Plus500 opened up a new research and development department in Tel Aviv, Israel.

In the spring of 2022, Plus500 acquired the Japanese trading company EZ Invest Securities. And today, Plus500 reportedly operates at a profit, including in British markets, despite some talk years ago of restricting spread betting and CFDs.

Review of Plus500 — Contracts for Differences Explained

The most important thing to understand about contracts for difference is that they exaggerate even the tiniest movements. Using CFDs, without having a deep awareness, understanding and experience of traditional trading, is like trying to sprint before you can even crawl.

In the intro to this guide, we covered the brief pros and cons of CFDs, but let’s take a more detailed look. We’ll start with an explanation of what these contracts are. 

A contract for differences (CFD) is a financial contract that pays the differences in the settlement price between the open and closing trades. Instead of a physical commodity or security being delivered at settlement, the difference is settled in cash that leaves or goes into your account. The contract secures that exchange. 

What makes contracts for differences different to standard Futures is that they apply leverage. Leverage is financial jargon for trading while using somebody else’s money. Every time you participate in a contract for difference, you are trading on margin and using it to trade on the stock, commodity or another securities market.

This means that even the tiniest of movements can lead to upsides and downsides that are far greater than your initial investment or even the total size of your account funds. It’s more than possible to completely bankrupt yourself in a single CFD trade.

This is why it’s a type of trading that is only recommended for traders who are very well seasoned in traditional trading, have a good head for numbers and are able to properly comprehend and balance out the risks.

Advantages of contracts for differences

You get all of the perks of securities or commodities, without needing to own or handle them physically or to invest the full cost upfront. 

ROI

For instance, taking out a Futures contract for oil, gas or gold would eventually mean that commodity being physically delivered to you. Another advantage is that CFDs get traded on margin. This means that investors increase the size of the position without using more capital. This can amplify returns on investment (ROI), but there is also the possibility of capital losses.

In Britain, the maximum leverage for retail investment is 30:1. So in the UK, leverage can be as high as 300 per cent of the size of the position. Brokers need to make sure that investors have a specific minimum account balance. Once this threshold is met, they offer more amplification than traditional trading. 

Fewer margin requirements

You can find that contracts for differences request a lower requirement of capital to be funded into a brokerage account. Oftentimes, traders can begin using these contracts with as little as a grand deposited with a broker. In some cases, users may even be awarded cash dividends. 

More trading opportunities

Finally, because you are not actually investing in the underlying security or commodity, it’s possible to gain (ROI) / lose by taking a long position or short position, by buying or selling. There are not usually short-selling rules in these markets.

Disadvantages of contracts for differences

The 5 main risks are leverage, the counterparty, markets, segregation and liquidity. We’ll explore each.

Leverage 

”Negative balance” protection is a regulatory requirement with which Plus500 complies. This prevents your account from going into large-scale debt — it will block you, theoretically, from losing more money than you actually have stored in your account.

You should also use stop losses and possibly guaranteed stop losses. These are essential components of a risk-managed trading system. It limits how much each trade can incur in losses so that no single bad trade totally wipes you out.

Counterparty

The next disadvantage of contracts for differences is the counterparty risk. In this example, the Counterparty is the broker, Plus500. They are responsible for offering you the asset, which is the contract itself and its value. In the event that the counterparty fails to honour its financial obligations, however, your money theoretically would be lost.

This would mean it wouldn’t matter how much ROI you gained from a position. The provider simply would not meet their obligations. This is especially troublesome because the CFD market is not very well regulated.

You are trusting the broker based on its reputation, financial standing and longevity instead of its regulatory soundness or access to hard resources. This is partly why US customers are not allowed to trade CFDs under the rules of the Securities and Exchange Commission.

Markets 

In terms of the market risk, 2022 has already seen enormous volatility in the markets, with bank branches closing down and much more. These are a major hazard even for normal stock trading. Contracts for differences are hyper-sensitive to even small volatility. So if the market swings heavily into the red, you could quickly lose all of your account funds.

Liquidity/segregation

Where contractor differences are legal, special protection laws exist that attempt to safeguard investor money from the potential for brokers to behave irresponsibly. According to that law, client money given to the CFD provider must have segregation from the provider’s capital.

However, this law might not block the provider from pooling one client’s money with that of other client accounts. This could easily mean that your money is being used to fund modern trades of other clients.

Finally, there are serious liquidity risks. This happens whenever you are dealing with highly limited numbers of parties who are making exchanges (we are, for instance, seeing lots of problems in the flow of assets arising due to tensions between western and Asiatic powers; HSBC was forced to withdraw from Russia during 2022). 

Because your broker is in charge of handling executions on the market, this opens a door to lots of tricks being played by the scenes… For instance, ‘gapping’ happens when a platform allegedly deliberately delays the execution completion of trade in order to minimise the ROI of the client’s trade. Or in some cases, to completely eradicate the ROI and even lead to a losing trade. 

Because the broker can see all of the account/trade info, they are incentivised to time the completion of trades so that they do not work in your favour. Also, if the stock market crashes, the broker might not be liquid enough to fulfil the trade — leading to you getting an inferior price for your contract or the request for more margin payments. 

Plus500 Review — Account Set Up 

Different trading account types exist for Plus500 UK. In fact, you can start your journey by testing out what trading with the company might be like by using its demo account. 

The demo account connects you to the live markets so that you get a taste of what your outcomes might be like if you were to have a fully funded account. Keep in mind that the company may offer a more favourable execution experience in its demo account than it would offer if you are actually trading real money. 

If you open up a trading account, there will be a £100 minimum deposit required. You have to be at least 18 years old of age. And you need to provide some proof of identification. This could be a driver's license, piece of government ID or passport.

And once you sign up, you are given an email with the verification code that you enter to validate the registration page and verify that the company knows its customer. This reportedly takes 1 to 2 days. After verification, you are able to start trading.

Please note that you may need to also verify your account by confirming a code that is sent to your phone number via SMS. Connected to this is a feature called Market Alerts. This feature, when enabled, sends live market updates to your phone. These pieces of analysis can be filtered according to the market, security or commodity, issuer and other metrics.

Your account lets you trade on quite a diverse range of products — Plus500Futures offers futures trading, Plus500CFD offers ETFs, stocks, forex and more. All the instruments are available for trading only through CFDs.

Top 4 risk management tools

The four central risk management tools offered by this platform are negative balance protection, close at profit/loss, guaranteed stop and trailing stop. ”Negative balance” protection is a regulatory requirement with which Plus500 complies.

Negative balance protection

“Negative balance protection” is a regulatory requirement with which Plus500 complies. It theoretically means that you are not able to owe the broker more money than your account funds contain.

Because using CFDs means you are trading money that mostly isn’t yours, it’s possible for a trade to speed into the red, taking all of that money down with it. Trades can happen so quickly that the money used to create the account doesn’t cover your losses.

But the negative protection feature should automatically end your position in the event that your account goes to 0. This is called a margin call. Theoretically, it should not be able to lose more than you deposited into your account. This is an extremely important feature to have in place, as a failsafe for the worst-case scenario.

Close a profit/loss

That said, you should be using some kind of stop-loss. That brings us to our second risk management tool.

‘Close at Profit’ is a type of stop limit and ‘Close at Loss’ is a stop loss. Together, these can be incorporated into your trades when you are creating a new position, or to adjust a pre-existing position. Use these risk management tools ahead of time, to set a specific price point at which your position will close. This is to protect your profit, should it arise, and also limit your loss, in the event that the trade sours and goes bad. 

So, you are limiting your profit while also securing it, and stopping too great of a loss. Keep in mind that the actual price point that the broker manages to execute your closing order may be different to the one that you set.

If the market is really moving quickly, or the broker has a large gap between when you issue the order and the execution of your order, this can cause slippage. Slippage is where your trade closes at a different price than the one set.

Guaranteed stop

Guaranteed stops are used as a way of absolutely limiting the potential loss of position. This risk management tool kicks in even if the value of an instrument continues to swing substantially away from you. Regardless, your position will automatically close at the price point you specified, without the risk of slippage. 

The Guaranteed Stop is, however, only available to certain instruments according to if the order is supported by the instrument. You can learn if your instrument supports the Guaranteed Stop by looking for the checkbox in the platform. This checkbox will appear after you select Close at Loss and if the instrument is also supportive of the tool.

Please note that you cannot apply this kind of stop loss to an order that has already been opened — the Guaranteed Stop is only applicable to new trades. Additionally, once this order has been activated, it cannot be amended. Only the Close at Loss order can be removed during a trade.

There is also an extra spread charge for using the Guaranteed Stop. This is non-refundable and you will be given details of it before the trade confirmation stage. You can only apply this order at a certain, predefined distance from the instrument’s current trading value.

Trailing stop

Finally, the Trailing Stop is used to help secure a particular level of profit. When you create a new position or pending order using a Trailing Stop, it stays active for however long the market continues to move in your favour, however, it automatically closes once the market begins moving in the direction away from your favour by a predefined number of pips.

Pips is an abbreviation for the ‘price interest point’. This refers to the smallest unit of price movement in either direction. The Trailing Stop lets you enact a Close at Loss order that will automatically recalibrate once the market moves in your favour. You could think of this as a fixed chain link connecting both orders. The moment that the market trends away from your favour, then the Close at Loss activates.

Although the Trailing Loss is free to use, Plus500 can’t guarantee your position will close at the specific Close at Loss level specified. This is due to the possibility of slippage.

Review of Plus500 — Charts and The Interface 

Plus500 has a bunch of YouTube videos teaching how their platform works. They’ve been posting videos since 2009, attracting over 200 million views in that time. They post frequently, multiple times per month.

Topics covered include financial terms like moving averages, platform tools like trailing stop losses (which were covered in the section above), speculative videos such as where the USD is heading and even commentary on the UK recession. The playlist section groups videos according to the topic, such as using the platform, videos that are related to the British market.

Switching to chart mode

Reportedly, when you switch the chart mode you are shown the same essential data that is given in the portfolio view. However, it is more visual. This may make it more readily Kluwer in terms of your trading dashboard. In this viewing area, you will see a chart library, a book of orders as well as a portfolio view.

Plus500 British Review — The Verdict

The weighting of your investment is much larger than your actual upfront investment. It could be larger than the amount you have in your balance. Plus500 platform is only recommended for traders who already have professional-level experience in handling the traditional markets. This platform potentially offers a way of amplifying tiny movements.

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