Why Play Candy Crush When You Can Gamble on Oil Prices?

The story behind the Israeli online stock trading platform Plus500, that tripled its profits in only one year, proves: Suckers never die.

Plus500 provides the general public an online platform for trade in so-called CFDs, contracts for difference. Behind the rather obtuse name is a simple principle: CFDs involve a wager of sorts on futures contracts with respect to an asset, which might be oil or gold or shares or stock. The bettors settle in advance on a wager involving the difference between the current price of an asset and a future price, such as the daily opening and closing price of the commodity.

CFDs as an investment vehicle that enables the people who trade in them − some may call them gamblers − to leverage their investment at 20 times the rate of normal trades. It’s a tradable instrument that tracks the value of the commodity involved, but the investors never actually own the asset. As a result, they invest in the price movements of the commodity without ever having to buy it. It turns out people like Plus500. Otherwise the company’s customer base wouldn’t have grown by 47% in a year, during which it doubled its revenues and tripled its profits.

What enabled that growth was the easy access that Plus500 gave members of the public to trade in CFDs via a smartphone and tablet computer application. Why play a computer game like Candy Crush when you can gamble on the daily movement in the price of oil, which is a lot more exciting? And there’s always the hope that you could make money in the process, despite the rule that the house always ultimately wins.

In a conversation with Plus500 CEO Gal Haber, he rejects the contention that he’s in the gambling business. “Our revenues are not based on customer losses. Our revenues are spread commissions and overnight commissions that you pay if you held a position [an open investment] for an entire night, and it’s about 7% on an annualized basis. It’s actually the interest on the leveraging. Many people compare us to foreign exchange [traders], but we’re not there. We don’t have binary options [a reference to a situation in which someone earns a specific amount or nothing at all]."

Trade in contracts for difference is leveraged, exposing the investor to major potential losses. The investor is essentially gambling on the amount by which a share or commodity will rise or fall in value, but the investor cannot know with certainty what that amount is, as the market can move in unpredictable ways. So it’s a gamble.

It’s important to point out the company’s website features a warning that trade in CFDs is risky and could result in a loss of one’s investment. But is such a warning effective? The person responsible for protecting the small investor in Israel is the chairman of the Israel Securities Authority, Shmuel Hauser, but for some reason Hauser isn’t bothering to provide oversight regarding companies like Plus500 and its counterparts in the foreign exchange and online trading industry. The small investor remains exposed to aggressive consumer marketing from companies from the industry. The impressive financial returns of Plus500 mainly show one thing: Suckers never die.

Bloomberg