In 2010, Plus500 hit the FinTech scene as a simple, web-based app made by a bunch of clever students.
Their app let its users trade ‘contracts for differences’ (CFDs are contracts between two parties about how the price of an asset moves).
In the years to follow, Plus500 grew. Eventually, it became a popular trading app for CFDs. But why - well, let's find out in this Plus500 UK review.
Plus500 UK Review: Quick Summary + Pros/Cons
- CFDs are a powerful way to trade on the margin.
- CFDs are also risky; online trading is linked to debt. Be aware of thoughts and emotions so that your awareness grows with time. 🌱
- Overall, Plus500 is one of the most popular UK brokers for trading CFDs.
81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
History of Plus500 - Who is this Company?
As it has been said, if you’re going to tell a story, start from the beginning.
Today, Plus500 is an international trading app and platform that offers a wide range of trading instruments. Headquarters is located in Israel and subsidiaries in the UK, Australia, Singapore, Seychelles, and Cyprus.
The company was actually founded by six alumni students from Technion – the Israel Institute of Technology, which is a leading research university in Israel specialising in science and technology.
Technion, which means “institute” in Hebrew, itself was founded in 1924 to become the first institute of higher learning in the then-British Mandate of Palestine and is home to over 12,000 students from all backgrounds and fields of study.
Today, they offer more than a hundred undergraduate and graduate programs of study on its five campuses across Israel.
In addition to its primary campus in Haifa, Technion has three additional campuses within the greater Tel Aviv metropolitan area. As such, Technion focuses on innovation in the Middle East similar to American schools like MIT and Stanford.
🌐 Technion’s Alumni Founders Developed it Based on CFDs
From 2008, these students slowly developed then launched Plus500 and gained regulatory approvals, including the UK’s Financial Conduct Authority and the Cyprus Securities and Exchange Commission. Today, Plus500 is a regulated broker and complies with all relevant regulatory requirements.
The broker’s main focus is on the trading of financial derivatives. Suppose you trade an Apple stock, you will buy or sell it at a set price on a certain date and that’s it. However, with a CFD contract, you basically buy/sell a contract to speculate on that specific stock or commodity at a pre-fixed price going forward.
It offers access to a variety of financial assets, including stocks, indexes, commodities, and currencies. Plus500 allegedly provides a “no-nonsense” trading environment that’s focused on providing the best possible experience to its users.
The platform is available in over 30 languages and has over 6 million registered users. Apart from its wide range of trading tools, including automated trading software, live chat support, and a vast library of educational resources.
Contracts for Differences Explained
CFDs are derivatives that derive their value and potential profit/loss from the price movement of an underlying asset, such as stocks, commodities, indices and foreign exchange.
Unlike stocks that you buy and own, all CFDs are traded on the “contract for difference” (CFD) market, which means that the actual exchange is not made with the brokerage company holding the contract.
Instead, it is the difference between the current price and the agreed upon price that is transferred from one party to the other. This allows traders to speculate on price movements of assets without having to purchase all the assets themselves.
In this way, contracts for differences are financial instruments that can be used to speculate on the price movements of assets. The main advantage of trading CFDs is the ability to speculate on an asset without owning it. When you buy/sell this instrument, you are trading a promise to the broker that you will take the other side if the asset moves in the opposite direction of what you had expected.
But there is a cost. Trading these types of contracts involves high risks and can lead to losses as well as profits. Thus, you should understand the basics before trading. Plus500 is an online trading platform that offers CFD contracts on shares, ETFs, commodities and indices.
For example, if you buy a contract that shows you owning 100 shares of a certain stock, you are hoping that the price will go down. If the price goes down instead of up, you have to close the position by selling the shares. This is the normal way of speculating on companies.
- Flexible trading - With a stockbroker you’re generally stuck trading on one date. However, with a CFD you can choose when to open and close the trade. This flexibility makes it easier to trade when you have a good idea of the direction of the market as it lets you trade your positions quickly and close them out when they’re not working out.
- Leverage trading - This is the main reason many people get into trading CFDs. If you are confident that a stock will go up in price but don’t have the money to trade a whole share of the stock you can use a CFD to trade a contract that has the same value as the share. This way you don’t have to put down a huge amount of money to try your luck. The broker will only lend you the amount you deposit as collateral.
- Low fees - Most brokerages charge interest on your money. However, with Plus500 you pay just a small percentage fee based on how much you trade.
Overall, CFDs are derivative contracts and not actual stocks or commodities. All you are really doing is counting on the future price of the asset moving your direction, whether it is up or down. Since they are derivatives, they are extremely volatile and can be dangerous to invest in.
You need experience to trade them successfully. If you are just starting out, it’s important to research different strategies before you start trading. Start by understanding the markets and how they work.
- Limited investment options - When trading CFDs you are essentially trading the price of an asset without owning it. This means that you have limited investment options as compared to stocks and ETFs where you can invest in a whole basket of stocks or invest in a specific area like technology or healthcare.
- Limited leverage trading - If you have a lot of money to invest you can use leverage to increase your profits. However, leveraged trading generally comes with a very high level of risk and should be done with caution.
- No liquidity - Unlike stocks where you can often find a seller or buyer at any time, CFDs are generally not liquid as they don’t allow you to buy or sell them easily. This can be a problem if you want to cash out when you want to close the trade and find no sellers willing to sell to you.
- No short selling - Another thing missing from the Plus500 trading platform is short selling. This is when you want to buy a stock but sell a contract that will go short if the stock price goes down. This lets you profit from a stock going down without having to take the risk of going short.
Please note: 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Plus500 UK Review 🧰 Setting Up Section
There are a few different ways to trade CFDs; futures trading, for example, is where you actually go long or short on the underlying asset.
However, “going long” means you take a position that you think the price of the asset will rise, while “going short” means that you predict the price of the asset will drop. Similarly, you can “go long” or “go short” on the underlying asset by taking a position in either the “sell” or “buy” side of the contract.
While futures trading is a more traditional way to trade CFDs, there are also a number of “derivatives-only” brokers that let you only trade this type of contract. No underlying assets are traded. This is especially useful for investors who are not interested in trading underlying assets but would like to invest in other digital assets.
This is the polar opposite to saving money or investing in real produce and physical commodities you can eat, live in, and provide value to your community with.
Before you invest any money in a CFD account, it’s important to check the broker’s terms and conditions and find out if there are any restrictions. For example, some brokers may only allow you to trade these contracts for certain assets, or you may be restricted to only trading them on certain exchanges.
As we mentioned earlier, different types of trading accounts are available at Plus500 UK. You can start your trading journey by opening a demo trading account, or a trading account with a £100 initial deposit.
Note that you can’t open a trading account with them if you’re under 18 years old. You’ll need to provide some form of identification to open an account with Plus500 UK, such as a driver’s licence, passport, or other government-issued ID.
When you sign up for Plus500, you’ll receive an email with a verification code that you’ll need to enter on the sign-up page to verify your account ownership. Your account will be reportedly verified within 24 to 48 hours. Once your account is verified, you can begin trading.
It offers a range of trading platforms, including trading on mobile devices, or desktop computers. Before you open an account with Plus500, there are a few tips you’ll want to keep in mind:
- First, make sure you have a verified email address. You’ll also want to verify your account ownership before you can actually trade.
- Another tip you should keep in mind is that you’ll need to verify your phone number when you sign up for an account with Plus500. This is to ensure that your phone number is linked to your account. If your phone number is ever changed, you can use the phone verification code to help get your account back online.
- Plus500 also includes a unique feature called Market Alerts. Market Alerts lets you get real-time market updates and analysis via push notifications on your phone. You can also filter your market data by asset, issuer, and size. Plus500 offers a variety of trading products, such as cash-settled exchange-traded funds (ETFs), stocks, futures, and bonds.
Strategies for Trading CFDs
Once again, trading in futures is a risky thing in an economy with a broken supply chain and negative lingering impacts to stay with us for some time due to a two-year production hiatus from a global reaction to the COVID-19.
Before you dive into the different strategies you can use to trade CFDs, it’s important to understand the underlying concept of the market. Every market is made up of buyers and sellers, who are constantly trying to outwit each other to get the best possible price for their products. When a buyer buys a contract, they are expecting that the price of the asset will rise. When a seller sells a contract, they are hoping that the price of the asset will fall. As a result, the market is a constant tug-of-war between buyers and sellers.
Leveraged CFDs are a combination of both buying and selling the same underlying assets. Essentially, you take a short position in the “sell” side of a contract and a long position in the “buy” side. The benefits of this type of trading are that the spread is usually lower and that volatility is usually higher, making them a great way for experienced traders to make money. Note that you should consider whether you can afford to take the high risk of losing your money.
Research and Charting 📉
One of the most important steps you can take when trading CFDs is to do thorough research on the different assets you are investing in. By learning the fundamentals of each asset you are trading, you will be able to make more informed trading decisions and avoid unnecessary losses.
In addition to researching the different assets you are trading, it’s also very important to understand how to read charts and make sense of them. For example, you can use charts to see where the price of an asset is at any given time as well as where it has been in the past.
You can also see how much profit or loss you have made over time and what factors have contributed to it.
The Plus500 trading platform is a robust and feature-rich solution designed to meet the needs of traders of all experience levels (the platform is not suitable for beginners/inexperienced traders), with its vast array of features and options.
Learn the Basics
The Plus500 trading platform is packed with features, but the basics of trading are the same for all traders. Before diving into the interface, it’s important to learn the basics of trading. This will reduce the complexity of the interface and make navigating it a lot simpler. Doing some homework will help you to understand the trading basics, such as The Market Cycle, trading types, and trade execution. Understanding these will let you navigate the Plus500 interface more easily.
Use their YouTube Tutorials
As well as having a helpful trading guide, Plus500 also has many helpful videos on their YouTube channel. These provide an excellent overview of the platform and will help you to familiarise yourself with the interface. The tutorials are broken down by level of experience, so you can find one that suits your trading level. If you’re feeling a bit overwhelmed, watching a few of these videos can help you to reduce the complexity of the interface.
Switch to Chart Mode
A lot of traders get confused when they see the different trading modes in the Plus500 trading platform.
They’ve got a chart library, an order book, and a portfolio view that they can see in their portfolio view. This can be frustrating for new traders who aren’t aware of the different ways to view your trading dashboard.
Disclaimer: Illustrative prices
Switch to the chart mode. This will show you the same data as the portfolio view, but in a more visual way. This will make it clearer for you what’s happening in the trading dashboard and what you need to do. Switch to chart mode as soon as you log into the platform.
CFD Trading Example - How To Trade It?
Let’s say you want to trade S&P 500 Index CFDs. You find a broker that offers this based on S&P 500 Index CFDs, such as Plus500.
Firstly, it’s important to understand the difference between trading CFDs and investments like stocks. With stocks, you own a percentage of a company and have an ownership stake in that company. The stock market is the place where those stocks are bought and sold. With trading CFDs, you don’t own any of the underlying asset.
The chances of profit or loss are determined by the price of the contract, which is market-driven by supply and demand. So, trading CFDs are meant to be used like an insurance policy. The insurance policy analogy is a good one, because there are a few key differences between stocks and CFDs that you need to be aware of. One of the biggest is that trading CFDs are riskier than stocks. They’re also less liquid and can be less predictable than stocks. So, trading CFDs are used to speculate on the price movement of an underlying asset, not to invest in a certain industry like stocks might.
So the most basic way to trade CFDs is through a broker offering trading these contracts. Generally, a trader opens a trading account with a broker. You sign up and open a trading account with that broker and trade like you would stocks but without actually owning the stock.
The broker will then offer a selection of trading CFDs. In essence, the firm’s trading desk will buy or sell a contract linked to the price of an underlying asset (e.g. a stock, index, commodity, interest rate, etc.). The trader can choose the asset, quantity, price, and expiration date of the transaction.
At the end of the month, you are still not sure about trading it or not. So, you decide to open a journal to make sure you’re following everything correctly.
Journals are used to keep track of your trades and monitor your losses or profits. You monitor your journal and make adjustments to your trading strategy as needed - but this falls far short of professionally learning to trade.
What are the Key Differences between CFDs and Stocks
First, the total amount that you can invest in a CFD is very small compared to the amount that you would invest in a stock option. Second, the expiration date on a CFD is likely to be much sooner than the expiration date on a stock option. Third, there is no physical ownership of a stock option.
How Can I Trade CFDs?
As mentioned several times in this guide, trading CFDs involves a high degree of risk and speculating on the financial markets is generally an inferior approach to finding freedom than investing in practical things like personal resilience, skills, and things you can live in, eat, and use for practical survival. That’s why you need to be very careful when trading this type of contract.
Let’s round off this Plus500 UK review the proper way with a few lines summarising everything that we learned from researching this popular online brokerage.
To begin with, Plus500 is one of the most reputable online trading firms in the world that offers a wide range of trading services and products for both retail and professional traders. It attained this reputation by keeping up with the latest market trends, providing their users with cutting-edge technology and creating an active community of like-minded traders who can help each other succeed.
81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Nonetheless, trading CFDs involves a high degree of risk, and you could lose money if you aren’t careful. Sure, trading CFDs can be extremely profitable, but developing awareness is key to escaping the personal debt cycle.