By Tommy Wilkes, Sinead Cruise and Muvija M
LONDON (Reuters) - The wild swings in stock, currency and commodity prices in recent weeks are proving too tempting for thousands of stuck-at-home punters convinced they know which way markets are headed as the coronavirus ravages economies.
London-listed retail brokers have reported a jump in new clients opening financial market trading accounts - and a corresponding rise in revenues helped by most customers getting it wrong.
"Everyone is looking for a quick buck, and increased volatility just brings more people to the trough," said Ryan Paisey, a veteran trader now advising financial betting newcomers.
He said some had cashed in on a global stock market plunge last month, but a 20%-plus recovery in U.S. shares since had wrongfooted many.
"People were chasing the news. I've already heard of some horror stories ... [people] trying to max out the credit card."
Spread-betting platforms are a rare winner from the COVID-19-triggered lockdowns, which has decimated the global sports calendar and left many punters starved of betting opportunities.
Plus500 (L:PLUSP) nearly doubled its customer base to almost 200,000 in the first quarter of 2020. Revenues jumped six-fold for the quarter to $316.6 million year-on-year, sending its shares up 10%.
Like rival CMC Markets (L:CMCX), Plus500 makes money when customers lose. According to their websites, more than 75% of retail clients do just that.
Under European regulations launched in 2018, platforms were restricted from offering the riskiest bets to anyone.
Clients considered to be professional, or those who could demonstrate understanding of the risks, were exempted and retained the option to juice up winnings with leverage.
But where leverage boosts gains, it also magnifies potential losses.
"The boom in trading on Plus500 and other platforms may point to lambs' moving willingly to the slaughter but with such big swings in prices, professional investors do have more chance to make money ... and lose it," said Alastair Winter, economic advisor at Global Alliance Partners, a financial firms' network.
CMC, founded by Peter Cruddas, former co-treasurer of Britain's ruling Conservative Party, expects annual revenues for the year ending March 31 to nearly double.
"If you are sitting at home and you can't do your normal day's work, people get on the internet and they want to trade," Cruddas told Reuters, adding that CMC's mobile app was very active.
"DON'T GO BUST"
London-based Bradley Allen, 28, who describes himself as a semi-professional sports gambler, has switched to financial markets after finding there was little sport left to bet on aside from Belarussian football and some Asian horse racing.
He said he had made money as share prices fell but the swift market rebound had exposed his short position on U.S. equities, leaving his trading book looking "quite red".
Retail brokers are reluctant to divulge details on their average client profile, but those familiar with the industry said a significant proportion of platform punters work in financial services.
This has raised some concerns that bank employees unable to access spread-betting websites in the office are now enjoying a flutter while working from home.
A source familiar with IG Group (L:ICG), another trading platform, said the average client was a 30-to-50-year old man living "in and around financial hubs".
IG, which reported a 9% rise in active clients during January-March, would not comment on the profile of its clients.
Although the odd recreational bet during office hours might not contravene formal regulations, banks were likely to take a dim view of the activity.
"Betting in itself is not necessarily a regulatory breach," Michael McKee, head of the Financial Services Regulatory practice at DLA Piper, said.
"There are more general prohibitions regarding market abuse. So if the betting was based on inside information about particular stocks that are listed on a European regulated market that could be a breach," he said.
Allen, the self-described semi-professional sports gambler, said there were lessons he could draw on from sports gambling, where he reckoned the odds of winning were far lower than in financial betting.
"You need to stay in the game," he said. "As long as you are in the game, you have a chance to make it back. Don't go bust.