The news that the City’s financial regulator was clamping down on contract for difference (CFD) trading sent shares in spread betting firms spiralling last week.
Recently-listed CMC Markets PLC (LON:CMCX) and sector leader IG Group Holdings PLC (LON:IGG) both shed more than 30% in the immediate aftermath of the news, while Plus 500 Ltd (LON:PLUS) wasn’t far behind.
The Financial Conduct Authority thinks that CFDs and similar products are too complex for the majority of customers to understand.
According to the FCA’s figures, around 82% of those who use products such as spread bets and rolling spot foreign exchange products lose money.
To address these “serious concerns”, the regulator has proposed a few measures including health warnings, a disclosure of profit/ loss ratios as well as banning the use of offers to entice new customers.
The sizeable slump in share prices might just open a few doors for investors looking to buy into the stocks, says technical analyst Zak Mir – in particular IG and Plus 500.
In a TIP TV segment for Proactive Investors, the ‘King of Charts’ reckons IG could be a “potential bottom-fishing situation” although he’s still a little cautious.
“Interestingly now we’ve got the RSI [relative strength index] extremely oversold, at 13 out of 100, but, probably I’d want to see a higher high and a higher low to resolve this before actually taking the plunge on the long side,” the technical analyst explains.
On Plus 500, he also thinks the savvy investor will find some value in the stock over the coming weeks, but his advice is to wait for it to fall back a little more before diving in.
“There seems to be some support at 300p, that was the support in 2015 and so far in 2016, so maybe there’s an argument that there is value towards the 300p area,” Mir says.
The analyst isn’t so optimistic about the CMC, claiming that this one still has a little way to go before it bottoms out.
“It’s a falling knife at the moment,” he claims.
“My view is that a lot of the regulation was already in the price, but the market has basically been wrong footed … there are distressed sellers there and I think it will take a while for the dust to settle.
“At the moment momentum is on the downside and I wouldn’t rule out another 10 or 20% lower.”