The Share Price Plunge at CMC Markets is Bad News for Clients and Investors

Anyone trading using the CMC Markets platform needs to note Thursday’s poor trading update that included a profit warning that wiped 30% off the firm’s share price. Whether this is an “amber” or “red flag” for the broker’s clients is yet to be seen. The platform has a functionality that is well regarded in the trading community and a loyal customer base. Still, the security of funds is the number one priority for any trader or investor. A profit is not a profit until the money is banked and the broker has fully paid any gains.

Source: IG

CMC boss, Lord Peter Cruddas, who with his family owns 62% of the shares in CMC Markets Plc, saw his wealth take an almost £200m hit on Thursday. The self-made billionaire has a personal net worth that Networthlist estimates to be in the region of $1.3bn. He has given no indication he’ll be scaling back his position in the broker. But the £80 cut in the future profit guidance number will even hurt those with the deepest pockets.

Source: Networthlist

Is it Time to Jump Ship?

Given the amount of technical and fundamental analysis which goes into running a successful investment strategy, it’s surprising how many traders skip analysing the health of their broker. The broker sector is a competitive space with many new entrants setting up to try and gain market share during the lockdown boom in home trading. Those newer entrants would appear to be more vulnerable to a market downturn than CMC Markets. CMC has, after all, been around since 1989, and Cruddas would be in the group of business leaders who have seen it all before.

The poor trading performance in July and August can also be attributed to investors finally taking a break from the markets after more than a year of uncertainty. Lower trading volumes directly translates as lower revenues for brokers, particularly firms like CMC, which attract traders rather than investors.

Some CMC account holders will be considering a move, and there are many alternative trusted brokers from which to choose. Many of them have been upgrading their platforms, and it’s worth keeping up to date with the neat new tools they are rolling out to clients. Developing a plan B by setting up a Demo account with another broker is always recommended. If institutional investors spend so much time and money developing a detailed Business Continuity Plan, then so should retail investors.

Why Choose a Listed Broker?

The fact that CMC Markets Plc is a listed company required to share its financial updates with the public is, in terms of transparency at least, a good thing. There is also the fact that it is regulated by the FCA, and UK clients can benefit from the protection of the FSCS scheme.

One of the key metrics used by the Forex Fraud review team is whether a company is listed or privately owned. If a broker is not obliged to issue market updates, then clients are kept in the dark about the broker’s financial health.

Crowdsourcing information about scam brokers can help others avoid falling into the traps set by disreputable brokers and you can share your experiences here. If you want to know more about this particular topic, or have been scammed by a fraudulent broker, you can also contact us at [email protected]

About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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