IG Group, the UK’s largest retail-facing financial markets trading platform, continued its recent slide over the past couple of days after announcing the withdrawal of leveraged bets on 900 stocks. The IG share price is now down a little over 15% since January 20th after a surge in small private investors trading over lockdown boosted 2020 revenues and profits, benefiting the company’s valuation last year.
Trading has in fact become even more popular with amateurs keen to try to profit from volatility in financial markets during 2021. The activity’s profile has risen substantially over the past several weeks as a result of the chaos large, co-ordinated armies of amateur traders caused attacking short positions held by hedge funds. Millions of retail investors, many inexperienced but led my more seasoned individuals, co-ordinated their positions via the now-notorious subreddit group #WallStreetBets.
The move is a reaction to that day-trading mania, with IG yesterday giving customers 30 days to unwind any positions in the 900 company shares it will no longer offer leveraged trading on. The move has sparked criticism and speculation that IG has either been burnt by amateur day-traders upping their success rates by working together. IG says it is motivated by the need for it to “allocate its resources”, to cope with quickly increasing demand catalysed by the WallStreetBets chaos best known for the crowd-sourced group attacking short hedge fund positions on the GameStop stock last month.
London-listed shares are also affected, with margin trading facilities withdrawn for stock in companies including Mulberry, Saga and Hikma Pharmaceuticals – all heavily shorted stocks. IG said the new policy will affect less than 8% of all the equities it offers and will not have any impact on the ability of customers to buy the shares limited for leveraged trading via its stockbroking service.
IG is the UK’s market leading spread-betting and CfDs broker servicing retail traders. It allows users to place leveraged bets on a wide variety of financial instruments from currency pairs, commodities like oil and gold, equities indices and individual stocks. CfD and spread-betting trading positions don’t involve actually owning the underlying assets. They are simply a bet, the returns or losses on which can be multiplied through the use of leverage, on the direction of the price of those instruments.
London-based IG was one of the pioneers of the retail-facing trading industry, which before the internet age was limited to professional traders. Founded in 1974, IG originally offered CfDs and spread betting to institutional and professional traders before spotting the opportunity the retail market offered when the move online brought down traditional barriers. The company is a member of the FTSE 250 and worth about £2.9 billion.
The company’s half year results published in January showed a huge leap in IG’s number of active customers, which grew to 328,600 over the six months to the end of November compared to just 154,000 over the same period a year earlier. People being stuck at home during lockdown is believed to have been the main reason for the sudden upturn in interest in day trading.
An IG spokesman commented on the decision:
“IG has experienced a sustained period of exceptional demand for the products we provide. This has been reflected across the market. We routinely review and revise the products we offer in line with client demand and prudent business management, to ensure the most efficient use of resources”.
“We will be withdrawing less than 8 per cent of the 12,000 leveraged equities we offer. These represent a small part of our overall offering and clients will still be able to trade these equities through our share dealing offering.”