IGMarkets Review

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IGMarkets Review

IG Markets, probably better known as IG Index is the biggest spread betting provider in the UK but everywhere else they do contracts for differences business, in fact IGMarkets is the second largest CFD provider in Australia employing about 70 staff in Melbourne. Globally IG conducted more than 5.1 million trades in October 2008 compared to less than 2 million trades a year ago.

IG Markets is part of the IG Group, a world leader in leveraged products and a member of the FTSE 250 with offices in 11 countries. In addition to its ASIC regulation, IG is authorised and regulated in the UK by the Financial Services Authority.

I’ve been using IG Markets for a number of years now and find them to be good. I use the Level 2 system now and when I place a trade, within seconds they match your order in the depth, which is a plus as it helps the price in your direction, maybe only a slight help but we need all the small advantages we can when using CFDs.

How IG Markets works

I can only comment on how IG Markets works, so here goes -:

With their basic PureDeal platform let's say you buy 20,000 shares as a CFD in company XYZ. IG only quote the exact same prices as in the underlying share. So you buy 20,000 at the ask which is $1.00, neither you nor IG have bought any shares in XYZ, you are merely entering a contract with them. How they hedge against this I don't exactly know, when I asked they said they try and match buyers with sellers and hedge excess exposure in the underlying markets if this is substantial. So in this example you have not influenced the underlying share price one bit.

Now with their PureDMA platform (the L2 dealer system) with Direct Market Access. Same scenario. You buy 20,000 shares in XYZ as a CFD, difference is this time as soon as you press the buy button they will put an order for 20,000 shares in XYZ, so you will see a buy order for a dollar in the buy depth. Obviously this now effects the share price directly.

To understand the difference between the two platforms (Pure Deal versus Pure DMA) let's take the situation where there is a buyer at $16.98 and a seller at $17.02 on a stock. A trader on the PureDMA platform has the advantage of offering to buy or sell at $17.01. On the other hand, a CFD market maker (PureDeal) may have a spread of $16.95/$17.05, so the trader can only buy at $17.05 and sell at $16.95. Therefore, the trader needs a larger move to be profitable. A market maker earning 5c on every CFD purchased will make $50 on a position of 1000 shares. Commission could take a trader’s cost to $60.

Having used the IG platform in conjunction with DMA I can say it is very good, used CMC very briefly once, but if the market moved I would often get re-quoted and lose a few points when closing a position - not always a biggie if you don't trade often but if you do it can be.

General Points

1. IG offer loads of different products including spread bets (which are tax free for UK tax players) and CFDs. The spread betting product is also quite good. Certainly worth looking at if you are a UK taxpayer.
2. Over 7000 shares worldwide are offered, plus forex, indices, commodities and options, with margin rates from just 5%-10% on blue-chip shares. IG Markets are continually adding new markets and now offer the offers the main European and Asian indices. In currency pairs, some of its more unusual offerings include 'a broad range of Scandinavian, Australasian and exotic currency crosses'. In metals, IG offers the usual suspects plus three-month bets on aluminium, lead, nickel, tin and zinc. Recent additions include the Indian 'nifty fifty', the Johannesburg Stock Exchange Top 40, Taiwan and Tokyo futures, a Singapore (MSCI) tracker, the Toronto Stock Exchange 60 and carbon emissions futures.
3. IG Markets offers both a web-based and desktop application so you could check trades from any computer.
4. Dedicated client education through IG's TradeSense and seminar programmes are also available. They also allow you the possibility to trade in small sizes for the first 6 weeks.
5. IG runs a 'hybrid' model where positions taken by clients may be either 'synthetic' (i.e. market maker driven) - established by matching transactions within its global client base - or where positions result in the actual purchase of securities on relevant markets (i.e. Direct Market Access). Direct Market Access offers you the advantage of allowing you direct access to the stock exchange order book and is particularly relevant to short-term traders as it allows more control on the price you get. Here you are placing your trade directly into the market. By doing this NO ONE can manipulate the price you are deciding on! Take the case of a company issuing its quarterly trading update ahead of the opening session, this is likely to lead to a significant move, a DMA trader could look to place an order in the auction so as to get in at the official opening price for the day. This facility is only offered to cfd traders and is not available with the spread betting product.
6. Normal charts are available for free but if you want to use the advanced charts and the ProScreener you have to either pay monthly fees or give them action - but really it is a fair deal; either pay £30 per month or make 4 trades every month on IG Markets or 2 bets on IG Index for free access (opening and closing a trade on, say, Marks and Spencer counts as two trades) These come with a few nice trading tools for analysis and back testing which are great if you want to test out a new theory you have. For example using the ProScreener from the display list , you can code and scan through thousands of stocks in one second , say for instance you want US stocks with a 60+ RSI and with a share price between $30 - $40, you can code the (ProScreener) using the built-in help and then you search the shares list. For stocks traders this facility is very important. Another example : you can code the screener to search for forex pairs with (10 MA over 21 MA over 50 SMA )...you can use any indicator you want, I'm only given two examples here. Another facility : (Top movers list ) allows you to search for the top movers for any list (FX , US shares...etc) top movers since yesterday, 5 min, 15 min, 30 min, 1 hour...(Up or Down).
7. There is a fee to access stock exchange prices like the LSE Level 2 prices but this is reimbursed if you trade once in that monthly period. The funds are returned at the end of the month.

PureDeal

The PureDeal platform is IG Markets' market maker platform. This is the traditional market maker pricing model with the provider quoting spreads which do not necessarily mirror market pricing on underlying products. PureDeal only displays level 1 data here so no market depth or course of sales can be found for share CFDs. IG Markets offer a fixed spread but lock down trading during periods of high volatility. Which I prefer to the widening of the spreads. Also, unlike Direct Market Access you can't participate in Auctions. PureDeal does allow trading round-the-clock though (as opposed to PureDMA where you can only trade when the underlying markets are open - but be warned that the spreads can be huge overnight), and also comes with guaranteed stop loss orders (not available on PureDMA) as well as the possibily to trade a much wider selection of markets (indices, commodities, bonds...etc). A free £100,000 Demo Account of the PureDeal platform is also available.

PureDMA

This is the Direct Market Access platform which is available both as a web based and desktop application enabling clients to place orders directly into the world’s exchanges. PureDMA is great in that it allows you to check the market depth, access live order book prices in several market exchanges, and execute trades based on those exchange-based buy-sell prices. Having access to Level 2 means that you can gauge market direction by comparing queues of buy and sell orders. The spread is practically the same between their DMA and OTC offerings. PureDMA offers better pricing transparency than the market maker platform and allows you to be a price maker as opposed to a price taker (as with their OTC PureDeal product). Not only are you able to place orders directly onto the order book bypassing brokers and market makers but you can review the day's history - the highs and lows of the day in relation to the current price and DMA also enables participation in the opening and closing auctions.

Note that for the DMA you need to subscribe to their L2 dealer platform - which is a separate piece of software you need to download (although they also offer an online version), and then subscribe to the future markets you wish to participate on. PureDMA is offered free to existing IG Markets clients who hold a minimum account balance of £1000.

DMA Orders: Note that you will not be able to delete/amend DMA orders outside of market hours as the underlying exchange will be closed. For GTC orders (orders that will be held overnight), if partially filled you will pay commission on the fill after the market closes. If filled again on the second day for example, you then pay commission on this fill. If partially filled, you also pay commission to amend the remainder of the order, either size or price. Note also that if you open a DMA position, IGMarkets lets you close with either DMA or OTC. But if you open a OTC position then you can only close with OTC. Before using the PureDMA platform I would suggest you ensure you know what you're doing first although IG does provide plenty of education with its 'tradesense' educational tool which comes with it.

Recent Developments: IG Markets has just upgraded its DMA platform to include the ability for traders to benefit from access to UK and European equities via BATS, Chi-X and Turquoise, Europe's leading MTFs. Over the past few years there has been a rapid expansion of Multilateral Trading Facilities (MTFs), which function as alternate stock exchanges for traders. These venues can provide better prices than the primary exchanges and can account for up to 40% of liquidity. Without the ability to interact with Multilateral Trading Facilities, stock market traders were unable to see 'the whole array of prices on offer and as such are putting themselves at an immediate disadvantage'. L2 Dealer will now instantly search all available exchanges to find the best prices. On your L2 screen you can display these in a hybrid format, with the best prices from all available exchanges listed in a single order book. Alternatively, you can view the individual order books for any available exchanges. The Smart Order Router will send your order to the exchanges offering the best execution. This may mean your order is split across more than one exchange, but you will still receive a single fill. If your requested price or volume is not available in the current order book and your order cannot be immediately filled, it will be routed to the primary exchange where the greatest level of liquidity is generally available.

IG Markets Platform

What I like

1. Trading platform is simple to use, very easy to access data and tic charting.
2. Compatible with most operating systems including Mac. PDAs and smartphones can also gain access.
3. Once logged in you are presented with a series of windows that are fully customisable to display watch lists, charts, news and analysis.
4. They have CFDs for pretty much every futures market, heaps of stock markets (with cheap live data feeds or free delayed feeds for most), and a bunch of British and European ETFs/ETCs. Be aware though these are all CFDs you will not be paying the same bid/ask as on a proper futures broker, you will not be properly counter partied to anyone but the broker usually but it can still be profitable and useful if you know what you are doing.
5. Share CFDs at transparent market prices from just 0.1% commission. IG Markets CFD equity/share prices are the same as the underlying market. They charge a commision to buy or sell rather than adjust the prices.
6. IG Markets (unlike some other CFD providers who only quote FTSE 350 UK stocks) lists most UK shares including AIM companies up to a market capitalisation of £10.
7. Minimum spreads on some forex pairs have been reduced to just one pip: EUR/USD - 1 pip (but generally still 2 pips) and USD/JPY - 1 pip (but generally still 3 pips).
8. The PureDeal platform doesn't give that many re-quotes; for instance in a year i've never been requoted index trading with IG. I also like the fact that I can place a stop simultaneously when sending a market order.
9. With IG Markets, dividends are credited to your account on the ex-dividend date, just like a normal share holding except that the payout is quicker. They also give you a free L2 dealer screen.
10. IG Markets L2 platform now combines the order books from Europe's two leading MTFs and the London Stock Exchange to increase liquidity by over 50% on FTSE 100 shares - which for us means even better execution and tighter spreads on top UK stocks.
11. Throw in free news, free platform and plenty of research, makes it a very good provider for non-professional/small account traders trading with accounts of up to £50,000.
12. Professional-level real-time charting.
13. Phone support has been is very good. As they have Australian and British offices they can provide 24 phone support. On the few occasions I've had to ring them i've gotten through straight away.
14. One real positive about IG Markets is they're always improving their service on a regular basis, advanced tick charts and DealThru charts (ability to make a trade directly from a chart) for two.
15. I like the fact that I'm allocated a dedicated Account Manager to assist me in all aspects of my dealings with IG.
16. And lastly but not least when I requested funds to be transferred out they did it fast...
17. They are supposed to be the best capitalised CFD broker in town (largely thanks to their huge British client base).

What I dislike

1. Web based platforms are slower than application platforms (platforms you download in your pc) in terms of updates, price feeds, feeling positions and server response.
2. If you are inexperienced IG may only offer you a 'Limited Risk Account' which comes with guaranteed stops for all trades (but of course these come with a few more pips on the spread so its best to push for the 'Trader Account'). Note that when applying if you put your net liquid assets as less than 10k then you are forced to choose the 'Limited Account' option.
3. PureDeal (the market maker platform) only displays Level 1 data so no market depth or course of sales can be found for share CFDs.
4. I don't like it when IG occasionally blocks me out of trades. For instance today two trades were not available. First one, 'price no longer valid'. Second one, 'market currently rolling over, unavailable'.
5. Shorts are not listed - you either have to try and Short a stock to see if it's accepted or ring them up - even if a stock is listed on the exchange as being a acceptable SHORT it may not be accepted by IG.
6. Spikes in prices and charts are usually errors that IG don't hold you to e.g. if it did take you out of the trade a phone call usually fixes it (and the chart).
7. Usually a CFD provider pays you interest when you are short and you pay interest when you are long. The interest rate applicable is the benchmark rate (4.25%) plus/minus a margin to IG's favor. Short positions now attract financing charges where the margin is greater than the benchmark rate. The margin is 2.5%... If the benchmark rate is 4.25 you get charged 6.75% per year interest on long positions and if you are short, you get paid 1.75%. So say benchmark (LIBOR) is 2% (for instance as is the situation in the UK), IG end up paying you -0.5% (i.e. actually charging you) on any shorts you have. So basically IG will charge interest on short positions as well as long positions if LIBOR is below their 2.5% spread.
8. Not suitable for scalpers. Also, if trading spot forex their java based platform tends to freeze up in periods of very high volatility. During the spike after a recent fed statement I tried >10 times to exit a postion on Eur/Usd but was given the dreaded 'Price is no Longer Available' message, then the platform froze up and the ticket to close the trade took almost a minute to pull up. My personal experience with this broker is that it works flawlessly 98% of the time - it's the 2% when you really need it (eg. large position, abnormal market volatility) that it sometimes give problems which is where having a backup broker comes in handy.

Forex Trading at IG

1. Profits held in the currency profits are made. If you short USD/CHF and make +10 you get +10 CHF. If you take a profitable GBP/JPY trade your profits are held in JPY. Nonprofessional accounts are set to convert all currency to AUD (if you're Australian) at 9am each day but you can call up and have this feature turned off. My profits sit in the currency they were obtained in until I want them (at which point I can convert). It is nice to have a big pile of USD, CAD, CHF, GBP, JPY, NZD, etc on top of the AUD balance.
2. They have fixed spread contracts, which IMHO rocks the socks off paying 6 pip spread for G/U when you want to trade from the NZ open. Also I don't mind paying a 1-2 pip spread on EURUSD in the middle of the news when everyone elses brokers have shut down or charging a 50 pip spread (Oanda and Gomarkets, I'm looking at you).
3. They have an great 'Australasian' forex basket, which AFAIK no other Aussie broker provides. For example, everyone else pays a 10-20 pip spread on pairs like EURAUD and GBPAUD. On IG aside from those two pairs they have inverse AUDEUR and AUDGBP for their Aussie clients only with a much much tighter spread. In fact on those two pairs I'm pretty sure you won't get a better spread elsewhere. Of course you need to take into account your pips for these contracts will be denominated in the foreign rather than local currency.

Commissions

What is the commission charged for:

UK Stocks SETS? UK Stocks non-SETS?

For UK stocks the commission is taken as a percentage, with a minimum commission per trade of £10. All UK shares look like they are commissioned at 0.1%...regardless of where they are placed in the FTSE. For phone dealing a minimum commission of £15 applies. The commission is charged on the opening and the closing. If a guaranteed stop is attached, a controlled risk premium is required to be paid on the opening of the position.

UK Stocks SETS: 0.10% £10 minimum.

UK Stocks non-SETS: 0.10% £15 minimum.

For US stocks the commission is in cents per share, again with a minimum commission. This amounts to 2 cents/share with a minimum of $15.

For European and Australian Stocks, it is also percentage based.

European stocks: 0.20% €15 minimum.

Australian stocks: 0.20% AU25 minimum.

Indices: Commission is not applicable to indices as the charge is in the spread. For Indices, a daily interest adjustment is applied to any position that is opened before 22:00 (London time) and that is still open after 22:00 (London time) and for shares, a daily interest adjustment is applied to any position kept open through the official close of business. Dividend adjustments are also applied to indices and shares positions.

Funding rates that apply will be the inter-bank offered rate for the currency that the trade is denominated in, plus/minus 2.5%. For example, a funding rate of LIBOR +2.5% will apply to long positions in UK stocks.

Personal accounts include following data feeds free:

LSE Level 2 data

NYSE Level 1 data

AFX News

Verdict

IGMarkets remain a first-class broker and offer a good overall product: guaranteed stop loss orders, share CFDs at transparent market prices (DMA) from just 0.1% commission, good leverage, low margins, great charts and overall a much more powerful trading platform than the typical web platform.

Disclaimer: I hold an IG Markets account amongst others. Your choice of broker is extremely important, make your own decision!