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 has recently overtaken CMC Markets as the 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 Conduct 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.
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). Note that non-guaranteed stops can be moved out of hours, and you are also able to move guaranteed stops out of hours, however only away from the current level. A free £100,000 Demo Account of the PureDeal platform is also available.
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.
So let’s take an example. If a share is trading at 250p – 254p, an investor who uses a market maker could either buy at the offer price at 254p or sell at the bid of 250p. If you were to buy and sell 10,000 shares, this would end up costing the trader £400. With DMA trading a speculator who was looking to buy could try to improve on the execution price by entering their own bid at 250p. The order would then show up on the exchange’s order book and would have a reasonable possibility of being executed.
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.
Smart Order Routing with Multilateral Trading Facilities for Better Prices and Improved Liquidity
IG Markets has recently 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. MTFs (multilateral trading facilities) are in effect an alternative to traditional stock exchanges. The London Stock Exchange (LSE) no longer has a monopoly on quoting share prices for companies listed in London. These venues are now able to compete with the LSE and can provide better prices than the primary exchanges. The leading MTFs – Turquoise, Chi-X and BATS, have already taken around 40% of FTSE 100 trading from the London Stock Exchange for instance.
What this means in practice is that IG is now pulling together the prices available from both the LSE and MTFs so they can provide clients with the best available price and improved 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 availability of Multilateral Trading Facilities also provides a backup service should the main LSE’s main price feed go down and traders know how important it is to be able to trade anytime.
How Smart Order Routing Works
Traders are presented with the prices from all the available exchanges in a single order book. Whenever you place an order it is then automatically routed (via the Smart Order Router) to the venue offering 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 then charges commission on the transaction.
Mobile trading is also available with IG supporting both the iPhone and the iPad with bespoke apps. Clients at IG Markets enjoy access to DMA trading both via the online platform and the iPhone application. In particular, IG’s CFD iPhone app provides clients the ability to have Direct Market Access to an aggregate order book formed from the primary stock exchange and the main alternative execution venues – quite a unique service that I’ve been unable to find anywhere else. They also have a Blackberry application and an app for Android devices. In June 2011 it was reported that almost 14% of all IG’s client-initiated deals were done using mobile devices; around 30% of IG’s active clients use mobile devices to place some of their trades; and over 10% of account applications were made using mobile devices.
IG Markets now ranks as the largest CFD provider in Australia. Mr. Tamas Szabo, IG Markets’ Chief Executive Officer in Australia, acknowledged that its range of trading and research tools, platform reliability and 24 hour service, along with a strong focus on transparency and client money protection, contributed to their number one ranking. The launch of spread cuts to 1 point on our Australia 200 index, and 1 pip on the popular AUD/USD currency pair contributed to strong recruitment, with our internal figures showing the number of individual clients trading up over 30% year-on-year.
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. Their focus on customer support, coupled with their size and strong balance sheet, allow me to think very highly about IG Markets as a CFD broker.
Disclaimer: I hold an IG trading account amongst others. Your choice of broker is extremely important, make your own decision!