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Please close leveraged positions on affected share markets by 29 March


BTG

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I know some of this has already been posted on other threads but thought it would be useful to repost for those that have missed it or didn't receive an email from IG. Surely this kind of information should be visible on the IG website or in the blog posts. Really frustrating as a lot of these restricted securities are actually liquid ETFs, I've closed my affected positions (at a loss) to avoid the 100% margin change this Friday. Really disappointing that these changes are communicated at such short notice. Part of the appeal of the IG spread betting account for me is access to small caps which others don't offer. 

List of securities: https://www.ig.com/content/dam/publicsites/igcom/uk/210219_IGM_UK_Affected Markets - Non TT.pdf

From email: 

"We constantly review the products we offer in line with client demand. We have reviewed associated returns across our 12,000 leveraged share markets and decided to withdraw around 900 small-cap shares for spread betting and CFD accounts. These markets will continue to be available for share dealing – find out how to open a share dealing account below.

The list of affected shares that will be withdrawn from spread betting and CFD accounts are listed in this PDF. Please read on for details about the process, but in summary:
 

1. We are increasing margins so that all positions on these shares will have a margin requirement of 100% at 3pm on Friday 26 February
2. Please close positions by Monday 29 March 2021, from which point we will start to close any remaining open positions
3. You will still be able to buy the majority of shares outright using our share dealing service


What happens next?

For a small subset of the affected markets (listed as ‘set 1’ in the PDF), margin requirements are already at 100%. For the remaining markets (listed as ‘set 2’ in the PDF), margin requirements will increase to 100% from 3pm (UK time) on Friday 26 February.

You have until Monday 29 March 2021 to close your open positions on affected markets, from which point we will start to close any positions still open. Positions will be closed as soon as practical from this point, while ensuring that all reasonable steps are taken to obtain the best results for our clients. This action is taken in accordance with Term 28(3) of the latest version of the applicable customer agreement governing your account(s) with IG.

We encourage you to review your exposure and consider how best to manage your position(s). Should you wish to maintain your existing position(s) with IG in the short term, please ensure that you have enough money on your account(s) to cover the new margin requirements.

We understand that you may need time to decide what to do, or to seek alternative exposure. Nonetheless, we urge you to close your position(s) before Monday 29 March to ensure that you have discretion over the closure.

Can I invest in these markets via share dealing?

Yes, most of them will remain available via share dealing. While you won’t be able to transfer existing leveraged position(s) from a spread betting or CFD account to an IG share dealing account, you can use an IG share dealing account to buy the majority of affected shares outright."

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My previous comment was deleted or not approved by moderator for some strange reason, perhaps too critical.

Can someone please help me to understand the rationale/logic/etc here...

The only reasoning supplied is as such:

We constantly review the products we offer in line with client demand. We have reviewed associated returns across our 12,000 leveraged share markets and decided to withdraw around 900 small-cap shares for spread betting and CFD account

1. Client demand-- some of these stocks have been among the top traded shares recently including MercadoLibre and 6/10 of the HotCopper Top 10 most discussed stocks list. So perhaps its not client demand

2. Associated returns? Not sure what this means-- can anyone inform me. IG doesn't make enough money off them?

3. Small-cap shares-- These are not all small-cap shares and includes BYD (645 billion market cap)

 

 

 

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I assume it is due to your second point on associated returns. Most of IG's revenue comes from OTC leveraged products (SB/CFD), the majority of this is from FX and indices and only a small proportion is on stocks. This is because there are a limited number of FX pairs and indices and therefore they can achieve 80-90% internalisation and provide tight spreads but still make good returns with low external hedging costs. Compare this to equities where they have a huge range of single name stocks available and therefore a much lower rate of internalisation requiring them to incur higher costs to hedge against the street. They can't maintain the same rate of profitability unless they increase spreads which puts off punters. Only IG know client demand but I presume the list of 900 securities have low turnover and high hedging costs although some of the ETFs surprise me. 

Also given what we have seen in the last month, broker margin requirements will have increased across the board and therefore it doesn't make financial sense to tie up capital which could be used elsewhere. Unfortunately I predict this reduction in less profitable sectors will continue as IG look to aggressively expand into other regions and primarily the US. I've reviewed other spread betting providers and no one comes close to offering the same range of UK and US stocks so I'll be sticking around for now. 

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That list that was removed was basically everything I was trading.

It seems like they tied too much capital for "low" returns on their end.

They are using the pareto principle, concentrating on the 20% of products that make 80% of their money.

But for me, without those stocks I'm not going to be profitable. Which means I will just stop trading on IG.

I think I'm one of those who spend the most on fees on IG, for this year alone I spent more than 10K on fees.

The real issue here is retailers (us) we are buying tons of stocks and holding them for too long, which means the capital is blocked and they don't make fees.

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5 hours ago, Joo said:

That list that was removed was basically everything I was trading.

It seems like they tied too much capital for "low" returns on their end.

They are using the pareto principle, concentrating on the 20% of products that make 80% of their money.

But for me, without those stocks I'm not going to be profitable. Which means I will just stop trading on IG.

I think I'm one of those who spend the most on fees on IG, for this year alone I spent more than 10K on fees.

The real issue here is retailers (us) we are buying tons of stocks and holding them for too long, which means the capital is blocked and they don't make fees.

That's a hefty amount of fees to be paying, is that on a normal dealing account or spread bet/cfd? 

I don't think long holding periods would be an issue as brokers would normally just lend the stock back out. 

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8 hours ago, BTG said:

That's a hefty amount of fees to be paying, is that on a normal dealing account or spread bet/cfd? 

I don't think long holding periods would be an issue as brokers would normally just lend the stock back out. 

CFD. But let's say you buy a stock with 10x leverage, IG has to buy that stock with 10 times more money than what you have. That money has to come from somewhere. If you hold for a long time they are just blocking money waiting for you to close the position. Retailers have started to hold positions for much longer periods of time now.

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On 25/02/2021 at 19:08, Joo said:

CFD. But let's say you buy a stock with 10x leverage, IG has to buy that stock with 10 times more money than what you have. That money has to come from somewhere. If you hold for a long time they are just blocking money waiting for you to close the position. Retailers have started to hold positions for much longer periods of time now.

I would assume they also utilise margin and also have the ability to lend the stock back out again for a fee

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