Market impact

[Exhale_Trading]

I was recently thinking about market impact when trading with IG and came to the conclusion that there probably is not any since our orders are never routed to an exchange but we are trading always against IG.

Also trading volumes don't have the same importance in comparison to trading on a real exchange since IG is always taking the other side of a trade. So one gets always filled even when this would not have happened on an exchange. Here I'm thinking for example about mini futures contracts. Those can have really nasty slippage because of low volume when trading on an exchange but that should not be the case when trading against IG.

Can someone confirm that I'm thinking correctly.

[trade247]

yes and no.

as with all things in life there are positives and negatives for each, including IG. in theory you can get far better 'synthetic liquidity' (in that it's kinda 'fake' liquidity as you're not getting anything, you're just getting filled at that level) which works well for opening orders and also closing deals at exact levels using the guaranteed stop option. For example the other day i traded some uk mid-caps and was filled at the offer in a size greater than there was on the book at that exact time. One trade i was filled nearing the daily traded volume at that exact time for a single price with no slip! I would have been pushed up maybe ~1% if i was on the LSE.

when it comes to futures its a little different, but yes your small simple trade on it's own isn't having a market impact. HOWEVER IG will need to trade on exchange when there is a significant volume in any one direction. For example your 1 lot plus any number of the hundreds of other clients trading at that time. For example if theres 500 people trading Wall Street one way and each hold a lot, IG will probably have to trade some of those 100 lots in the exchange. 

 

EDIT: have you ever used the DMA for shares option? 

Edited December 9, 2018 by cryptotrader

[Exhale_Trading]

Ok, so it is like I was thinking. Thanks for the confirmation.

And no, I have never used DMA for options.

[trade247]

sorry my bad for my phrasing - not specifically for Options (as in call/put) but just in general for shares. 

[Exhale_Trading]

I trade mainly futures automated through IG's API. Trading shares through the API is not so good since you can't even get a quote. 😞

[Guest AbDXB1345]

Just to add to this, I was under the impression that IG do not take opposite positions from our trades, instead they simply broker them?

A slight concern is that if IG are taking the position in the opposite direction, and they control the software... there clearly would be a high level of conflict of interest.

Maybe @JamesIG can elaborate a bit on this?

[Mercury]

As far as I am aware (from IG staff) IG does not trade in opposition to its clients (unlike some I believe?).  They take positions in the market place to mirror clients net positions so that they are net even and make their corn on spreads and other fees from clients so it is in IGs interests for their clients to be more successful that others.  The reason traders cannot put a position on from time to time is certain markets is, essentially, because IG cannot get a mirror position in the market place and therefore cannot manage their risk.  This may be frustrating in the moment but overall is a comforting thing.

@JamesIG can you confirm/elaborate?

 

[JamesIG]

Whilst there is a certain level of complexity in what we offer, the basic premise is this: We take the underlying market data streams and present them to our client base in the form of CFD and Spread Bets. We have nearly 200,000 clients, and because of this it means we don't need to hedge or replicate every trade in the underlying market, because statistically it's likely that opposing views on the market direction will be met by our clients.

For example, if someone trades £10/pt long on the FTSE, there's a high likelihood that someone else will trade £10 short on the same market within a few minutes meaning that we don't need to hedge or replicate each and every trade directly in the market. We therefore have a specific risk profile which we are happy to accept in any one direction for a specific amount of time before hedging those cumulative trades. We therefore have no opinion on market direction, we don't know or mind which way the market moves, and therefore we are impartial bullish or bearish market movements as long as we can replicate and hedge those trades. An absolute priority is to fill each individual client's position at the best possible price via best execution policies, and therefore by a very rough analogy we act as an intermediary "broker" giving our client base access to the markets in a leveraged fashion. 

Hopefully this clarifies? 

[Guest AbDXB1345]

@JamesIG thanks for clarifying! Sounds like good business to me, whats the price per share for IG

[Caseynotes]

Wondering why can't find IG Group Holdings PLC on the platform? Interesting chart though >

[JamesIG]

You should be able to on the CFD platform (with deals executed via DMA) and share dealing, however not on spread betting as we don't want any ambiguity or conflicts of interest executing trades from OTC bets for our own listed company.