IG
IG was the first spread betting firm, initially established as a means to place tax free bets on the price of gold, when buying gold was subject to restrictions that made it exorbitantly expensive to actually buy it. (Hence its initial name: Investor Gold Index. The firm has also be known as IG Markets.) IG’s founder recognised that although buying and selling physical gold could only be done on a very disadvantageous basis, there was nothing to prevent people betting on its price movements. IG’s efforts brought a popular and secure asset successfully into the mainstream of the financial market!
Gold remained the only commodity that IG offered for the duration of the 1970s. However, IG realised that in order to grow, it would be necessary to roll out the concept to other markets, a plan that was implemented throughout the 1980s.
Over the years, IG’s betting business has expanded to include all commodities in the London market, then the US markets, FTSE and Dow Jones indices and other financial instruments, such as stock index futures, bonds, interest rates and even bitcoins. At one stage, you could bet on housing indices with IG.
In 1993, IG launched a sports spread betting division, then a new sector, which sky-rocketed during the 1990s to become a highly profitable part of the betting industry.
In late 2014, IG launched an execution-only sharebroking service.
IG has offices across Europe, Africa, Asia-Pacific and the US, where it offers limited risk derivatives contracts via the Nadex brand.
Even though IG is a well-established and stable company with strong resources and a well-capitalised, debt-free balance sheet, clients’ funds are placed into segregated bank accounts, ensuring that the money they invest is safe in the unlikely event of a change in IG’s circumstances.
About Spread Betting
Spread betting allows a bettor to bet on whether the price quoted for a given instrument (e.g. a share, oil, a bond, a currency) is likely to go up or down in value. The degree to which the bettor is correct or incorrect dictates the total winnings or losses: the more a price moves in the bettor’s favour, the more money the bettor makes; conversely the more the price moves against the bettor, the more money the bettor loses.
In addition to spread betting, IG Index also allows its clients to enter a contract for difference (CFD). With both spread betting and CFDs, clients can bet on a position, and that bet can be leveraged i.e. they can win or lose a lot more than their initial outlay. There are differences however. Spread bets can apply to any type of market, and the timescale that the bet applies to is often open as well. CFD trading tends to apply to physical assets such as shares and currencies, within a timeframe often set in the contract. CFDs, unlike spread bets are subject to the Capital Gains Tax (CGT) regime. Spread betting charges are often included within the spread price, whereas a CFD is associated with a commission.
Much of IG’s growth came from its strategy of broadening its offer and product range to attract and retain active traders (as opposed to traders using its products infrequently), with these traders receiving a more targeted and personal service. IG’s geographic expansion was also important, its European offering (excluding the UK) in particular contributing to its growth and revenues.
IG generates revenue from three sources:
- Spreads and commissions.
- Interest income from client deposits and financing.
- Risk profits generated by the portion of IG’s book that is unhedged, i.e. profits from taking the opposite side of a client’s trade.
Risk management is therefore a core activity. In its financials business, IG hedges in two ways. First, the company benefits from natural hedging, i.e. having two clients on the opposite side of a trade, which is appealing to IG as it’s free. With greater size and scale comes greater profitability, as the cost savings from natural hedging increase. Second, when natural hedging is unavailable, IG goes directly into the capital markets to hedge positions, which is costly but efficient. As a result, loss making days at IG are extremely rare, unlike at many of its peers.
IG are authorised and regulated by the Financial Conduct Authority (FCA). A key area of focus for both IG and its regulator is to ensure that clients don’t overstretch themselves. While clients can puts ‘stops’ into place, to halt their losses at a certain level, IG will also close out client positions if they feel it has got "unmanageable".
The Platform
Clients mainly trade on IG’s own well established platform, which has both web-based and mobile variants. However, as MetaTrader 4 (MT4) is such a popular choice for currency market traders, IG also provide a Metatrader 4 option.
IG was one of the first spread betting firms to launch a mobile trading app for the Apple Watch.
The IG platform’s features include high quality data, stop losses and limit orders, stability and responsiveness, with a user-friendly interface. IG also provides its clients with a trailing stop loss feature that changes the stop when a price moves in their favour.
Apart from a "Refer a Friend" scheme, IG do not use promotional bonus offers to attract new clients and get them trading.
IG customer service for clients is 24/7 during the week, and 9 to 5 on Saturday. Customer service can reached through phone, email or live chat. IG also offer a Twitter-based customer support service.
IG provide technical analysis, educational articles, seminars and webinars for both experienced and inexperienced traders. IG also provide an "IG Live" TV channel on their web site, with news and opinion on the markets at key points in the trading day.
Origins
IG was founded in 1974 by Old Etonian Stuart Wheeler, in the front room of his house. Stuart Wheeler had previously practised law as a barrister, before becoming an investment banker. IG had difficult beginnings, as Stuart Wheeler admits "When we started in 1975, it didn’t work". IG hoped to profit form a speculative boom in gold, but were too late to market and missed their opportunity. Despite this setback, IG’s initial approach to risk management was solid and ensured the spread betting business model was and remained viable. IG used hedging to insure against the risk that their customers won their bets i.e. IG would mirror these bets, buying or selling in the futures market whatever customers had bought or sold as a spread bet.
In his early attempts to get IG off the ground, Peter Wheeler used the fact that spread betting was tax free as a selling point to attract customers. "I had noticed that some of our clients, a small number of clients who made money were getting it free of tax." This aspect of spread betting proved to be a valuable marketing tool for IG and the industry in general. To this day, if someone places a successful spread bet, the resultant winnings are not taxed, whereas if the same ‘bet’ is made as an investment (i.e. the underlying asset is actually purchased) the profit can attract CGT.
There were other advantages to IG’s offering:
- As bookmakers, they could keep longer hours than the stock exchange.
- They opened up the market to the smaller bettor.
- There was less paperwork to deal with than there would be with a stockbroker.
- Clients could bet on whether the price of an asset would rise or fall and could therefore profit from a falling market as well as a rising one.
However, it was the tax-free nature of spread betting that was its main advantage.
In September 2003, Stuart Wheeler sold his 24% holding in IG, to help fund work on his 17th-century manor house, Chilham Castle, in Kent. (IG was acquired by the management and the venture-capital firm CVC Capital Partners. IG Group Plc, is now listed in the London Stock Exchange, and is one of the companies of FTSE 250.)
