IG Group suspends leveraged trading in 900 shares

UK broker IG Group has suspended margin trading in 900 shares, as brokers around the world adjust to surging demand from self-directed retail investors in highly volatile markets.

The listed broker has withdrawn certain types of trading on just under 8 per cent of equities it covers, in companies including insurer Hiscox, malls operator Hammerson and clothing brand Superdry.

The move comes after US retail investors in January sparked unprecedented volatility in small-cap stocks such as consoles store chain GameStop and cinema operator AMC — a storm that led to an apology from broker Robinhood in Congress last week.

IG’s chief commercial officer Bridget Messer said the dramatic burst of trading in the US “punctuated the thought process we have been going through . . . We’ve faced a sustained period — months and months — of unprecedented demand. [That] means we have to be very efficient in how we allocate our resources.”

Customers must supply enough of their own capital to cover positions in affected stocks by the end of this week, and are expected to close out their positions on these shares by the end of March.

IG clients can still buy all of the affected shares outright. But they can no longer trade them with leverage, such as in spread bets, which provide a way to bet on the future direction of a share price, or margin trading, which involves borrowing from the broker to fund bets.

Messer said these resource-intensive practices no longer made sense for small, more volatile shares that required it to put up larger amounts of cash. It is rare for brokers to provide leveraged access to shares like these in the UK, analysts said.

The move by IG — one of the top 10 retail brokers in the UK — is the latest sign of how the rapid rise and fall in GameStop shares has energised self-directed amateur traders but also amped up risks for brokers that facilitate the trades. Robinhood faced criticism in Congress last week for failing to anticipate how the strains of a social media-fuelled frenzy in stocks would affect the amounts of cash it needs to post with clearing houses under its regulatory requirements.

“You cannot underestimate the retail trader, and the nature of today’s retail flow is something that needs consideration in resource allocation,” said Vivek Raja, an analyst at Shore Capital. 

“[IG’s decision] is encouraging from the perspective of the regulator, who would not want that kind of risk exposure for retail clients.”

IG Group also struggled with the volumes of new sign-ups in the days surrounding the GameStop trading frenzy, and stopped adding new clients for a week to catch up.

But the rise of self-directed traders since coronavirus struck has been a boon. Last year, net revenues grew 67 per cent to £416.9m. Active clients on the platform also surged 55 per cent to 238,600.

“The heightened demand from existing clients and for account opening we have seen means you need to make sure all your processes are so efficient just to get the volume through the door . . . For us, at the moment, it means we need to be laser focused,” Messer said.

In January, IG Group agreed to buy US investing media network TastyTrade for $1bn, helping to give it a foothold in the surging US market.