IG Stockbroking Service

IG Stockbroking Service

IG’s Stockbroking Launch Still Leaves Room for Disrupters

IG launched its much-anticipated stockbroking product last Monday, 15th September, to relatively little fanfare – perhaps a deliberate attempt at a soft-launch under the cover of Scottish Independence news. Nonetheless, with only vague details coming out of several successive IG analyst presentations, the launch of the product allows us to look at where it fits into the XO space.

Pricing on UK Shares

While IG is competitive on price with incumbent XO operators, price is certainly not being used by IG as a differentiator. This makes sense, as research by The Platforum shows that just 4% of direct investors consider price to be the most important aspect in selecting a platform. The table below shows IG’s commissions per trade for UK equities depending on number of trades in the previous month, compared with a selection of existing operators:

 

Trades in Previous Month

Operator

0-9

10-19

20+

IG

£12

£9

£6

Hargreaves Lansdown

£11.95

£8.95

£5.95

TD Direct Investing

£12.50

£8.95

£5.95

Halifax

£12.50

£12.50

£12.50

 

Pricing on International Shares

The existing operators charge fixed fees for trading international equities, which are usually higher than the fees for UK shares. IG’s international fees, at 0.1% of transaction value for Irish, German and Dutch shares or $0.02 per share on US shares.  Although IG has minimum fees, at €10 in Europe and $15 for the US, these are a lot lower than competitors’ fixed fees. IG potentially sees an opening across Europe where XO brokers are less prevalent and definitely not currently the preferred choice for retail clients.

Exchange Rates

The fees discussed above are before taking into account foreign exchange costs, which are 0.3% for IG compared with 1.5%, 1.7% or up to 2.0% with the other operators, and makes the IG package for international equities look very good value. There is a caveat however with regard to TD, which enables clients to hold 9 currencies in their account, and avoid ongoing FX fees if they trade international equities frequently.

Differentiation Through Execution

According to Tim Howkins, IG’s Chief Executive, the service’s appeal is IG’s technology.  XO brokers have not traditionally offered real-time pricing (though Hargreaves began offering it in May 2014), causing a delay of up to 15 seconds between a client clicking ‘buy’ and the order being executed. By contrast, IG’s clients will be able to execute instantly alongside their CFDs and spread bet trades.

An interesting angle here is how the existing online brokers respond.  More recently they have been reluctant to promote their white label leveraged CFD and spread bet offering due to a perceived lack of fit with their longer term investing products and the propensity for clients to lose money. With IG now offering a good XO service at a relatively low cost that is ideal for customers looking to trade new international IPO’s as well speculating on CFD/Spread bets, will XO operators respond by developing new products and marketing their CFD/Spread bet offerings more readily?

User Experience

An advantage that IG has over XO brokers is on the usability of its trading platform, especially on mobile and tablet devices, and the ease of opening accounts, which, as alluded to above, has been developed to provide the active CFD trader with the instant access they require. The active trader IG appears to be targeting with its stockbroking proposition might be attracted by the ease of monitoring his/her positions on a mobile device, and trading via mobile.  The ease of account opening will also be a benefit as it lowers the barrier to switch accounts for high-end and occasional investors.

Moving Forward

IG will add the ability to use equities as collateral for CFDs, but combining this with IG’s large trade flows and extensive dealing/hedging experience, there should be an opportunity in the future to create a synthetic, non-leveraged product which is far cheaper for investors and is already being offered under CySEC regulation by eToro (www.etoro.com) to lower value investors. If IG applies this model to ETFs, which can substitute for the most popular investment funds, then it would have a truly disruptive product.

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