IG Group Market Update

Volatility often tops the list of excuses for a lousy quarter. But for IG Group, the UK’s largest spread-betting firm, it’s a fundamental driver. Google searches for “spread betting” in the UK rose 41 per cent in August, as markets shuddered.

Sign-ups followed. Account openings at IG in the past three months were double the rate of last year. Overall half-year revenues, announced on Wednesday, were up more than 50 per cent. The typical new client is a professional male in his late 30s, with about £10,000 to spare, ready to feast on bad news. On the day queues started forming outside Northern Rock, trading in contracts for difference in the stock accounted for a third of IG’s revenues.

While volatility comes and goes, IG is counting on growth in overseas markets, where spread betting is a new concept. It started in France and Spain in recent weeks and has tiptoed into the US – which forbids off-exchange derivatives trading by retail investors – by buying an approved exchange. There have been setbacks. Germany is sluggish, while Australia took a year to get right. But low start-up costs – customer service is still run mostly from the UK, for example – bolster margins.

Meanwhile, low barriers to entry in the UK mean spreads for IG and rivals such as CMC Markets and Icap’s City Index are under pressure. Established bookmakers such as Paddy Power and Betfair are also edging into financial spread betting.

The surge of interest may subside, as online poker did after 2005. But it is a measure of confidence in the sector that Goldman Sachs last month bought a stake in CMC, at an implied valuation 50 per cent higher than IG’s. Even if markets keep twitching, IG’s growth trajectory shouldn’t.

Tags: IG Group, IG Index, IGG.L, igindex, spread betting

This entry was posted on Thursday, December 6th, 2007 at 1:48 am and is filed under Financial Updates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.