The share prices of spread betting and CFD brokers have been pretty erratic over the last few years. In general brokers are at the mercy of volatility and stability in the markets which has a big impact on how often customer trade.
The more customers trade, the higher revenue is for brokers. Recently however, spread betting and forex brokers have had to contend with the UK and European regulators announcing proposals to reduce marketing incentives for new client acquisition and reducing the amount of leverage available to customers.
Leverage has a direct impact on spread betting brokers revenue because it reduces the potential income a broker can earn from a client.
For example, if a broker offers as standard 1:100 leverage it means that when a customer deposits £10,000 then could potentially (but not always) have exposure in the market of £1,000,000. So capable of putting some pretty big trades through.
However, if margin was curbed to 1:30 that would mean that instead of having £1,000,000 to play with the client now only has £300,000. Which for the brokers revenue means a reduction of two thirds.
IG has always been fairly cautions when it comes to offering excessive margin, so has weathered the storm fairly well. IG is also in a good position stateside with NADEX and now has a Forex licence to offer foreign exchange trading to US Clients. Some thing only three brokers Oanda and Gain Capital (forex.com) are regulated in the US to do.
Key highlights form the IG H1 results presentation are:
- Good revenue growth, good cost management, good margin
- Net trading revenue up 10%
- Net operating income up 10%
- Interest on client funds of <30 bps on average balances of c.£1.25bn
- Betting duty at 1% of revenue, below historical average
- US lead generation revenue from DailyFX in other operating income
- Operating expenses down 4%
- PBT margin 50.7%, up 7.7% points, from 43.0% in H1 FY17
- Effective tax rate 20.6%
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.