Analysis: IG Group’s increasing strength flies in the face of adversity

Looking back on 2014, the year can be divided into two sections.

Th first section being the first nine months which weighed heavy on the entire global FX industry with ongoing low trading activity, much of which contrasted the highs of 2013, the summer months of which were a welcome return to high volumes after a slow 2012.

The second section being the final three months of the year, in which suddenly, market volatility increased and September and October brought vast returns for many FX firms and exchanges, often surpassing any previous figure, before tailing off again in November and December.

These two months of stratospheric volume would not be enough to recoup over nine months of doldrums, thus for many companies, the two months of high activity were a welcome antidote to a year that was looking increasingly like a damp squib.

For British CFD and spread betting stalwart IG Group, however, things were somewhat different, with the company having reported record revenue in the first half of its financial year, specifically the six month period ending November 30, 2014.

The company’s 8% increase in revenues compared with the same period during the previous year can be attributed to more than just two months of higher volumes than the rest of the year.

Efficient operations are a major factor, and IG Group has been engaged in expanding its operations in gaining, among other things, a Swiss banking license to establish operations in Switzerland and continuing further technological development of mobile platforms, yet has made tremendous savings in other aspects of the operations.

Before the start of this accounting period, IG Group’s CFO Chris Hill was able to report that  the company’s overheads were running below the figures of its own forecast. Some of this was attributed to a saving of £2 million as a result of the Financial Services Compensation Scheme’s recent removal of  its interim levy.

Despite a weakening performance in European markets over the first half of this fiscal year, IG Group maintains strength in the all important UK and Australian markets, up 14.3% and 6.6% respectively, and considering that both regions are home to a very loyal client base, as well as being regions with highly developed electronic trading sectors, this is a more important factor to consider for future growth of business.

For IG Group’s first half revenue during a time of low overall volumes across the industry is perhaps remarkable enough, however looking at the mainstay of the growth across the domestic UK market and Australia, it is important to note that this pattern may stand the firm in further good stead in times to come.

European revenue from the firm’s German and French offices felt the impact of some deterioration in their economies, and with economic woes continuing to blight mainland Europe plus the lack of advancement in electronic trading compared with key markets for IG Group as in the aforementioned UK, Australia and Switzerland, a steady path clearly lies ahead for the company.

Remarkably, when dissecting the geographical volume percentages, IG Group was able to generate great headway during the second quarter across all regions, despite the European economic concerns, at a time in which many firms were experiencing contracted volume figures.

The first quarter of the year showed a downturn in volumes compared to the same quarter for the previous fiscal year, yet the second quarter brought bountiful revenues, during a summer of prolonged doldrums in many other sectors of the industry.

It is most certainly prudent business practice to reinvest capital into development during times of good fortune, thus IG Group launched its innovative stockbroking platform  during this period, another effort to diversify products away from purely spot FX and indeed a timely move considering the recent effect that the Swiss National Bank’s removal of the 1.20 floor on the EURCHF pair has had on the entire FX industry. By diversifying into corporate stocks and making them accessible to retail traders via a dedicated platform, IG Group is sensibly providing other channels of corporate activity which are subject to different risk parameters.

The company deems the launch of the stockbroking platform to have been a success in its initial launch in Britain, and has become popular with a British, Irish and continental European audience thus far. During the year ahead, the firm plans to roll it out globally, with a target of launching in two further countries this calender year.

As far as the material impact that the rapid appreciation of the Swiss franc against the Euro had as a result of the Swiss National Bank’s removal of the 1.20 floor on EURCHF on Thursday last week,  IG Group has confirmed that the negative impact that this had on the firm will not exceed £30 million, from a combination of market (£12 million) and client credit (£18 million) exposure. Looking ahead, the company is strong and has benefited from a remarkable year when many others are not able to look back at the same levels of performance.

Technology is indeed the future, and IG Group has continued its policy of applying for interesting corporate top-level domains (TLD) for website hosting.

The company took the forward-thinking decision to apply for non-company specific domains which are generic (gTLD) and could apply to any firm, but represent the industry sector. These are : .forex, .markets, .broker, .trading, .CFD, .spreadbetting and finally one that applies to the company’s binary options division, that being .Nadex

Nowadays, online businesses concerned with client acquisition and customer engagement are resorting to specific branding exercises and domain name ingenuity, largely due to the cost of digital marketing and client lead generation, thus creating their own means of standing out online. IG Group’s success in applying for these TLDs is congruent with an ability to maintain headway.

With these developments in mind, and a cash position of £149.6 million, double that of the same period last year, the company can enter its 41st year of business safely and securely.


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