IG Groups online trading service was launched last weekend. The platform covers more than 4,400 stocks with 1,500 UK shares including all UK investment trusts, exchange traded funds and 2,300 US shares. Previously, retailers investors were unable to trade at genuine live prices, but with the new online trading platform this option is now available.
Chief executive Tim Howkins claimed IG's technology meant investors could trade at genuinely live share prices and not just use them for research and valuation as with other brokers .
Typically execution-only brokers currently give their customers a 15 second delay to confirm their orders. Apparently, this time delay is not intended for the benefit of the customer but instead for the broker to find the best price and offer the customer in some instances not the most competitive quote. The difference between the best market price and what was offered to the customer represents profits for the online brokers.
Howkins criticised this 15-second delay execution-only brokers gave customers to confirm their orders. He claimed this enabled them to hide the fact the share prices they offered were not as good as they could be. 'The fact they're taking a risk of the price moving against them shows it's probably not the sharpest price.'
Howkins highlights the main benefit of IG Group's new revamped online platform is that it can offer share prices within a few 'milli-seconds'.
Also the platform has the widest accessibility, enabling the trading community to trade on various portable devices such as the leading smartphones and tablets, which now makes mobile trading a realistic option for retail investors. Currently, while some brokers offer this option of mobile trading, it has not always been reliable with screens freezing. Other annoying technical hitches have been noted, making mobile trading a frustrating experience for some users.
'Our research shows that people put convenience at the top of their wish list when making financial transactions online. Yet when it comes to trading the stock market, investors are getting anything but, with most stockbroking platforms using outdated and under-invested technology to service customers,' he said.
In terms of commission charges per transaction IG Group there isn't all that much savings for the online retailer investor with commission charges ranging between 6 pounds and 12 pounds depending on the number of monthly trades made on the account. Frequent traders pay the reduced rate, this benefit is usually available with most execution-only online brokers.
However, while the online broker might not be undercutting the competition on commission where it is doing so is on currency charges.
Whereas IG charges a fixed 0.3% on all overseas trades to convert each buy or sell transaction into sterling, Hargreaves Lansdown only offers 0.35% on deals over £350,000, rising to 1.7% for trades under £10,000. TD Direct's currency charges start at 2% falling to 0.25% for trades over £600,000.
So for example an investment of 10,000 pounds in a US stock, currency charges with IG would be 30 pounds, with Hargreaves Lansdown 170 pounds and TD Direct 200 pounds. So it certainly pays investors to shop around for a brokers offering the best deal on currency transaction charges. On the simple example above UK sterling investors can save 170 pounds the charges, when comparing the most expensive to least expensive broker's currency charges on an investment of 10,000 pounds. If the investor decides to sell their US stock and convert cash back to sterling, the saving doubles (most likely more if the US investment appreciates) to 340 pounds. It then becomes pretty apparent to the investor how currency charges can really add up and eat away into their trading profits.
Howkins described charges like this as 'really heinous', saying: 'If you want to trade in and out of a stock and you only anticipate a gain of 10-15%, then paying 1.5% or 2% for foreign exchange can add up to 4% which is a lot of your total return.
IG is best known for offering markets in spread betting and contracts for difference (CFDs) for City professionals and experienced investors. Expanding into retail execution-only broking represents a growth market for them. Howkins said, while there were fewer than 100,000 spread betters in the UK, active share holders numbered around 750,000. The company made pre-tax profits of £194.7 million in 2013/14, up 1.3% on the previous year.
It will be interesting to see whether this reduced forex charge now on offer with IG will actually stimulate UK retail investor activity in foreign stocks.
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