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So it’s official – leading UK financial spread betting and CFD broker IG Group [LSE:IGG] is making a $1bn play for  Tastytrade, the US online futures and options broker. IG Group is making a $1bn punt on the  US online trading sector in what is likely to be the deal of the year in online broking.

IG is calling the deal a “landmark transaction that expands and diversifies IG’s growth drivers through entry into the world’s largest listed derivatives market.” The deal is going to significantly scale up IG’s international business and gives it a lucrative new beach head in North America’s retail derivatives marketplace.

2020 was a bumper year for online brokers

Last year was a bumper year for online brokers: while Robinhood’s venture in the UK market seems to have gone askew (and we still don’t have the complete story on why), many brokers have had a very profitable year. Trading volumes and new account openings soared. Stock in IG rival Plus 500 [LSE:PLUSP] went through the roof.

Taking just IG as example, its half year results showed net trading revenue up 67% to £416m for the six months ending November. Profit before tax increased 129% to £231m while active clients were up 5% to 238,600. If you were a broker and lost money last year, just what were you doing? IG made out big time.

One of the big obstacles for successful CFD brokers like IG and UK rival CMC Markets [LSE:CMCX] when it comes to tackling the North American market has been regulatory restrictions on the use of CFDs as a trading instrument. In a previous life, I worked on a project that kicked the tyres on the Canadian market and whether a major UK CFD broker could get this type of trading account signed off by Canadian regulators. It was not successful, and illustrated the scepticism of North American regulators when it comes to leveraged CFD trading.

Tastytrade is a sensible move into the US market

IG’s move to acquire Tastytrade looks sensible to us. It is an expensive move, but IG has the cash (supported with a big new share issue), and an established options broker like Tastytrade, which already has over 100,000 American traders as customers, seems like an obvious target. It gives IG the room to build on that and leverage its resources to expand Tastytrade further.

Short term investors have not been as enthusiastic as we are: IG shares dropped sharply in trading this morning, partly because of the dilution effect of the share issue. IG Group stock has been rising nicely from 751 at the start of November as the market woke up to just how lucrative some of these online brokers really are. The price reached 904 before the Tastytrade news came out, and has now slumped – at time of writing – to 804. We expect to see a resistance level at around 750, if not  before.

Net selling of IG shares was high this morning, very high. Looking back over the past 12 months, we’ve not seen anything as high as this since the big IG stock sell off in July. But IG Group has proven that it can shrug off these short term tiffs with its investor base and push on to new highs. If you are waiting to get into IG Group more cheaply, keep and eye on the selling, as there looks to be a purchase level between 730 and 750 on this stock.


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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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