The decision by online trading company IG Group (IGG) to increase the margin it requires for trading in over 1,000 small-cap stocks to 100% sparked fears small cap-stocks could crash as some investors were forced to dump holdings they can no longer afford to finance.

The main advantage of spread betting is the financial leverage that it provides, whereby clients can open and run positions with around 25% margin on thousands of small-cap stocks.

For example, a £20,000 position in equipment hire firm HSS (HSS:AIM) currently requires an initial margin of around £5,300 or just over a quarter of the underlying value of the position.

From 26 February, however, clients will be asked to purchase the £20,000 position from their spread betting account plus the initial margin in order to keep it open. Positions which are not fully funded will be closed within 30 days.

HOUSEKEEPING

The company commented: ‘IG has experienced a sustained period of exceptional demand for the products we provide. This has been reflected across the market. We routinely review and revise the products we offer in line with client demand and prudent business management, to ensure the most efficient use of resources.

‘We will be withdrawing less than 8% of the 12,000 leveraged equities we offer. These equities represent a very small part of our overall offering and clients will still be able to trade these equities through our share dealing offering. We have been in contact with clients who hold relevant positions.’

A month ago, the UK firm surprised the market with the news it was buying tastytrade, a US retail brokerage and options and futures trading platform, for $1 billion. The deal will be part-financed by the issuance of 61 million new shares.

UPDATE: THIS ARTICLE HAS BEEN UPDATED TO INCLUDE COMMENTS FROM IG

READ MORE ABOUT IG GROUP HERE

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Issue Date: 22 Feb 2021