IG Index Blocks Investors In Over 1,000 Small-Cap Stocks As RobinHood GameStop Saga Reverberates
G Index, the giant stock trading platform, has barred clients from investing in more than a thousand small-cap stocks today in response to increasing retail volumes in recent years. weeks and the soaring phenomenon of RobinHood shares.
Market makers said they sold the affected shares by retail investors as they prepared for IG’s trading ban.
IG contacted clients late Friday and over the weekend to tell them that they could no longer offer margin trading to clients on more than 1,000 stocks. Margin trading is where clients borrow to buy stocks, which means they can take bigger bets with more capital, a practice known as “leverage”.
Now clients will either have to set up 100% of the margin on the position or close it.
US retail broker RobinHood saw a flood of clients trading margins on the stock prices of unloved companies such as GameStop, which meant the broker was risking too much and had to temporarily halt trading while it collected more. money to make up for it.
A list of banned IG actions was circulating on social media, including names like Mulberry, the fashion house, Pensana Rare Earths and IG rival Plus500. The list could not be verified as genuine.
These companies’ shares fell, but traders pointed out that it was a weak session for stocks today anyway.
A social media post purportedly from IG’s customer support site Twitter read: “The stocks that we take out of our leveraged offering generate a low return relative to the capacity they consume.
“Therefore, by tackling 1,000 of the more than 12,000 stocks we offer, we can ensure that we prioritize the key markets that our clients trade.”
David Burton, managing director of small-cap consultancy Total Market Solutions, said: “Clients have until Friday, February 26 to build up a 100% margin on the affected stocks, otherwise they will be forcibly closed or kept open. for 30 days only. “
He added, “IG account managers reached out to some clients late last week to say various stocks would drop to 100% margin.
A great fund manager said: “It sounds like a RobinHood thing. Brokers don’t want to be caught off guard with high exposure to very high risk positions when you never know what might happen to the price.
Burton said: “From what I understand [of the IG situation] if you are unable to meet the margin requirement, you will be forcibly closed.
Two small-cap market makers said retail investors sold stocks on the list, but said it would likely be short-lived.
IG shares have fallen in recent sessions, which one analyst said could be due to concerns about its exposure to the margin. A few weeks ago, he temporarily stopped taking new clients for some margin trades.
In a statement, IG said, “IG has experienced an extended period of exceptional demand for the products we supply. This was reflected throughout the market.
“We regularly review and revise the products we offer based on customer demand and prudent business management, to ensure the most efficient use of resources.
“We will withdraw less than 8% of the 12,000 leveraged stocks that we are offering.
“These stocks represent a very small part of our overall offering and clients will still be able to trade these stocks through our equity trading offering.
“We have been in contact with clients who occupy relevant positions. ”
Last month, the company struck a deal to buy Tastytrade, a U.S. trading platform, for $ 1 billion.