A decade ago, advertisements for spread betting firms were ubiquitous. The industry promised simple, tax-free access to financial markets, with a large amount of leverage. However, it quickly became clear that for many people, spread betting is unwise.
After several cases of ordinary investors on the hook for hundreds of thousands of pounds, regulators cracked down, increasing the amount of cash that customers had to pay up front. Shares in spread betting firms plummeted, and took a long time to recover. However, recently the industry has enjoyed a revival.
One big winner from the upswing is IG Group (LSE: IGG). At the start of 2025, the shares were still trading below levels seen in August 2016, but over the past few months, they have surged by 50%. The company has successfully changed its business model to offer a much wider range of products, including traditional broking and investing services for ordinary investors, in addition to complicated, high-margin derivatives for wealthy ones.
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What's new at IG Group
IG Group's CEO Breon Corcoran, who joined two years ago from money transfer business WorldRemit and had two years with Paddy Power Betfair under his belt, has also helped cut costs. He has pushed IG into new areas such as products based around the booming area of cryptocurrencies. Even though crypto is now widely deemed a mainstream asset, many investors would still prefer to buy it through a trusted provider, even if the fees are higher.
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Meanwhile, with attitudes to gambling becoming much more liberal in the US, IG Group is thinking about expanding there, including a potential move into prediction markets (featuring bets on world events), and is even rumoured to be considering swapping its listing for one in the US, which should boost its share price. All these plans should help the company maintain the track record that saw sales jump by nearly two-thirds between 2020 and 2025. Earnings per share also grew by nearly the same amount during the same period. Margins have been strong, with a consistent return on capital employed (ROCE) of roughly 20%, far above the cost of capital.
IG Group also has a large amount of cash on its balance sheet, with little debt. All of this makes the fact that it trades at only 11.3 times 2027 earnings, with a dividend yield of 3.5%, seem a bargain.
Given these strong prospects, it should be no surprise that IG Group is one of the best performers in the FTSE 100, rising by more than a third in the past six months. What's more, it has continued to outperform the market over the last one and three months, and trades well above both its 50-day and 200-day moving averages. I therefore recommend going long at the current price of 1,444p at £2 per 1p. In that case I would put the stop-loss at 1,000p, giving you a total downside of £888.
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