Why do spreads widen in volatile times?
As market volatility rises, so the bid and offer spreads widen. This is a function of a normal market and IG aims to ensure, where possible, to deliver competitive pricing to all its clients.
With the current heightened volatility, IG, along with the rest of the market, is having to widen the spreads offered on a broad range of securities.
What is the spread?
The spread, which is not fixed, is the difference between the bid and the ask price of each security. When volatility rises the difference between these two prices naturally widens and the markets have recently seen four of the top five most volatile days in history.
IG is constantly monitoring the spreads on offer and tries to give clients the most competitive rate between the bid and offer price.
IG’s Wall Street spread consistently tighter than underlying market
Illustrated above is a graphical representation of IG’s spread (in red) vs the underlying spread on the Wall Street cash market (in black). In the background the grey shadow illustrates the recent rise in volatility.
This shows that the spread continually expands and contracts during any given period and IG tracks this on behalf of its clients. The chart also shows the widening spreads as volatility picks up.
But, despite this, at IG, the team aims to continue to provide a competitive rate for its clients and IG’s spreads are consistently lower than the underlying market for the vast majority of its key indices.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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