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.
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