Profit From Market Volatility With IG Group Holdings plc, Charles Stanley Group plc, Tullett Prebon Plc, ICAP plc And Plus500 Ltd

stock exchangeTrying to predict market movements has never been an easy game to play and it can cost you a lot of money if you make the wrong decision. That’s why Foolish investors invest for the long term and don’t try to predict day-to-day movements. 

However, short-term trading is a lucrative business, especially for brokers and trading volumes usually increase inline within market volatility. So, right now brokers are raking in the cash from commissions, as traders try to profit from erratic market movements.

Plenty of business   

Tullett Prebon (LSE: TLPR) and ICAP (LSE: IAP) are two of London’s largest interdealer brokers, connecting buyers and sellers around the world. Unfortunately, these two companies have seen trading volumes and revenues fall over the past few years as electronic trading platforms have taken over and trading volumes have slumped.

Nevertheless, the two groups have instigated turnaround plans and should benefit from recent volatility. Further, at present levels the two companies are attractive based on valuation metrics. Tullett for example, trades at a lowly forward P/E of 8.7 and supports a hefty dividend yield of 6.4%. The payout is covered twice by earnings per share. ICAP trades at a forward P/E of 13.2 and the shares support a dividend yield of 5.9% with the payout covered one-and-a-half times by earnings per share. 

Welcome recovery

Stockbroker Charles Stanley (LSE: CAY) warned only last month that due to a lower than expected number of client transactions, full-year trading results will be materially below current market expectations. While at the time this seemed like bad news, a recent pickup in market volatility is like to have had a positive effect on client trading volumes. This implies that Charles Stanley’s results could be better than expected. 

At present levels, Charles Stanley trades at a 2015 P/E of 35.7 falling to 10.1 during 2016. The company’s shares currently support a dividend yield of 4%. The payout is covered twice by earnings per share. 

Place your bets

Spread betting providers IG Group (LSE: IGG) and Plus500 (LSE: PLUS) also suffered from low trading volumes during the first half of the year. IG in particular, reported within its interim management statement that revenue during the first quarter of the year fell 9%, compared to the year ago period, thanks to particularly quiet financial markets.  

Still, with market activity picking up again, IG and Plus should see revenue pick up during the second half of the year. IG trades at a forward P/E of 15 and supports a dividend yield of 4.7%, so the company appears expensive compared to the likes of Tullett. 

Plus trades at a more attractive valuation. The company’s earnings per share are expected to jump 70% this year and 10% next year, which means that the company’s share are trading at a forward P/E of 8.5, falling to 7.8 during 2015. The City expects that Plus’ shares will support a dividend yield of 6.9% next year. 

Long-term play

ICAP, Tullett, IG, Plus and Charles Stanley are all set to profit from current market volatility but investors should be thinking about the long-term when they invest.  However, choosing solid long-term investments can be a time consuming process.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Charles Stanley. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.