IG Group has been rolling out its options product in the UK over the last couple of months. To find out how that’s going and what the company’s plans are, we spoke to Matt Brief.
Matt is the current Head of UK at IG Group and has been with the company for almost 25 years. As a side note, we spoke at the end of August, so if anything seems a tad out of date, you know the reason why.
How do you position options trading here in the UK and have there been any problems doing it? Because if you look at tasty’s marketing prior to launching here, they were getting quite good traction. They had that event in London in 2023. I seem to recall about a third of the company’s business was non-US prior to launch. Are you worried at all about a conflict there? I mean if you end up pushing this via the IG brand, you end up losing some of the good work tasty has done so far?
IG is always going to be our main brand in the UK, we’ve built a strong offering over the years and have an amazing group of clients, built up over 50 years of history. But when you engage with the tasty product, you see that they have their own style. It’s completely options-obsessed. There’s lots of educational content and a big focus on creating options trading strategies. So things like, what’s the right way for you to approach options trading, how to manage risk, and what the right strategy is for you. We can’t dilute that, it’s a strong brand proposition, and a great product.
At the same time, I think if you look at the type of client that likes tasty, they’re self-directed, they want to learn, they’re often more sophisticated in their trading and financial knowledge. Culturally IG and tasty come together nicely because of that. So although the product is offered under IG, when you actually go to the trading interface, you absolutely see a different style than the normal IG brand and it is one that is options obsessed. I don’t think that’s a problem.
Do you have any fears about this cannibalising your business? Obviously options are never going to generate the same sort of revenue as a CFD or spread bet. So if someone now comes to you and trades options instead of those products, would you be cannibalising your own business at all?
The only way you will succeed in this business, which is becoming increasingly competitive, is if you offer a great product set. We look to offer every trading product to our clients. We have a very sophisticated client base and many of them were already trading options elsewhere.
We all know that people like one stop shops, so we want to give people these products – whether that’s a tax-free spread bet or US equity options. I would say we’re already seeing some positive feedback as well. This is cheaper, more accessible, more client-obsessed than the other options brokers in the UK. So we’re optimistic about how it will land and the client feedback so far has been very positive.
Right, but I suppose my point is, if someone comes to you and wants to trade options on an index future vs a spread bet on the index, that’s bad for you in revenue terms.
We don’t obsess about the transactional revenue of the product, we obsess about giving clients what they want and that tends to lead to positive results. I don’t think clients that want to trade with the spread bet tax wrapper, for example, are going to disappear because of this. It’s just not going to happen. But if we don’t offer products that our clients want, we won’t be able to grow the UK business in the way we want over the next few years. So I’m not going to think in terms of what I want from the client in terms of revenue generation but in terms of giving them the products they want to trade in.
Ok changing topic a bit, one of the main ways options are monetised in the US is by payment for order flow. I don’t understand the level of hate this gets because it doesn’t seem like a big deal to me, but it is banned in the UK. This seems to be why Robinhood initially pulled out of the UK market in 2020. Any thoughts on this or how it will impact the options business in the UK?
That’s correct, there is no payment for order flow in the UK. I can’t comment on competitors but what I’d say is that we have great relationships with regulators around the world, which has been key in helping us launch the best options product on the UK market today as quickly as possible.
You talked about growing the UK market. Today I think IG controls almost 60% of the spread bet and CFD market in the UK. You look at that figure and then also think about how competitive that market is, plus how competitive the retail stockbroking sector is, plus other retail-facing investment platforms. It’s overall a very saturated, competitive market. So how do you grow given you are already huge and can only expand into already very competitive areas?
We grow by making all our products better. We’re putting a lot of work into improving our CFD and spread-betting product. We’ve just Launched an options product. We’ve got a lot of plans for our investments products. Crypto is currently a blank spot but we’re working on things there as well. So we’ve got a lot of room to add new products and to improve our existing ones. When we make them better, we’ll grow.
You talk about the CFD market share. Yes, we’re obviously the market leader in the UK, but it’s very competitive. People can switch accounts in a matter of minutes. We’re not going to be complacent and we absolutely have to keep improving our product. If we keep improving our product, we’ll keep primary leadership in the market and hopefully we’ll grow it even further. But like I said, you listen to your clients, you give them a better product, you give them a better digital experience, and then good things will happen.
There is absolutely plenty of room to grow both in areas where we’re market leaders, around the CFDs and spread bets, but also in the options and the investment space. I think there’s loads of things we need to do and loads of room we have to grow market share.
You’ve been at IG for almost 25 years. Obviously a lot of restrictions on your core product have come into play over the last six years. However, if I compare that to the US, options have pretty much identical win-loss ratios to CFDs, the client demographic is basically the same, the clients’ goals are the same. And yet you don’t have the sort of restrictions that you do on OTC products here. From my point of view, a key benefit of the OTC product is that it keeps revenues in country. Options will transfer revenues to the US. So do you ever talk with regulators and say, ‘hey, why are you clipping our wings?’ given the potential outcome is that revenues – and consequently tax revenues – go to the US?
I think every geography has products of choice. Whether that comes culturally or whether it comes from the regulator is hard to say. I’ve just been looking after our European division. Europe has a big culture of exchange-traded products, which is slightly different from options, but still, they don’t necessarily like to trade OTC products.
The US, for various reasons, is like that. If you go to a bar in Chicago and end up having a conversation with someone about trading, they are going to talk to you about options and futures. That’s just a fact. For whatever reason, whether it’s regulatory or something else, they like those products. That also speaks to why we bought tasty – which is we want to grow in the US and tasty has a world-leading options product, really competitive pricing, really accessible platform, and the best educational content.
If you look at the last few years, obviously there has been this boom in options trading in the US but also in other parts of the world like India. Concurrently in the UK, you’ve had more of a focus from the regulator – particularly with Consumer Duty – in making sure people don’t access products that aren’t suitable for them. So has that made it a more difficult product to offer and have you heard anything from the regulator about them making options harder to offer, perhaps in the same way they’ve done for CFDs?
Culturally, we have an obsession with clients. I’ve been here 24 years so I can say that genuinely. We have an obsession with clients. We have an obsession with giving them the best products.
We have launched a world-leading options product and the main audience for that is the more sophisticated client base that comes to IG Group. So there has been no problem with the target audience there and I think we’re on the same page as the FCA in terms of making sure the right audience gets the right product.
Anecdotally, I remember this big rise in the number of people looking for options trading during 2020 and 2021. My sense was that it was driven by the meme stock boom and people seeing US traders using Robinhood online. So is there a specific client type here? I mean, do you have someone opening a tiny account and then also people putting in substantial sums to trade options?
So it’s definitely US equity options that clients are interested in. In terms of client profile, I would go back to my previous answer. We have different account types and an onboarding process that filters out clients who are trying to access products that are not appropriate for them. So we have a cash account, which offers lower risk and then the margin account. In general, it does tend to be the more sophisticated clients that are asking for options trading or looking to access the tasty products.
If you look back over the last few years, some of your competitors, most notably Trading 212, have done a good job at lowering client acquisition costs by adding new products. Is that happening with options so far?
I won’t go into detail but what I would say is that we increasingly offer all tradeable products and that allows us to be more flexible in our marketing. It allows us to talk to different clients about the products they are interested in.
If you are a company that focuses specifically on one product then by definition you’re limiting yourself to talking about that product. But if you look at IG today, we’ve got a really interesting cash equity offering. We’ve got a really strong smart portfolio product. We’ve got ISAs. We’ve got more products in the pipeline. Having those products allows you to speak to a wider audience and give more people the products they want.
Another trend over the last few years in the CFD space is that some companies clearly looked at Europe and went ‘ok, that’s done, we’re not doing business there anymore’ and went to focus solely on emerging markets. And then others have decided to remain focused on developed markets and become almost like a super app, where you have all investment products in one app. Based on what your CEO has been saying and some of your financial reports, I assume you are trying to do the latter?
There are two answers to that. One is that, yes, absolutely, if you want to trade any product then you can come to IG Group for that. The second is whether we actually want all of that to be in one place and that’s an interesting question which we’re dealing with at the moment.
So if you come to us now to trade options, the interface is very different to the traditional IG platform that you would use to trade in spread bets or CFDs. The options interface is one that is clearly very options-focused and has all of the educational content and trading strategies for those instruments.
The question we’re looking at now, and getting feedback from clients on, is do you want to have interfaces that are more product-specific, or more tailored to the level of sophistication from the client? Ultimately we’ll be led by our clients on that front, so whatever direction they want to take us, we’ll go.
That is interesting. So as a follow up to that, if you look at a company like Trading 212 they have built a good ‘all in one’ app. That clearly has benefits from them in revenue terms that wouldn’t exist if the products were separated. So is that a factor that you consider? The other is, I have found that a lot of clients can end up asking for disparate things. So how are you led by your clients if they are pulling you in different directions?
So I think to your first question, if you present something that is in your interest then you’re not going to have happy clients. The reason we have been in business for 50 years is that we obsess over what our clients want and if that diverts from our short-term interest, then we’ll go with the client every time. Obviously that doesn’t mean we ignore revenue but I think what makes this strategy work is that, over time, our interests align.
In terms of the second question, we find that our clients are very good at telling us if they absolutely love a new product or absolutely hate it. And I’ll give you an example, we just launched a new product called Top Traders. IG has the best traders in the UK relative to anyone else out there, so we analyse their trading history and then aggregate those positions to show our clients, in their trading app, what the best traders on our platform are doing.
Our clients know we’ve got the best traders, that we have that 50 year history, and those sophisticated clients using our platform. So is this a feature they are interested in? Yes, they absolutely are and we’ve had overwhelmingly positive feedback on it. So we can now build on that because clients are saying ‘I like this part of the product but I’d like to see this added to it and I want this information presented in this way.’
When you have feedback like that, it’s easy to know when you’ve done something right and what the next steps should be. So my point is the feedback you get tends to be unanimous. It’s rare to have something where some people love a product and an equal number don’t like it.
You said you’ve been at IG for almost 25 years. Do you ever find it odd that you have ended up being the platform you are today? If I look back to the 1990s or even 2000s, IG was basically a way to speculate on markets with spread bets. You even had a sports book for spread bets until the late 2000s. Today it’s an investment platform, akin to what you see with the big players in the US. Do you ever think, ‘how have we ended up here’?
It’s an interesting question. There has been a massive shift in the way a company like IG operates towards being a company that you come to for all of your trading and investment products.
I think a lot of the narrative you are describing is led by the fact that the spread bet product has the word ‘bet’ in the name. It’s as simple as that. But if you look at it as a product, it’s not really that different to a CFD and even has similarities to options and futures.
If you look at the bigger picture as well, IG has been expanding over the last 20 years globally. We’re not just a UK brand. And in that time we’ve added investment products, ISAs, different exchange-traded products, and now options. So I don’t obsess about looking back at what we used to do. I’m focused on building on what we’re doing now, improving and adding new products, and keeping our clients happy.