Anything can happen in life, especially nothing.
So wrote Houellebecq in the early 2000s and it seems like an apt description of the past couple of weeks. Not much is going on at the moment, so I figured we’d look through IG’s latest half-year results as there are some interesting factoids within them.
1) Content makes you more money
Even though my entire career to date has been spent in media in some form, and even though I know as a fact that pieces I have written have made people invest in stuff, and even having worked with affiliates and seen how they drive traffic, I am still amazed that content makes people hit ‘buy’ or ‘sell’. But it does, so maybe that says more about me than it does about content.
Anyway, the point is that in IG’s analyst call, company CEO June Felix revealed some neat facts about how this works for the company.
Apparently…
- Customers increase the number of trades they place by 33% after interacting with IG content
- People that watch tastylive, the media arm of tastytrade, place double the number of trades than customers that don’t
- IG customers that interact with more than one type of the customer’s content generate 3x the number of revenue than those that interact with one
The counterargument to this could be that most of these people were like hammers looking for a nail. In other words, they were already predisposed to trade a lot anyway and interacted with more content as a result – their interaction with content is a biproduct of them being people that trade more, rather than the other way around.
And if you look at companies that haven’t done very much in the way of content, say Plus500 or Trading212, it doesn’t seem to be hurting their bottom line very much.
I probably have some bias given this is the area I work in (never ask a barber if you need a haircut) but I think, leaving clients aside, this has damaged them reputationally quite significantly. Plus because they haven’t done it, we don’t know if they’d make more money if they did. Given that IG has a better reputation than both companies and operates with similar margins, with lots of content, it doesn’t seem to be a detractor to have it.
2) Options trading made £61.2m
Last week we looked at fintech products and concluded that if they don’t fit with your core product and don’t either make money or cross-sell enough to offset the losses they generates, then they’re not a ‘thing’.
tastytrades generated £61.2m of IG’s revenues during the first half of its current financial year and revenues continue to grow. This suggests listed derivatives are a thing. Other signs that listed derivatives are a thing include the following…
– CMC Markets is adding options
– Plus500 has launched a futures trading platform
– eToro acquired a US options broker
– Tickmill already launched futures and options trading
How viable this will be for most brokers is a question mark. Adding cash equities, as discussed here before, is a massive headache and so many companies haven’t done it. The same is likely to be true of adding listed derivatives. However, I guess it’s always plausible some white label solution will emerge and it’ll become more popular.
If you look at the margins of tastytrade prior to its acquisiton, they were similar to Plus500 / IG, with operating margins at the 40% mark, so the financial incentive to do so is there too.
What will be interesting to see is how successful IG is at launching tastytrade abroad. Firstly, there is the question of revenue. Payment for order flow makes up a hefty chunk of revenues (44% in H1 22, 29% in H1 23). PFOF is banned abroad so you’d have to up commissions (or potentially funnel trades to another entity) for this to work.
Another point that will be interesting to see is if launching options outside of the US attracts a different sort of client. One thing I remember during the meme stock boom in early 2021, and this is anecdotal admittedly, is that lots of European customers seemed very opposed to taking positions on those stocks using CFDs. Some of you may struggle to believe this, but they seemed to associate many of the companies offering them with scams – how did that happen?
Recently I saw something from Artur Azizov, the CEO of B2Broker, who made a somewhat similar point. Apparently crypto traders have not been keen on CFDs, so platforms offering physical crypto offered ‘perpetual futures’, which are almost the same thing, as a way of selling them leveraged products.
Options and futures could end up working in the same way. They do not have the stigma attached to them that CFDs do, so it seems plausible a ‘new’ type of client will find them more appealing.
3) Warrants trading on Spectrum makes £1,117 per client
Last time we looked at Spectrum, which is an exchange facility for trading derivatives operated by IG, it seemed to stir some controversy. The argument against what I wrote was that IG was…
– Not running an exchange as it was the only company that you could use to access the ‘exchange’
– IG was the only market maker there
– Because of the two above points, Spectrum is not an ‘exchange’
Well, today there are three brokers besides IG that you can use to access Spectrum and Societe Generale lists products there, making it hard to argue the points above.
The more interesting point that I hadn’t noticed previously is the level of growth in average revenue per customer that the exchange has produced. If you look at H1 2020, when Spectrum started, it was only £285. It then increased to £709 before dipping back to £652 in the following half year period. Since then it has only increased and in the most recent half year it was £1,117 per customer.
The more worrying thing for IG, although it is only one half-year period, is that revenue for Spectrum as a whole was flat on the prior half-year period – (£5.4m in H1 23 vs £5.5m in H2 22). This is supposed to be a ‘high growth’ area for the company, so a slight drop in revenues isn’t good.
