Inside City Index with Giles Watts, Senior VP of UK & EU

Why the rebrand?

So, the rebrand really was born partly out of after we were acquired by Stonex. We were looking at the proposition and we really felt that we wanted to take City Index, having had done 40 years in yellow and black, into a new kind of refreshed, modernized space, which one was about our product development, but is also about the visual feel look and look of the rebrand and the brand itself. And yes, the yellow and black was something that customers were very familiar with and also our staff were, but we felt that in order to reach out into new audiences, it was time that we had a complete refresh and a complete redesign. Hence why we’ve gone for what is quite a bold color, but it’s one that hopefully stands out in the marketplace, particularly in the leverage space.

How’s the integration been going and have you been able to leverage their balance sheet as it were to offer more products and grow your business?

You’re right in that they are a US listed firm, but they have a very big presence, Stonex, in the UK and they offer a very broad product set, mainly to institutional, wholesale clients. But in terms of how that benefits us is that we really feel that with their scale and their capabilities, we’ll be able to deliver and produce a broader offering to our client base, our retail client base. As you say, the acquisition was confirmed I think in the first quarter of 2020, so, we’ve had two years of very volatile period with the Pandemic and as a business, they’ve been hugely supportive and that transition so far and integration’s been successful one and we feel that it’ll set us up for the future.

Will you be bringing any institutional grade investment class to City Index customers?

Yeah, certainly it’s things that we are looking at. So, the capabilities and the expertise that they have on the Stonex side, whether that’s around execution, whether that be around particular product sets, absolutely are on the radar for us to integrate if we think appropriate for retail clients. We’ve talked a little bit about the imminent coming of the investment product, which is again, the first step in that broadening of which we are working with the Stonex team on that effort. And there are a number of other products that you look at their global payments business, they have a Coinbase business that may in time be something that we would look to add and compliment to retail offering.

Will it just be a general investment account or will you be offering more tax efficient products like SIPs and ISAs?

We’ll be offering two types of accounts, a general investment account and also an ISA account. As we develop that and we get feedback from our customer base and from new customers that we reach out to, clearly, we’ve got aspirations to deliver further products and further accounts that are tax efficient for customers. So, yeah, over time, I’m sure that will come.

How long have you been with City Index?

Somewhere near 20 years.

What did you start off doing?

I started on the trading desk.

On the trading floor, over the phone?

Yes. I mean we talked about certainly when I started it was a very different place in that it was all over the phone and shouting orders out to one another and gesticulations and the rest of it. So, that’s certainly changed in terms of how we work internally but also, most importantly how we deliver the product to our clients and in technology advancements in the 20 years have been pretty radical.

Over that time, what’s been the thing you’ve been most proud of whilst working at City Index? What have been the best moments?

I mean there have been a number of things that I think personally, I’ve been proud of but also collectively as a business we’ve been proud of and they can be to start with, is just the longevity of the business. The ability for us to being able to survive and to thrive in what has been a very challenging time over that 20 years, in different market conditions and for us to be able to iterate and evolve so that we’ve developed, as I said, from being a phone broker to having technology that is first grade in terms of delivering the product to clients. If you look more recently over the last months and weeks, I would suggest that our effort to renew and refresh a 40-year-old brand and come out with something that feels modern and of its time and certainly, it’s something to take us into the future, is something that as a group we should be very proud of and all the people that have worked on it. There’s an many highs and lows over 20 years, as you can imagine.

We’ve asked you about the best things. What about the worst parts of being a broker for 20 years? What’s been the biggest challenge over the years?

Over the period, there have clearly been some highs, but there are also lows. I think some of the material market shocks are a strain on the business because they’re a strain on the technology and your ability to cope with that. Also, that has a knock-on impact on clients, which clearly is something that is difficult for clients to manage at times, so, they’ve been tricky. Equally, as we’ve transitioned into a much more technology-based firm, you want to be able to be confident that you have the systems and the scale to deal with it and I don’t think we are immune. In the past, certainly in the early years, there’ve been challenges around technology if a system failure, that can cause issues for clients and for us, so, they’ve been difficult. But yeah, I mean I think all of the firms in our space and anybody delivering this type of technology product clients have suffered those and you live and learn and we’ve in a much better place than we were 20 years ago.

What would you say is one of the major traits in the traders that do well? If you were to say to traders, “If you do this, you’ve got a better chance of making money trading,” what do you think that would be?

You’re right in that there is a very broad range of clients that we service and that there equally is a sort of commonality in looking at habits and behavior of our most successful and long-standing customers. I guess if I had to coin it, for me, it’s around discipline and risk management and having a plan around your approach. Clearly, when you are trading a leverage product, there is risk that is associated with that. I think the customers that deal with it best are the ones that really engage in that and whether that be utilizing the right proportion of your funds to place a trade or whether it is when you have a position on making sure that you cut your losses if they occur at the right time and you don’t hang onto those losing trades but equally, recognizing that when you have a profit, make sure you set a target and you take those. So, I think for me it’s around discipline and having a plan and an approach that you can follow. I think if you go in thinking that the opportunity is an easy one when the market is volatile, sometimes I think you’ve got to be realistic that volatility and big market moves do create an opportunity, but also, they come with risks. So, if you’re going into trade in those volatile times, have that discipline and that tends to stand the clients in good state.

What is performance analytics and how can it help traders?

So, performance analytics started out as a behavioral science platform. So, what it was attempting to do was to try and help traders understand when they get emotional and put a number on that. So, emotional trading costs a lot of money and for most of our clients, they actually know when they’re emotionally trading, they just never knew how much it cost them before. And so, we had a product that we used to call Game Plan, which was the original performance analytics, that’s been running live in here for three years now. And one of the things we learned was that for many, many traders, they hadn’t actually got enough trade history for us to be able to help them with their habits because they just hadn’t traded enough. And so, we built some new features. So, we’ve just launched a product called Play Maker in the last two or three months and Play Maker literally helps you from your very first trade.

So, the idea is that now as a trader, before you start to trade, you set up a plan. So, you set up your targets and your limits and you understand how to take whatever trading capital you have and make sure you make that go a long way because beginning traders tend to often not understand the risks they’re taking with some of their positions. So, Play Maker helps you make many, many, many smaller trades so that you can learn and you can follow your rules and what we do is we help you track and then we give you a score for your discipline. So, you pick your rules and we will tell you when you break your rules and then we will show you how much it costs you when you break your rules. So, that kind of combination of you make a plan, you either stick to it or you don’t, it’s on you, we will measure that for you and then you come back around and you try and be better. So, traders on Play Maker get more disciplined so they make fewer bad undisciplined trades.

How do you know from the data when traders are emotional or not?

So, we have two totally different ways that we measure that. One is using what we call our psychological metrics, of which there’s four or five on the platform right now. So, we take key situations that we know traders behave differently. So, the simple one is the first trade of day. It’s simple to explain and simple to understand and about 30% of traders have an issue with the first trader of the day and so, fear versus greed. So, if you’re a greed-based trader, often your first trade of the day is a huge weakness. So, these traders can’t wait for the market to open and as soon as they do, they will just open a position because they need to be trading and so, we’ve had traders who are literally, the first trade of the day might be 10% of their trades, if they do 10 trades a day, it might be 1% of their trades, if they’re very active traders, but it might lose their entire PNL. So, a small habit like that for one trade could be the reason that your PNL is half what it could be. So, we have a series of those around winning streaks, losing streaks, first trade of the day and speed of trading. So, one of the other more interesting ones around velocity is you close out a position, we measure how long you wait to get back in the market and we see if those extra fast re-entries have a statistical bias, basically. And again, I think it’s maybe 25% of traders you will see that they do and often, that fast trading is the emotional baggage from the last one and back in, kind of thing and we put a number on that as well. So, again, it may be 5% of your trades you’re back in within 30 seconds, but they account for 85% of your losses, that’s the kind of thing the platform will tell you. So, that’s the hard answer to it but we have a much simpler metric as well, we call it the disposition ratio. So, literally, what we do is we take all your trades and we split them between the winning trades and the losing trades, and we see, on average, what is the ratio of time spent in winners and time spent in losers. And with game plan, what you find is that traders who think they’re setting up a decent risk awards, they maybe think they’re setting up two to one because they go in and they put on a stop and they put in a target, but, they never let that finish. And so, they end up, as you said, cutting those winners too quickly and you can see that in disposition because you might see they’re five minutes in a winner, but they’re 20 minutes in the loser, on average. And with Play Maker, the new product, because we do that live and real time, what might happen is you go in the morning and your first 10 trades are closed out and the disposition on those is fine, but you have all these open trades and they’re more losing trades. So, you’ve obviously closed, and we’ve got that lovely visual in Play Maker and you can see closed, closed, closed, closed and then the opens and if you have a habit of letting your open trades stay in losing positions too long, it’s kind of the nudge to help you to take action.

And do people heed the advice from a performance analytics and Play Maker? Can you see if they’re making mistakes, are they changing their behavior to adapt?

So, as of now, and its early days as of now, we are seeing, for example, before people had Play Maker, one of our discipline levels was measuring on average, so, it’s an average number about 48% and within 10 sessions, we see that clicking up to 60%. So, it’s not making everybody perfectly disciplined yet, but the indication is that it’s helping. So, people do less of the bad trades using Play Maker.

I suppose that’s what trading is about, winners and losers and the fewer losers you have, the more success you might have.

Yeah, well actually, and again, the next time we speak we will have real numbers behind this, but for a trader who is not successful, the number of trades they would’ve had to eliminate to be successful is like two or 3%, that’s all right. So, if you’ve been trading and you’ve 400/500 trades under your belt, there’s very few trades, your biggest outliers. So, what we are trying to really do is, we just want to reduce that number of outliers. A few trades can really turn things around. So, our most successful traders show huge weakness. So, weakness is not a factor of being a successful trader, we’re humans, we all have our strengths and weaknesses, but the successful traders cotton on to it a bit faster and they’re smarter about getting themselves out of the situation. So, we are trying to nudge people to just be aware. So, the discipline monitor, it’s really simple, green, amber, red, but a little amber light and you’re close to a level that can be enough to trigger someone to take action and so, we’re just trying to help. So, we’re not dictating what to do but the nudge is trying to get people to be more aware of taking the action a little bit faster.

And any more features in the pipeline? Have you got anything exciting they’re about to implement?

Yes. Well, we always have very exciting things in the pipeline. The most exciting thing that we’ve just launched in beta in the US is looking at biometric data. So, we started with a Fitbit feed and what we are doing with that exercise is we are correlating your cardio, sleep, your activity levels with your historical trades. So, again, it’s currently on game plans. So, the idea would be if you’ve been wearing a Fitbit for a year and you’ve been trading for a year, you can now look at your, we call it lifestyle edge. So, does the amount of sleep you have actually impact your results or does your fitness etc.

Does that work off historic data as well?

Exactly. So, what will you do, you give us permission to authenticate your Fitbit, you can disable it any anytime you want, we load up the data. So, we need your history from your device, then your history from trading and then we’ll show you the impact. And obviously, we’ll put some live features on as we go and we’re even hoping to put the discipline monitor, I’m wearing my Fitbit today, so that maybe you’re not online, but actually if you get into a red state, you’ve broken a level or you’re breaking your rules, we can get it onto your watch for you is the great plan.

Will the feature work in the same way as that? So, if you are not in a good position to trade, it will tell you now’s not the day for big positions?

So, that is the goal. So, for example, if we look at even taking fatigue of trading. So, we’ve just also launched another tier of service for our top clients where they have a lot more psychological edge. So, things like we look at your first, second, third, fourth, fifth. So, we look at the trades as the day progresses because again, you may have a point that’s like once you’ve done your first 15 trades you really start to get undisciplined, kind of thing. So, that’s the kind of blunt way of doing that, whereas a device would be able to see that, the fatigue levels would show up there so we could get a teamwork quickly clinic. So, I’d like to have one big kind of, as you said, a battery for trading. Where am I at? Because, as we said, we’re humans, we are all going to be emotional. So, sometimes the data is going to tell you you’re emotional because maybe you slept really well, but actually, you’ve just closed five big losing trades. So, in which case, it’s the data that’s important. So, we’d love to have that concept of how positioned am I to trade because you still trade, but you might want to be smarter about the size. So, if it’s a bad afternoon but you want to be in a trade, maybe you make them a bit smaller and that way, you’re still getting the experience, you’re not missing out but you’re protecting your capital, which is what we’re all about.

What sort of trading still happens over the phone? Is it bigger customers or smaller customers or complex or simple orders?

I would say you are probably right, it’s predominantly larger clients and we have a private client desk here who provide really an invaluable service to exactly that group, our high value clients. And the voice brokerage makes sense when you think that as a predominantly UK based client group, equities are very, very popular amongst our active traders, particularly our high value traders. And so, it makes sense whether you are discussing the fundamentals of a company, talking about corporate actions or really just working the orders into the market, you kind of need that two-way interaction to make that work effectively.

What would you say is the one thing that separates City Index from all the other trading platforms out there?

What we want to do is to be the provider that helps clients become better traders, to help them become smarter investors. We see this in three areas, what we want to provide is more choice, better insight, better value and really, have everything that we provide be underpinned by one of those three things.

What some liquidity and volatility like for City Index customers, can they still trade US stocks outside normal working hours?

Yeah, absolutely. To the best of my knowledge, we are one of the few providers that still facilitates out of US hours trading on major US markets, it’s something we’ve recently rolled out for all of our clients and we’ve seen it be really popular. If you think about some of the opportunity that revises during earning season when those earnings are coming out outside of conventional and domestic hours and equally, a lot of the announcements that happen, they might be fundamental changes, you could look at Elon Musk and Twitter and what’s been happening, a lot of that back and forth happens outside of US markets. So, I think clients have benefited from having that opportunity liquidity wise as well, we do a lot of due diligence before we roll out products to make sure it’s going to stand up against the test of what our traders would need. And it’s working well, it’s popular.

Do you see a lot of use in Smart Signals? Do you find a lot of clients come on board to use that?

We do. I’d actually say, and it’s funny, because in a former role here I was actually on the product side that helped develop GetGo and, to a degree, had a part of the integration onto the platform and I think is a really exciting product, particularly, as down the line, we start to make enhancements to the UX and look at adding additional markets as well as different timeframes and also other functionality, things like time-based execution.

What sort of transparency and historic records do the Smart Signals show?

It’s actually a key part of the Smart Signals offering, intentionally. And really, that’s for a couple of reasons. One, it was really important to us, it’s the ultimate question with the signals service, what is the performance like? So, we wanted to be able to show that and make that available to clients, to reinforce the credibility and the integrity for us as providers. The second reason is that the performance of the signals itself is a bit of a signpost, whether you are a trend follower who wants to look at the better performing signals at the moment, or whether you’re a contrarian who’s sort of waiting for certain poorly performing signals to turn around, we wanted to make all of that data available to our clients.

How long have you been at City Index?

10 years now.

So, in 10 years, what’s been the best and worst parts about working for the brokerage?

It’s actually probably quite easy. The worst parts, to start with the negative, client losses, which is a really, I suppose, honest answer but having started my days here on the sales team, you get more familiar with individual accounts and individuals and just seeing over time some of those, it’s a hard part of trading so that’s always the hardest bit. Equally, trying to mitigate against that now is absolutely crux of everything that we’re trying to do and provide.

What about the best parts? What’s been the best parts or the most memorable or the things you’re most proud of?

The best parts, generally speaking, are probably literally the opposite of that. So, equally the client’s successes and seeing those and can be individual stories, individual clients that do really, really well. But also, alongside that is seeing the evidence and the feedback, anecdotal or directly from clients where we’re making an impact, where we are either directly improving outcomes or providing things that help traders genuinely.