Spread betting and its associated products like contracts for difference are worth considering in falling markets. Clive Cooke, CEO of City Index has focused on financials spuing sports unlike many of his rivals. A former guilds trader, who cut his teeth in the madness of the 1980's he formed his own trading house along with 3 others at 28. He was lured in 2002 to run City Index and we are delighted with the opportunity to catch up with him.
Susan: Good Morning Clive.
Clive: Good Morning, it's good to meet you.
Susan: Spread betting is definitely not for the faint hearted, what level of experience do you think an investor should have?
Clive: Well, we talk specifically about spread betting, but let's be a bit more general and talk about leverage trading, and sure leverage trading on the financial markets isn't for the faint hearted. People who want to begin doing this not only as a way of making money but also as entertainment, because a lot of people do it for entertainment value, of course shouldn't be undertaken without people doing a lot of research first.
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Susan: Who is your typical customer?
Clive: Our typical customer used to be predominantly male but that is changing a little bit. I would still say that around 70% of our customers are male, but generally speaking they are professionals, they are probably aged between 25 and 55, they probably got a little bit of financial backing behind which they are prepared to speculate with and again they are doing it for financial reward but they also do it because they are interested in the financial markets.
Susan: So what is the difference between spread betting and leverage trading?
Clive: There is no difference between leverage trading and trading stocks and shares, except the magnification of dealing with leverage means that all your gains are bigger and all your losses are bigger so you have to be a little bit careful. But the key to all this is that people who buy shares and put them in the drawer and forget about them and come back a year later and not much has happened don't get the thrill that leverage trading gives you.
Susan: And do you think that they will keep the tax off it in the UK?
Clive: Well, whilst the actual client doesn't pay tax - so spread betters wouldn't pay tax, we do pay a levy to the inland revenue which is based on any losses that clients make, so there is tax to pay, it's just that the customer doesn't pay it but we do.
Susan: And do you think that it would be damaging if they introduced a tax system for the customer?
Clive: I think that there is very little chance that the government will do it, to kill off the industry would kill off all the people that work off it, it would be relatively neutral I would say, there would be no tax benefits to the government by getting rid of the tax advantage of spread betting.
Susan: Which of your markets is most popular?
Clive: The most popular markets are definitely the ones that move a lot, are 24 hours and give that permanent thrill so that would have to be foreign exchange and the indices - the main indices, the Dow Jones, the Nasdaq, the FTSE, the German Dax. All of these markets we make 24 hours a day so if people want to get up in the middle of the night because they can't sleep and make themselves a cheese sandwich and sit in front of the terminal - those are definitely the most attractive, the ones that people like the most, the ones with the biggest thrill.
Susan: Why doesn't City Index not offer sports betting?
Clive: Sports betting has been with us since they invented the Internet, there are very few advantages we can offer to people who want to bet on sports, there are hundreds of places where people can bet on football, it is something that we used to do and we don't think we have a competitive advantage anymore. We choose not to do it and we think that it perhaps has a little bit of brand degradation to City Index by us offering say horse racing...
Susan: Did any of your customers make any good money selling Northern Rock?
Clive: Northern Rock, generally speaking for the whole share dealing industry was absolutely huge when disaster began unfolding, we saw a lot of people, not just in leverage trading but also in regular share trading; I know for a fact that the stock brokers in the UK saw a lot of people opening accounts because they thought they'd better buy some, which of course was the complete wrong thing to do, so I do know of a number of people who believed right from the outset that Northern Rock was worthless but generally speaking I think the investment community from the retail side were buying Northern Rock as it was falling on the basis that they felt that there would be a bounce and there wasn't.
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Susan: Roughly, what is the size of the market in terms of total customers for leverage trading?
Clive: If you take into account foreign exchange which is a leveraged trading product that trades 24 hours a day I would say that we are still relatively small, I don't believe that there are more than say 250,000 in the world that are doing this, yet I know that the demand is absolutely huge. In Australia everyone appears to be trading the financial markets through leverage, Germany is starting to take off, Spain and France too and it goes, I don't have to say how important trading with leverage and risk and thrill applies to people in South East Asia. So it's a little bit difficult to put a number on it, I would say that actively trading there are a quarter of a million worldwide and that figure is going to grow significantly.
Susan: Speaking in global terms you have just acquired U.S.A. based Forex Solutions, having acquired IFX two years ago on a 60 million pounds acquisition. Should we assume that forex exchange plays a large part in your future?
Clive: Yes, I would say that one of the reasons why people trade foreign exchange is that there aren't other things to trade because we see a lot of interest in foreign exchange from countries that haven't yet developed a trading culture in their own shares. So for example Eastern Europe, Russia, South Eastern Asia, these are places that don't have an advanced liquid equity share trading culture and because that's not available - they trade forex. Well, when we show them that they can trade through us indexes, U.S.A. quoted shares and other things they'll change - so they're only trading foreign exchange at the moment because they haven't seen what we have got for them.
Susan: The spread betting or leverage trading market is very competitive - what is your plan for keeping City Index out at the forefront?
Clive: I think that it's very important that we have scale, there are a number of rivals to us, but I would say there are only two or three that have the scale and with scale gives us an opportunity to improve the service. So the fact that we offer many of our products 24 hours a day, technology is obviously the big driver of the industry, I think it's important that we stay as a worldwide leader rather than just sitting back and saying that CityIndex is based in London and only has UK clients. So I would say that scale is the biggest thing that is most important going forward for the next 2 or 3 years.
Susan: Just before you took over, City Index was almost undone by a 6 million pound bet from entrepreneur Paul Davidson, aka the 'the Plumber' on a single firm - would you take that bet today?
Clive: That was a fairly complex arrangement and I am familiar with the details, of course, I wouldn't say that it nearly undid CityIndex but it certainly caused problems that we didn't need at the time - by definition, of course, we would not advent into it. The idea of taking on big trades from individuals is not really the business model going forward.
Susan: Do you think that the investing public still views leverage trading as just too complicated?
Clive: I don't think it's very complicated, I think it means that you genuinely have to put a little bit of research in first, but anything that involves spending money should be deeply researched - it's no more complicated than buying and selling shares and I think there is a little bit of an aura surrounding share dealing as the preserve of the few and that must be unwound. Say I am a typical of the industry and I have a view on gold, I have a view on the dollar, I have a view on individual shares and its interesting, and that's very attractive to people - this isn't just about making money.
Susan: Speaking of gold, any tips or advice?
Clive: Well, I bought gold when it was a 150 dollars an ounce, it's currently 922 and it's definitely going to a 1000 dollars.
Susan: And now we are going to move to the fun game of BUY, HOLD or SELL. So to start with Avram Grant?
Clive: HOLD, when we have won the Champions league, all the Premiership, neither of the two cups I'll be a buyer but at the moment I'm still on hold.
Susan: CMC Markets flotation?
Clive: A BUY of course - they are in the same industry as us and they offer a good service.
Susan: New York?
Clive: BUY. I lived there for 8 years and I know all the joys that New York can bring especially to a single man.
Susan: Monaco?
Clive: SELL. Looks like one big housing estate, no beach and the people are very dull.
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Susan: Budget Airlines?
Clive: A SELL but that doesn't mean I don't use them.
Susan: ICAP?
Clive: A BUY of course, because they are the biggest success story led by the greatest entrepreneur the UK has ever seen.
Susan: And away from the days of New York and back to closer or your heart right now, fatherhood?
Clive: A BUY, a big buy yes!
Susan: Thank you very much for coming, meeting us today - it's been a very real pleasure.
Clive: You are very welcome to speaking to you live.
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