“Mind The Gap!” – The life and times of a man on the move Episode 28

A true FX veteran, an argument about FX mentoring services, TripAdvisor executive trips up and gets a sarcastic response from me, Thomas Crapper is so yesterday, and the tube or a plane?

In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.

Monday: Well done Thomas Peterffy.

Hats off to Thomas Peterffy, a true veteran of the retail electronic trading industry.

On Monday, Thomas Peterffy retired from his position as CEO of the what had been the world’s most highly capitalized non-bank electronic trading firm until it began concentrating on eligible contract business just three years ago and this, therefore, represents a milestone.

We are an innovative bunch, which is what drives us all forward each day, and Thomas Peterffy is no exception, indeed I would put him in the same ‘founding father’ category as the late, great Les Rosenthal as a pioneer of this business who has stuck with it for decades in the quest for quality.

Thomas Peterffy was born in Budapest, Hungary in 1944, in a hospital basement during a Russian air raid. He left his engineering studies and emigrated to the United States as a refugee in 1965 with literally nothing. I, along with my own family, all of whom left Eastern Europe 20 years earlier and have emigrated to many western nations several times since, leading well into my own formative years, know how hard that is, but also how empowering it can be for an enthusiastic mind.

The company traces its origin to 1977 when Peterffy bought a seat on the American Stock Exchange as an individual market maker, and formed T.P. & Co. the following year. Interactive Brokers has grown to encompass of many subsidiaries operating on most major stock, futures, bonds, FX and options exchanges worldwide, all under the continual leadership of Thomas Peterffy.

The company commenced a public offering on 4 May 2007 under the ticker symbol NASDAQ: IBKR on the Nasdaq exchange. Barron’s Magazine stated in 2009 that Interactive Brokers maintains a position as “the least expensive trading venue for investors”, and has held the ranking as the lowest cost broker for five straight years.

By 2015, I managed to get hold of some data that showed Interactive Brokers as having regulatory capital (an NFA requirement, meaning Retail Foreign Exchange Dealers must have at least $20 million in continual capital) far in excess of that required, standing at $88 million. The company continues to go from strength to strength and Thomas Peterffy, who now resides in Palm Beach, Florida, is personally worth $22.5 billion making him the 76th richest person in the United States.

Thomas Peterffy – A true great

He spent 42 years at the company, and has been totally free of any blemishes – not easy in the overtly transparent and customer-friendly United States, and the company has a massive domestic client base which is utterly loyal, as well as high net worth clients in Hong Kong and Australia along with other smaller but significant traders in South East Asia.

Unlike some long established firms that pre-date the late 1980s/early 1990s influx of new dynamism into retail FX, Interactive Brokers has kept at the forefront of technology, and FinanceFeeds keeps abreast of the continual improvements to the trading environment, all of which is developed and maintained in house at Interactive Brokers and Thomas Peterffy clearly has long term confidence as he maintains his substantial stake in the firm post-retirement. That speaks volumes about his faith in the people his company has hired to direct it.

A true leader, Thomas Peterffy has actually taken his own time to influence the direction of the industry as a whole, rather like Ralph Nader did with car safety.

In 1999, Peterffy was influential in persuading the Securities and Exchange Commission (SEC) that US options markets could be linked electronically, which would ensure that investors receive the best possible options prices. He has also testified before the United States Senate Banking Subcommittee on Securities, Insurance, and Investment about adding banking regulations.

During the 2012 United States presidential campaign, Thomas Peterffy created political ads in support of the Republican Party. Peterffy bought millions of dollars of air time on networks such as CNN, CNBC, and Bloomberg. The ads consisted of a minute-long spot narrated by Peterffy that warned against creeping socialism in the United States. The ads were considered remarkable in part because Peterffy is not a candidate and did not buy the ads through a “527 group” but instead paid for them directly.

In the spot Peterffy said, “America’s wealth comes from the efforts of people striving for success. Take away their incentive with badmouthing success and you take away the wealth that helps us take care of the needy. Yes, in socialism the rich will be poorer — but the poor will also be poorer. People will lose interest in really working hard and creating jobs.”

Quite right, Thomas. Your legacy will live on. I wish you a well deserved and happy retirement.

Tuesday: A dog with a bone

In the middle of the European night time, I got myself into a conversation with an already wide awake colleague in Australia who was already half way through his working day, the pre-dawn pondering being on the subject of digital mentors for retail FX traders.

“Do you remember PsyQuation’s entry into this segment?” asked my equally wizened colleague who has seen many post-modern fads come and go as his career in electronic trading technology extends back into the dark ages in the same way that mine does.

I certainly do indeed, as this is one of the more interesting Saas solutions that provides artificial intelligence (AI) orientated analytics for FX traders and investors, having been founded in February 2015 by Dr Michael Berman and Dr Vladimir Krouglov in Sydney Australia with a high quality software development career behind them, and an experienced team of Russian software engineers.

That’s the way to do it…. but for a flat fee.

According to my learned colleague, PsyQuation, despite its brilliance and its obvious advantage to retail brokerages in terms of client engagement and the potential elevation of quality service that a broker can provide and to retail traders as a very useful tool for navigating the market, it struggled to gain traction with a few Australian margin FX brokerages at its outset.

“I think there are several reasons for this” said my colleague. “I think that unfortunately many IBs were not interested in sharing rebates and brokers would give extra rebate per trade. In the end, they got some between six and ten firms to list PsyQuation which many brokers rightly or wrongly wanted to use mainly to be seen to be offering a service to help retail clients to appear more comprehensive in front of traders and regulators, which is of course very valid.”

My pal then referred to the strategic partnership that PsyQuation entered into with prominent Australian brokerage AxiTrader, to create AxiSelect which is a very clever solution for which incubating emerging FX traders and creating an actual business for them to operate as professional traders was the rationale.

In my opinion, this is a very good idea indeed, as long as it is operated as a totally neutral service where all component parts of the relationship are remunerated on a flat fee basis rather than volume or profit/loss, or spread increases, or any of the other revenue sharing models that proliferate the global retail FX business and should not.

After all, brokers, if they want to be sustainable in a world in which traders are very astute, technologically aware and demanding, and regulators are looking at us all as though we were a moon-sized asteroid heading toward the Pentagon.

“I saw the results for 2018, the first full year that this very good service ran, and there were 25 active traders in total, which is very disappointing, there should be much more” said my colleague in Sydney.

“Look at the Irish firm, ChasingReturns. 25,000 retail clients via broker partners as of the third quarter of 2018’s results, which is not bad, but the point to my ramble is that I wonder why digital mentors to the retail markets so that retail traders can make more money trading, being adopted by the FX margin industry” said my colleague.

“This is a recurring theme of mine” he said. “I would think this is the hardest sell if ChasingReturns is targeting B2B and not B2C (direct to retail traders) because why would a broker acting as money manager want this service for their retail client base if they depend on client losses if we can assume of course they make money on NOP and not spread, or the largest percentage?” he asked.

PsyQuation’s Dr Michael Berman gets it right. It takes a proper software engineer to produce and deliver proper solutions. Let’s see more traction….

“I see this as a sort of catch 22 situation which creates the same sort of tension as found in many other ancillary services that depend on volume or revenue sharing and I am trying to understand this tension” he said. “FX margin brokers offering services that look like they support the idea they want to act responsibly by teaching responsible behaviour by retail clients and still make money on their losses cannot work, this is complicated but simple at the same time” he concluded.

Whether these are the types of arrangements that many trader mentoring services employ or not is of course a debate in itself, but as I have personally championed for many years, I do not understand why the revenue share model in the software business in FX is so dominant.

I come from bank trading desk systems development, and network connectivity for Tier 1 institutions. That formed my 27 year career and whilst I was a consultant for 18 years on large scale systems architecture contracts working with Norton Corporation, VMWare, Microsoft (which is who I hold my professional qualifications with), Mysis (then Mysis Datala), Silverlake, PA, ORCA and more to supply raw, generic software for customizing and building enterprise systems at RBS, UBS, PwC, PA Consulting, Fujitsu-Siemens financial division, and more – not one of them charged any bank trading desk on volume.

You simply had to pay a license fee. Nobody complained, because that is what software is about. Leasing and licensing. In many ways, the retail FX industry has emulated the institutional sector from trading platform integration to charting and analytics, but software, which is our main strength – after all the retail FX business is at the very leading edge of developing financial solutions that will be used in mainstream finance in tomorrow’s world – should also emulate the institutional world and enterprise software business.

…and that means software licenses and agnosticism. Then maybe more firms will join the likes of PsyQuation in providing excellent analytics for traders, and we will collectively elevate ourselves to sustainability and respectability.

Wednesday: From TripAdvisor to obscurity.

You, like me, have probably misappropriated an otherwise useful proportion of what limited spare time we all have by trawling through the amusing ‘bee-in-the-bonnet’ style reviews that proliferate hospitality rating website TripAdvisor.

I must admit, that rather childishly, I derive more than a degree of mirth from some of the indignant reviews of hotels and restaurants that look rather like they were written by Reginald Perrin about Basil Fawlty and his establishment. I have been known to actually break into laughter in public places such as trains, or airport lounges which is unbecoming of a gentleman.

The voyeuristic insight into amusingly written accolades of poor service, inept food preparation and restaurant buffoonery appeal to my humor, and I believe that I am far from alone in this because TripAdvisor is absolutely the first site that appears when any searches are made about any establishment in any corner of the earth.

“Gamify” this? No thanks…. and when is someone going to banish that nonsensical word. It has no place in a genuine industrial environment

Whether it is respectable or genuine, however, is debatable, because we all know that many small to medium sized hotels and restaurants employ ‘shills’ which create glowing reviews which appear to have the oratory and articulation qualities of professional SEO content writers and marketing specialists rather than “Barry from Newcastle” who may either not leave a review if he had good service, leave a very scathing but direct one if otherwise, often peppered with regionalisms and grammar not learned at media studies or digital marketing classes.

Why aye, man.

Hence, TrustPilot is the new all-encompassing genuine go-to for all services in every sector, as it is moderated and therefore not open to abuse by shills or the evil peppering that some competitors give each other on TripAdvisor, hence TripAdvisor is amusing, and is at best a guide to overall satisfaction rather than specific.

This week, however, a rat in the biscuit tin at Fawlty Towers or an un-incubated chicken in the Benedict at a cliche pseudo-French joint are the least of TripAdvisor’s concerns, as one of the the company’s original architects appears to have gone down the crypto route.

On Wednesday, I received a dialog from Silicon Valley which was almost evangelical in its euphoric announcement that TripAdvisor’s key architect Dan Marchese has plumbed the depths of crypto based travel schemes.

Peppered with allusions to technology and making a large splash that this is a modern, integrated application-based system that uses ‘blockchain technology’ whatever that may be, in whatever capacity, the whole thing points to one thing, that being that one of the internet’s biggest architects who orchestrated many moves toward TripAdvisor being the world’s most read travel review sites with a market capitalization of $8.6 billion has got involved with crypto-coin related rebates!

Currently at Blue Shield of California, Dan spent six and a half years (between July 2010 and November 2016) as Director of Mobile for TripAdvisor (Viator, prior to acquisition).

KeyoCoin’s advisory team now features Rick Savage, Head of Social Media for Apple Music, Beats 1 & iTunes; Federico Pistono, Head of Blockchain for Hyperloop; Layla Revis, VP at Oracle; Tamara Camp, VP of Global CEM, Growth & Loyalty Programs at Western Union; Sheri Kaiserman, Co-Founder of Maco.la and former Head of Equities at Wedbush; and Marat Gaziev, SEO Director at IGN and Ziff Davis.

How it all started. My 1982 ZX Spectrum 48k

The company says it is here to’gamify’ the travel experience, and is tokenized! I am a massively experienced traveler, and a financial technology professional. I do not want my travel ‘gamified’ (binary options, casinos, ponzi schemes, anyone?) and I do not want it tokenized – remember the airline ticket ponzi schemes of the 1980s in which travel agencies took money for tickets that did not exist? Imagine saying you want to ‘gamify’ electronic trading. That would be absurd, wouldn’t it… Oh wait a minute….

Financial regulators are quite rightly clamping down on this type of pseudo-product, but what about much larger industries such as travel?

Whatever next? Oh I know, someone will laud this as brilliant, and look at retail FX and CFD brokers product ranges and curtail them. We live in a topsy-turvy world.

Until it goes wrong. Temptation is a dreadful trait of human nature which is best avoided.

Thursday: Let’s celebrate the post-Crapper generation

Another year has gone by and I have increased in age by another number, plunging me well and truly into the Alan Partridge-esque mid 40s category.

Does this mean that I have to start showing some appreciation for beige as a color of choice from everything ranging from emulsion paint to automotive exteriors?

Not really. What I can say is that when looking at my generation, which represents the majority of us give or take a few years in either direction, we have a lot to be proud of.

Arrival from Eastern Europe: Late 1950s.

Between the 1900s and 1940s, not much changed, yet that was the era of mass invention. Queen Victoria’s red brick terraces and waxed moustachioed uprightness came to an abrupt end and was replaced with, well, red brick terraces and waxed moustachioed uprightness that invented everything from the telephone to worldwide travel, yet remained culturally and technologically very similar over the four decades of mass European emigration to the United States and pioneering breakthroughs in technology that were so gargantuan that everything in your living room can trace its origins to the post-Victorian period, albeit today’s very modern versions of such.

Whilst Thomas Crapper’s newly patented WC began to take its place within new homes, and electric comptometers began to proliferate offices, most people’s every day lives remained the same. Beige.

Look at our generation. In the childhood years of most people who are now leaders of this industry, there was no such profession as a software engineer when we were all born. There was no such thing as the internet, and there was no such global environment that exists today.

School runs were either on foot, on a hand-me-down bicycle or in a bright orange Austin Allegro with a vinyl roof or an equally bright orange AMC Rambler with an equally vinyl roof depending on which side of the at the time very difficult to cross Atlantic which is now the size of a metaphorical swimming pool to those who spend their working lives traveling routinely and thinking nothing of it.

Our clothing, personal accouterments, houses, dining experience, shopping methods, culinary appreciation, schooling, transport, and our overall outlook and mentality does not even resemble that of our own childhood.

Child of the 1970s and teenager of the 1980s.

We are the fortunate generation who were teenagers at the time during which a massive development period occurred, propelling us into careers that embodied an entire global change.

27 years ago, I began my career in this industry sector. It did not resemble anything that we see today, however it was absolutely a career beginning that someone sixteen years my senior (I was sixteen years old at the time) would have never been offered, as it did not exist.

Meanwhile where are my coupons for senior citizen discounts at Denny’s? When I find them, I will get into my self-driving car and scour Spotify’s automated playlists which knows my music preference whilst the car conveys me.

Roll on the next four and a half decades.

Friday. 2 minutes on the Northern Line, or a flight to Stockholm?

Just when you thought, exactly as I did, that it was not possible, I clicked on the offer for a £9 flight from Brussels to Stockholm and was subsequently provided with a ticket. Thus, air travel is now not only cheaper than the excellent but very expensive trains, but its cheaper than a local bus or a return London Underground journey to the next station just 2 minutes along the line and back.

Rare, but possible. Now let’s see more FX industry in Sweden. Watch this space.

Wishing you all a super week ahead!



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