Episode 28

Changing to Surroundings – Options Market Evolution with Market Chameleon

By:

IBKR Senior Trading Education Specialist

Market Chameleon cofounders, Will McBride and Dmitry Pargaminik join us to discuss the changes they’ve seen in the option market from their days as floor traders to the present as well as what inspired them to start Market Chameleon and where they see the industry going.

Summary – Traders’ Insight Radio Ep. 28

The following is a summary of a live audio recording and may contain errors in spelling or grammar.  Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman

Hi everyone, welcome to Interactive Brokers’, Traders’ Insight Radio. I’m your host, Jeff Praissman, Interactive Brokers’ senior trading education specialist. It’s my pleasure to welcome the co-founders of Market Chameleon: Will McBride and Dmitry Pargamanik.  Hey, guys.

William McBride

Hey, Jeff.

Jeff Praissman

Dmitry’s and Will’s careers have had a long historical relationship with Interactive Brokers – from their days on the floor of the Philadelphia Stock Exchange working for Timber Hill, the market making firm of Interactive Brokers, to presenting a monthly webinar on options on our IBKR Webinars series.

Today, we’re going to learn all about Will’s and Dimitri’s days on the floor, what motivated them to start their own trading firm, and how Market Chameleon came to be.

Welcome, guys. Thanks for joining us!

William McBride

Hey Jeff, thanks for having us, buddy.

Jeff Praissman

My pleasure. The three of us go back over 20 years, and we all met as floor traders in the Philadelphia Stock Exchange. I’d like to give our listeners some insight on your work experience prior coming to the PHLX.

Dmitry Pargamanik

Will, you want to start with yours?

William McBride

Yeah, well, my work experience went from flipping pizzas to selling baskets, and always dreaming of being involved in the financial markets. After I graduated from college, we were kind of in the midst of a market slowdown, so there were very few jobs on the street. I graduated from a state university –

University of Vermont – and the one job I was able to get was with an importing company that sold wicker furniture and baskets. And from there, I was brought down to the Philadelphia market to handle South Jersey and Pennsylvania as my territory, and I worked extremely hard every day out on the road as a salesman. And after that, I got a job as a general manager at Domino’s Pizza, hoping to basically franchise a Domino’s at the time – this was late 80s, early 90s. There was still a market, actually, to franchise with Domino’s at the time, and I worked very hard, again, and anyone who’s been in the service business, the restaurant industry, realizes you are working when everyone else is off. For almost two years, I had very little interaction with friends, family. I just worked, and had, you know, basically from Saturday when I closed at 3:00 AM to Monday evening when I came back to run the shift.

You know, that was my time off. And I realized there had to be something better. And, you know, the whole time I would read the [Wall Street] Journal every morning … I had a real interest in the financial markets. And at the same time I was, you know, experiencing my first couple years out in the workforce, and a buddy of mine who was selling computers – he was a couple years older – he was selling to floor traders in Chicago and hedge funds in Chicago. Basically, computer networks. And he was able to get me a job, or an interview, with Iowa Grain in Chicago. So, I went out for a week, was able to get a job, and basically moved to Chicago to get into this business – started on the Board of Trade with Iowa Grain, so that’s kind of how I got my first foot into the floor to the financial markets.

Jeff Praissman

That’s really true, when you think about it. It kind of still ties back to, you know, we’re such a big technology firm, and it…. You know, it ties back to the fact that your exposure to the floor, really, the original thing was you – through a technology firm – getting down there and then, , developing your interest in trading and different products and being on the …  Board of Trade, it’s really full circle, right?

William McBride

Yeah, totally. Totally, full circle. And my trip to Philadelphia was just, you know … and that’s how I ended up in the options business, right?  There were lots of exchanges that traded options. For the Board of Trade, I was dealing in the 30-year Bond … working in the pits there … I dealt in the wheat pit, the grain pits – you know, corn,  there was basically … the commodities market was based in Chicago. They did have the biggest options exchange as well: Cboe. And I knew a lot of people who worked over there. But, you know, there were lots of options available for someone trying to get into the business in Chicago. But the rest of the country, there was a small options exchange and stock exchange in San Francisco, the P[Pacific]-coast, and then Philadelphia had a small market with a small currency exchange, a stock exchange, but a burgeoning the options exchange, andit was my ticket back to the East Coast was trying to get down to that PHLX, and that’s how I ended up actually with Timber Hill. I got a job as a clerk there and came back East probably after a year and a half in Chicago.

What about you, D? How did you get to the floor? What was your early work experience?

Dmitry Pargamanik

So, prior to Timber Hill, I was recruited at Penn State by a brokerage firm called Olde Discount Broker, and this was a full-service brokerage firm, and they were actually the first ones that offered commission-free trading. So, when I started working there, my job was to cold-call people and try to find customers.

That was a sales job, and we would have to call them and say, ‘Hey, open an account at Olde Discount Broker. We have commission-free trading.’ But the problem was that everybody thought it was a scam because back then, well, ‘What do you mean it’s commission-free? How do you make money?’ When I learned about it for the first time as the market-making aspect of the business, and Olde Discount Brokers had a market making arm and a brokerage arm, and their market-making arm made money from the spread, right. So, they would have bids and asks and they would trade in the securities, in the stocks, and the brokerage arm would provide that order flow. It was very difficult to explain to people, but really that, probably, was one of the first firms that started commission-free trading. You had to have a certain amount in your account, but once you had that amount, they did provide a full service. They did have research. If you trade it with Olde Discount, they wouldn’t charge a commission. Now, it’s kind of common people are expecting it. Back then, commissions were very high. You didn’t even have at that time Internet-based brokerage firms. It was kind of done through the phone.

Then, I did leave Olde Discount because I didn’t like sales. I knew I wanted to be involved in trading since I was 13. In college, I studied finance, economics…. I’ve also been reading the Wall Street Journal since I was 13, so that’s what, really, I knew I wanted to do. I had to leave Olde Discount at that point because I thought, well, I don’t want to be a stockbroker. I don’t want to cold-call people. I don’t want to be involved in sales. A friend of mine from college – he knew I wanted to trade – he gave me the contact number to Kevin.

Jeff Praissman

That’s Kevin Fisher, the manager of the floor of the Philadelphia Stock Exchange.

Dmitry Pargamanik

I contacted Kevin. I sent him the resume. He interviewed me. Then I got a job as a clerk, and that’s how I started on the Philadelphia Stock Exchange. The Philadelphia Stock Exchange for me was easy because I grew up in Philadelphia. So, that’s how I ended up on the Philadelphia Stock Exchange.

William McBride

Yeah, you’re also lucky Kevin had a soft-spot for anyone from Penn State.

Dmitry Pargamanik

That’s true, he had a soft-spot for anyone from Penn State. I think he had a soft-spot, actually, for me because I clerked. I was probably with Timber Hill when you started out. You would go through training. You had to clerk. You would become a trader. But I clerked for a long time, and I think it’s because Kevin looked at me, and I was skinny at the time, small … I was a little bit more reserved … and he thought if he sends me into a trading pit, they would just destroy me. They would, ’cause there was a lot of hazing going on at that time … a lot of bullying, so I probably clerked maybe a couple months more than other people did, but eventually, you know, he put me in there, and that’s how I started trading.

Jeff Praissman

And that’s so interesting, looking at both your stories. Will, you kind of got involved through sort of a roundabout way – through technology – selling technology to the floor and getting exposed to it that way. And Dmitry, you started off on the brokerage side but got exposed to market-making. Again, sort of, on the other end of it, even though you were interested in trading before. And obviously that spread is so different than… Now, the zero commissions with payment for order flow, that’s really the driving cause of the zero commissions you see now for all the the brokers. And clerking, too, that’s…. It’s interesting guys, both bring up clerking, because that’s really a career path that’s kind of gone by the wayside, right. Like, you know, you could…. When the floors were super active you would start off as a clerk, get your feet wet, learn sort of on the job, you know, kind of, almost like an apprenticeship you could say, right?

William McBride

It was exactly like an apprenticeship. It was the best of times and the worst of times, right? It was the best of times, because you actually got a job – your foot in the door to something that you were dreaming about … like you really wanted to get down to the floor, right? And then the experience of clerking, you know, had a lot of downs too, right? You were the lowest person on the totem pole. Traders were, you know, wouldn’t treat you great. You’d be doing…. You were at their beck and call to get things for ‘em. Help ‘em out. In Chicago, in particular, you stayed later, you know, you checked all the trades. Timber Hill, it…. I mean, we had to check the trades, too. Didn’t we D? When we were down there, I forget.

Dmitry Pargamanik

Yep, definitely. Because when we started out, it wasn’t as electronic as it is today, and a lot of the reconciliation, trades, had to be manually matched-up. You had to check manually to make sure that the exchange matched them up correctly. That was a big part of our job to do that, so you always needed clerks.

Jeff Praissman

Well, if I remember correctly, I think that we called it ‘the run,’ and you would stay later and that list would come out, and you would sit there with paper tickets, right guys? And literally check stuff off to make sure that the size and the quantity—

William McBride

Yep, and then if there was a problem you’d have to go to the trader in the morning, check the other side. You’d go to the other clerks for the other trader. Check with them. At the time, there was…. Remember, there was only expirations. You’re only trading one month, right? There were no, you know, people talk about weeklies all the time – there was nothing like that. It was…. Everything was once a month. You’d have expiration… On expirations, you had to come in … you need to come in Saturday, right? Saturday—

Dmitry Pargamanik

You had to make sure everything is okay, but it was a different world back then, for sure. Looking back at it – from all the stages that this industry has gone through – it’s really an amazing thing to watch it, at least from our perspective, or early 2000s to what it is today. One of the things that Philadelphia Stock Exchange offered at the time, and Will was making this point, was that it was a regional exchange. And the regional exchanges offered opportunities that you couldn’t get on the New York Stock Exchange,

’cause to to get on the New York Stock Exchange – it was like this exclusive club. The regional exchanges – Philadelphia, Cboe, P coast – they were in their early growth stages. That’s where the opportunities were when we would… came out of college.

Jeff Praissman

And during your time on the floor, you both saw some really major changes in the U.S. markets, and options markets specifically…. Can you guys talk about the differences as far as when you started versus even up to today, such as fractions, multi-listing, electronic trading? Can you give our listeners an idea of the evolution of the options market from your perspective?

Dmitry Pargamanik

The benefits of the technology and electronic trading discount brokers is that the fees to trade have gone down tremendously to commission-free. They weren’t like that when we first started. Access was also is a big thing when we started out. People were doing trades by calling their brokers on the phone.

Then the Internet started to provide the opportunities for discount brokers to give access to other customers, and now you have even real-time quotes. So, a lot of benefits came from technology. From our perspective, we had to adapt to that, so we went from trading in a pit, standing in the crowd with brokers bringing in orders, to saying that this system no longer is a sustainable system. Everything is going electronic. So, what we had to do was pivot and create an electronic market-making operation.

So, we went from a physical operation to have to do an electronic market-making operation, and that was across the board – to make things more efficient, to make things faster, more transparent. So, from that perspective, I think for the customer, a lot of things have improved over the years.

William McBride

Years, you’re right. And even on the floor … operating on the floor…. When we…. Timber Hill was growing so fast I think I clerked maybe for three months. When you were in the crowd, you were the only person with a computer. And we were the first, you know, they just brought handheld computers—Thom[as] Peterffy developed the system around his model, and before we got there – D, I don’t know if you remember this – there used to be desktops that they would have outside the crowd, and they would talk to the trader, and let him know what their prices were. So, there was a clerk at the desktop and then a Timber Hill trader in the crowd with no computer.

Dmitry Pargamanik

Right.

William McBride

Well, Timberhill was the first one to say, ‘I want all of our traders to have a handheld.’ So, we all got handhelds with our pricing. You know, we were the only for years– Timber Hill was the only one in crowds with any sort of computer. But within two years, probably … smaller, you know, other traders started showing up with laptops, and then by the time we left, literally every market-maker on the floor had some sort of electronic device in the trading crowd with their price and their positions.

Dmitry Pargamanik

Right, so originally, you ran models on a micro hedge or some kind of a system and printed out a bunch of different values on the sheet. And you stood it with your sheet inside a pit and try to figure out: Here’s the stock price. Here’s the volatility. Here’s…. this is where the price should be around. And it was very manual. It seems like back in the dinosaur age, but you didn’t even have those computers at the start, but Timber Hill did. When I started – that was Thomas Peterffy. He was really visionary at the time, and when we started out he was the only one who fed models into a computer system in real-time, and the traders had those prices in front of them. It was much easier, and you could enter the positions into the computer. You could reconcile with a with a handheld device. So…. And they were hedging everything through there, so they saw the entire picture through those handheld devices. It was pretty amazing, when looking back, how far ahead of his time Thomas Peterffy was, but eventually, right, the industry started catching up.

William McBride

Yeah, it was amazing, but it makes me think back – and to when you when you first showed up in the crowd with the computer – I mean, ’cause it was new, right, and you would get any made-up term they could do that negatively related to you holding a computer – ‘a computer monkey’. Uh, uh, you know, ‘Make your own decisions. Don’t let the computer make….’, you know. They just yelled at you all the time when you went into a crowd. I mean, Dmitry talked about the bullying earlier. And it was…. It was basically real the whole time. Anytime you had to go into a new crowd, the night before, and I can only speak for myself, but you would be almost sick to your stomach thinking about, you know, how the battle would go over the next couple weeks to try to, you know, get your position. You know, where you’d lie in the hierarchy. This basically existed our entire career on the floor ’cause one thing Dmitry, I mean, Dmitry describes himself as skinny and unassuming, and maybe he stayed as a clerk a little longer, but, you know, he…. when he had to go out and try to make a living in a trading crowd, he would go into any trading crowd. I mean, between Dmitry and I, we probably traded over 100 crowds. And it was one of the great separators, and I think it was a great experience at Timber Hill, ’cause we were always in different crowds. We had the ability to do this. A lot of traders who had been there before us they would go…. I mean, I remember one trader in specific…. He was like in Budweiser. And you know, ‘Trading’s good in Budweiser. There’s activity.’ All of a sudden, activity stops, right? For whatever reason. He’s like, ‘Budweiser’s dead.’ ‘I’m retiring’ type of stuff … like, he didn’t have the, you know, ability, or the, you know, fortitude to go to another spot to try to, you know, make a living. And I think that’s fortitude, basically helped us not only in trading, but in life,– what we’ve gone through. Building another business – that fortitude was built early on thanks to Thomas Peterffy and Timber Hill, and being able to survive in the trading world of the trading floors.

Jeff Praissman

Yeah, I was going to say, both of you were really able to adapt, from creating your own trading firm – creating an electronic trading firm afterwards, you know, lots of people you mentioned … guys in the crowd that were sort of like dinosaurs – didn’t adapt. And, it sounds like really the environment, and the increase in technology, is really what motivated you guys to go upstairs –start streaming quotes, you know, kind of doing it on your own and then, eventually, creating Market Chameleon at some point and providing this service for everyone.

William McBride

Yeah, well, it a long process and it was, …. Thankfully, D’s always had a head for technology , and his brother, who’s another partner, is a programmer. Thankfully, Dmitry was able to build a team of talented, programmers who…. And it’s been a long process…. And, again, you know, looking at it now, you’re like, ‘how did we ever start this,’ right? But, you know, it was never saying, you know…. ‘die never quit’ attitude that helped us do it, because, you know, just move in….. I mean, you remember when we streamed our first quote, D, into the, the marketplace? How stressful that was?

Dmitry Pargamanik

That was really stressful.

William McBride

I mean, it was it’s incredible, right? You’re sending out markets to the world based on a program that you’ve developed and all that interconnectivity and, you know, all the worries, it’s sitting in the back of your head when you’re sending out those markets was real, and then, we slowly built up and built up and built up, and by the time we were at our maximum, I mean, how many products were we streaming, D? It was—

Dmitry Pargamanik

It was in thousands of products, we’re making markets and on multiple exchanges. I think we’re members of the Cboe, American Stock Exchange, The BATS Stock Exchange…. So, we are streaming at the same time to multiple markets in thousands of products, and it was all done through code. And yeah, looking back it was very…. It was very difficult.

Jeff Praissman

Where do you see the future of options trading going? I mean, obviously like SPY, that already seems to have expirations every other day. Do you think all option classes are going to follow that? You know … extending hours? In your minds, where do you see this five years down the road? Or 10 years down the road? How much bigger can it get? Or how can it evolve or change?

Dmitry Pargamanik

Well, I think, fortunately, for the options markets, there are very innovative people involved. And since we’ve been in in that business, there are very smart people creating new types of products, meeting the demands of their customers. So, I think there is going to be innovation we don’t even know about right now in this space. As far as the trading, potentially seven days a week – 24/7 – just like we do in crypto, right? If you could do it in crypto, you could do it in other things, why not have it in stocks and options? It makes it, I think, even more fair for people just to be able to access the markets anytime when they need to access the markets. And I think that the technology will also change from the clearing perspective. You know, just like we’re seeing what’s going on in the crypto. I think that that technology will also change – make it more efficient, make it more fair, make it more accessible. So, there are a lot of things, I think, in the future that is going to be a big benefit for the options markets and for the stock market as well.

Jeff Praissman

Excellent, excellent! And for listeners that may not be as familiar with options, or maybe just starting to look into becoming a little bit more sophisticated investors and start to trade options. Maybe they were just trading stocks or ETF’s [exchange-traded funds] at first. What do you think the biggest  misconception about options is? You know, in my mind, options are actually very safe. You can use them as a hedge to actually limit risk. Spreads can limit risk as well. But what do you think … like maybe from your viewers that you get from your YouTube channel, or just non-professionals … investors that are sort of getting interested in options. What are some of the questions that you’ve gotten, or just from your conversations with people?

Dmitry Pargamanik

I think a lot of times people have wrong assumptions, and that’s because they don’t quite understand how things work. They think things that might be simple, so even something like an ex-dividend, people are confused. What is the ex-dividend date? When do I have to own it? Before or after doing it by the pay date? So, simple things like that. Or even assignments and spreads. Some people make assumptions thinking this is how it works, and that I think creates this confusion. And when things go wrong, they don’t understand it, and they think it … you know, ‘it’s rigged’. So, one is just not understanding or enough education about how things work differently. Even open interest, you know I always get the same question: ‘Well, how come I don’t see open interest in real time? I want to see it in real time, but there isn’t no’…. That’s not how it works. The OCC, you know, they calculate the open interest, and they settle trades. I have to explain it to many people.

But the biggest, I think, misconception from the very start, and probably everybody makes this mistake, is that people think getting into trading means that you have to find something that you have to agree with the price, right … agree with the markets. Prices are going up. I have to get in and buy – that means it’s going up. Prices are going down. That means I have to get out – it’s going down. And from our trading, a trade is always when you disagree with something, right? Not you have to agree with it, but you’re actually disagreeing. In other words, your model’s telling you this is time to buy, because the markets discounted a security, an option or stock too far; or this is time to sell, because my model says that the premium built into this stock … into this option … is too high, and it should come down to some kind of more normal level. That is a big difference when you’re looking at a model that’s telling you something’s discounted too far down or priced too— That’s a big difference from what I see. People trying to kind of go right straight to the execution and chase prices. And everybody, I think, that’s how they start out. They open up their computer. Either they’re looking at a chart or they’re looking at a streaming price or flashing quote, and they try to chase prices. And that always fails. You know, that’s not sustainable. It’s not a real model. You know, there’s no logic behind that. So, I think people try to trade on impulse, basically. That’s how they do it. The first thing they do is they try to trade on impulse. They try to trade on instinct, and they don’t realize that it’s not that execution … it’s really all the preparation for you to execute a trade.

Jeff Praissman

So, it’s really what you’re saying – it’s really research, logic, math. It’s not emotion. It’s really taking emotion out of it and going…. And that kind of leads us to your Market Chameleon platform and the information it provides your subscribers. And I kind of want to know … I want to kind of pivot over here and say, may first question on that was: Where did the name come from? ‘Market Chameleon’?

Dmitry Pargamanik

When we started, we were debating what should we name the website. We couldn’t come up with a name … or we were throwing out some names there that really nobody wanted to stick with. Well, we weren’t sure. And I was over my brother’s house one time, and he had this chameleon – a pet. And we’re talking like, you know, we’re kind of like the chameleon, because we always try to adapt to the markets and to the circumstances. And that’s what a chameleon does – changes colors, adapts to his environment. And I came up the next day and said, well, how about ‘Market Chameleon’? It just kind of stuck, and we went with that.

William McBride

Yeah, it’s amazing thinking about, I remember being in Philadelphia when you came in that morning with that name.

Dmitry Pargamanik

Everybody laughed.

William McBride

Yeah, I mean…. when people were still going into offices … and we were trading, too, right, and the trading business was changing. Regulation was becoming complicated for market-makers, and to stay in that space, we basically would have had to hire a full-time lawyer, right?

Dmitry Pargamanik

As a market-maker, broker-dealer.

William McBride

As a market-maker. And clearing firms were giving us…. You know, it’s hard to find [a] clearer. I mean, there’s so many things holding us. So, we’d done so much, technically, in the marketplace to give us an, you know, an edge, a ‘vig’, in the marketplace – with the way we handled earnings, the way we handled dividends, how we looked at the market, our volatilities…. We had all these great features that we were using ourselves, and, you know, before we even started the website, do you remember we were trying to sell some of our data, right? And how hard we … for about six months we would, you know, go to conferences, because we realized we could deliver our earnings and our dividends at a much better rate, basically, than what was in the market by other entities.

But what we realized after, you know, after about six months to a year, is even if we cut it by one-tenth of the price, no one wanted to develop around an earnings feed, or a dividends feed, from a small, no-name market-maker – what was a market-making firm at the time.

So, at that point we decided to use our own data and build the website. But it was… there’s a lot of trial and error … trying not only the name, but trying to get the website off and how we were going to…. And it’s ever-changing – like a chameleon today, it’s still ever-changing, right? We gotta find something else that we think our customers will like. Our customers tell us about something they would like, so it really is amazing how it’s developed and grown over the … five years now? Six years we’ve been doing this, D? How long is it?

Dmitry Pargamanik

Yeah, yeah, definitely. For sure, I think that what we thought was initially…. ‘Well, we launched this website. Somehow Google will figure out everything we do and send us all these people, right?’ So, we go out there, we launch the website. We go live. And zero, right? Nobody is visiting, except maybe one of the …

William McBride

Friends and family.

Dmitry Pargamanik

Oh yeah … we told them about it, and like, well, ‘how does this work’? And we had to figure out how to run a website. That was the big part we didn’t understand. We entered into a completely new business that…it’s not just our data, it’s analytics, and we had to figure out: How do you run a website? How do you create a business running a website on the World Wide Web? How do you get people to know you’re even out there? How do you get people to come to your website? All these things took a really long time to learn, so we were not prepared at all to launch this website. We thought it was going to be much easier than it actually was, and probably if we knew how hard it would be, we’d stick to trading. But we didn’t know. We didn’t know, and we had to learn. We had to adapt. We had to learn. And we had to get educated ourselves on lots of things that were not even related to trading to be able to make Market Chameleon, you know, a research … web-based research tool.

Jeff Praissman

So, really, Market Chameleon is a perfect name for you guys, ’cause, you know, you guys have adapted throughout your careers – from before, becoming traders to becoming floor traders to becoming upstairs traders to creating this entire data service. Even though it’s related to trading, like you said, it’s a completely different business and kind of learning on the fly and being able to, become successful at that as well. Where do you guys see yourselves … your role … as educators within the options landscape? I mean, obviously you guys have your YouTube channel every morning that you go over ideas … we’re lucky to have you as part of our IBKR webinar program, and now we’re launching our podcast series with you guys. So, are there any other media that you use to get your ideas out there, or anything that you’re thinking up on the horizon?

Dmitry Pargamanik

And we didn’t start out trying to be educators. It actually just happened by chance, or by circumstances. We thought, okay, we’re going to create this web-based research tool for self-directed traders and investors. And we looked at other tools out there and thought, ‘oh wow, look, you know, there are these other tools out there’ that … like finviz and Marketbee – all these tools people use, and you never see their CEOs talking about the markets. You never see them educating. They kind of just exist there, and that was our plan. Well, we’ll put it out there, and people will figure it out. The issue we had is that we’re options focused, and we’re model focused – very analytical. You know, statistics. And it’s not simple, so we were forced to kind of go out there from the feedback from our customers and help them out. So, if you have a website that’s just listing dividends, or just has an earnings calendar, or just reports on earnings, people know that it’s simple. You don’t need to get it out there and talk about it on YouTube every day. Because we’re so focused on derivatives, valuation models, statistics … we had to come out and say, ‘alright, we need to help people out here … how we view things … how these tools operate. Will, do you have anything to add to this?

William McBride

I was just gonna say…. I mean, when we’re started … Dmitry is so customer-focused – any customer had a question, he’d basically organize a one-on-one session with ‘em…. I mean, I don’t know how many one-on-ones have you done? Thousands?

Dmitry Pargamanik

Probably in the hundreds, and that’s when I started to discover: Well, wait a minute. The retail customers I’m talking to think a lot different than I’m accustomed to, because we always talked to traders being on the floor. So, once I started hearing and listening to the retail customers, I started to realize: Whoa, they think a lot differently. They’re assuming a lot of things out there. They’re confused … maybe with how things actually work, you know, just simple things like I mentioned before. Ex-dividend,  or a split, or other type of corporate action. People get confused. Even expiration, you know? Or when do you exercise a call? When do you exercise a put? Why would somebody want to exercise it? All this for us was natural. We just knew the answers. Out there, not a lot of people do. It takes time to learn. Sometimes you have to make mistakes to learn, but from the retail side, I think that’s probably—

One of the things that … probably because of discount brokerage, because of free commissions …  there’s a lack of education out there from the brokerage. You don’t have that full-service brokerage firms anymore holding your hand, walking you through things, explaining … doing research for you, and that’s the void, right? When you’re on your own, yes, you get low commissions, or zero commissions … you get fast executions, you get, you know, trade-through rules. You get to benefit from all that, but because it’s free, there is nobody out there holding your hand.

Like, for example, you would have a real estate broker, right? So, a real estate broker – even though they also benefited from the Internet – but if you’re going to go out and buy a house, you’re still using a broker, and you’re still paying a lot of commissions.  You have brokerage fees, inspections, mortgage fees…. You don’t have that in the stocks and options anymore. But you are basically responsible for yourself, and that’s the trade-off.

William McBride

Stock brokers had a notoriously bad reputation for leading people down a wrong avenue, as well. I mean, just ’cause you yeah have a broker, you better be really comfortable with them, as well. I remember, you know, orders coming to the floor, you wonder….  I mean, they were coming through brokers, right? And they were strange at the time as well, so….

Dmitry Pargamanik

Right, so not all brokers were good. A lot of them had bad reputations. And, unfortunately, I think that may be that’s missing in our industry, and part of that is because all the fees … there are no margins. Everything became commoditized, right? So, everything has to be electronic. It has to be a lot of transactions. And that’s not only hurting the investors from that perspective – innovations – but I think it’s also hurting capital formation, because when you have new companies, people don’t know about them. They could be small companies with great ideas, but there’s no incentive to educate people about them, right? There’s no profit incentive anymore, and that’s an issue. That’s a problem. You know, when most of the trading, most of the volume, goes to top-tier companies, what do you do with all these other companies that have great ideas, and maybe have very good profit potential for investors, but can’t bring them to the market anymore, and there’s nobody there to educate…

Jeff Praissman

Well, yeah, a big a big part of our goal, obviously, at Interactive Brokers is trader education, which we do through our various platforms, and our IBKR Campus.

But guys, I want to I want to thank you guys so much for stopping by Traders’ Insight Radio!

And I want to remind our listeners that all of Market Chameleon’s webinars can be found at ibkrwebinars.com. Just select our contributors and click on Market Chameleon. You can view their previously recorded webinars there and find their upcoming live events on our calendar and through our newsletter.

Thank you for listening. Until next time, I’m Jeff Praissman with Interactive Brokers.

William McBride

Thanks, Jeff. Have a great day!

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