Tom Sosnoff Will Teach You Trading

24:40So I look at business the exact same way. Every customer at Robinhood, every customer at Thinkorswim, every customer at E-Trade, every customer at Fidelity, they should be our customers. But obviously they're not. But that's the way I look at the business. We don't have – we could have an 18-year-old kid. we can have a 90 I think our oldest customer is like 99 I don't know very short day of options at that age you don't buy right you don't buy zero day you don't buy the green bananas you mentioned your customers got hurt in April so most options expire worthless we know that so is your thing like instead of being the sucker who buys the options sell them?

25:22is that the deal? yeah but don't a lot of institutions do that trade also? Like, how do you, how do, how do, uh, institutions are pretty on, on, on balance. They're pretty dumb. First of all, they don't have the expertise. They don't have the technology. They don't have the expertise and they're very limited by liquidity. So institutions have to trade in a very narrow set of, you know, that's why you have such a concentration of just all, you know, equity wealth, but it's the same thing for options. If you're an institution, you can't move$25 million in options, which is nothing if, in very many stocks.

25:56You have like five or 10 different underlines max. So the futures world with respect to options is, I mean, the institutional world with respect to options is pretty limited. And we don't do any institutional business. Okay. We're 100 % retail. So options trading is at record highs. Yes. But I thought there was an interesting juxtaposition that I wanted to show you. Can we put up this cash and money markets chart? It's weird to be in an environment where people have never traded more in options, whether it's volume of contracts or dollars, any way you want to look at it, it's an absolute explosion.

26:32But then at the same time, total cash and money market funds is at an all-time record high and like a very pronounced one, almost vertical. People will look at that options chart and they'll say it's a speculative mania because they're stupid and they just infer. And then people will look at this cash and money markets and they'll say everyone's bearish. Neither of these two things are true. Not even remotely. There just is a lot of cash and a lot of activity. And neither one of those things have to signal anything about the environment. They could just be things that are happening in and of themselves.

27:06I think you'd agree with that. Yeah, the markets at the S &Ps are at 6 ,700. I mean, there's, you know, you're talking about an enormous amount of wealth that's created. That's why there's, you know, you could take a little bit of money off the table and you still have the same position you had on, you know, a year ago. So that's why cash is so high. So you said people are smart and investors today are more informed than they've ever been. Of course. Fidelity made this video in 1994. We've got a four-second clip. John, show us the time. When I say the word stock market view, what comes to mind?

27:34Confusion. I don't even know how to read the... Too much of a gamble for me. Unbelievable. That's 30 years ago. How much more informed is the public today than they were 30 years ago or even 20 years ago? I mean, the dissemination of everything, because we all have everything in whatever, in TikTok bites now, it's got to be significantly higher. Here, I'll give you a number that's really interesting. When we built Thinkorswim, it was 1999, 2000. and the amount of option business that TD Ameritrade did was between 7 % and 8 % of all their volume. Now, they had a web-based platform, but remember, they had bought a bunch of different firms.

28:24They're pretty big. And 7 % or 8 % of their volume was options, and they did zero futures business. When they recently sold to Schwab, the TD Ameritrade, their business was over 70 % options and futures. when you add them together, they're mid-70s. Wow. That wasn't that many years later. Right. So the investing public has grown more sophisticated over time. Well, also they've grown more capital efficient. So the problem right now is you've got stocks. Like you take 100 shares of Spiders, just as an example,$67 ,000 for 100 shares. The average retail customer has a$40 ,000 or$50 ,000 portfolio.

29:03And so, you know, I mean, that's the average online customer. You know, there's obviously places like Schwab where the customer size is bigger. But you can't even buy 100 shares of stock. Yeah. So why would you? Why wouldn't you just either sell a put where you put up, you know,$8 ,000 or$9 ,000 or sell a put spread where you put up$250 or buy a call spread or buy a call, whatever you want to do. What is the limiting factor? It's the lack of understanding of how these instruments work. Not really anymore. Now there's so much content out there. The technology is so freaking good. You can't believe how good the technology is today.

29:34Yeah. Well, one of the reasons why I think people feel more comfortable with stocks than options is not having to constrain their opinion of what's going to happen into a set predetermined window of time. So people will say— Because that's an old-school way of thinking. I understand. Yeah. But I wanted to ask you about that. So people will say like, all right, I'm going to buy Alphabet. Yeah. If I'm wrong, it'll go down$20, but I'll just hold it until it goes up because that's how people operate. With an option, you're dead. Nobody in our world thinks like that. Okay. Like I couldn't, I haven't found a person, you know, I mean, I respect, you know, the people that can do that, that can get away with that.

30:11Like, you know, the Warren Buffett's of the world where you can hold something for 20 years until it's right because nobody's ever leaving you. But in today's world, you're only, if you're a money manager, you're only as good as your last quarter or your last month. And if you are a trader, you know, none of that plays. Well, you won't survive as a trader. You're dead. You couldn't do that. You're dead. You're dead. So the only way to keep yourself in check is kind of, is trade size. There's nothing else. But again, the technology today and the information that's available to you, like, I mean, our platform, we'll show you, like, you get your worst case.

30:44Like, we'll give you a CVAR number. We'll basically give you everything to 99 % of the occurrences. You know, there's only 1 % outliers. And that's kind of, you know, so the only way genius fails is when you trade too big. Okay. So you're showing people here's the mathematical probabilities of what could happen here. Of course. You don't know what will happen. Of course. But you're stacking the odds in someone's favor by at least presenting them with upside downside. No, we're not giving – we're not – we're stacking the probabilities in their favor, but it's not a theoretical edge. Do you understand?

31:18It's quantifiable? Sure, it's quantifiable, but it's not a theoretical edge. What it is is it's just we are just explaining to somebody. So in other words, if you want a 70 % probability of success on every trade you make, you can do that no problem. And law of large numbers will deliver that return, will deliver that win percentage to you. But they won't necessarily deliver return to you. I was about to say, what's the gain if it's that high? It's got to be relatively low, right? So the gain is less. You take more risk. Of course. You risk more to make less. Right. But you have a higher win percentage.

31:48So you mentioned edge and how the market makers are so good. The prices are always right. The technology is so good. The information is so good and quantifiable. Does that make alpha or edge much harder paradoxically? Because everybody knows everything? Of course. Yeah. I mean, yeah, there is no such thing as edge anymore. Are there a lot of retail options traders who make a living and that's their sole source of income is the money that they're pulling out of the stock market? Yes. That's pretty impressive for somebody to be able to do that. It's really impressive. Is that one in 10 ,000 or is that one in a million?

32:20Like what are the odds of somebody getting good enough and being consistent enough and emotionless enough to be able to really do that. It's extremely rare. We, we've done, we do, uh, I'm sure you've seen it. We do a shitload of research on this. Okay. This is, this is my word. This is what I want to learn. Let me just say, finish up with what you said, because I think it's important. So the reason that we take that high probability approach to trading is not because it means you're going to make a certain return. We do it because we teach people to win. Like all we care about, because we can't make you money or whatever.

32:52All we care about is you learn how to be, how to have a winning, how to win more than you lose. And then hopefully you figure out how to turn that into a positive return. And position size. So I'm with you. So I'm a gambler. Yeah. And I would much rather do a three leg parlay where I buy points and it's plus 120 as opposed to an eight leg parlay that's plus 1300. That's never going to hit. Yeah, but the problem with that trade, the problem with that bet. Oh, I know I lose money. Believe me. Yeah. Is you have, you have an embedded negative return. You cannot over time make money. Correct. In the trading world.

33:22So I'll give you a couple stats. Interesting. So in the gambling world, you bet$100 ,000. You're basically paying$10 ,000 in fees. Okay? You bet$100 ,000 in the trading world. Okay? You're paying$1. Because if you're trading something that's liquid, like$100 ,000 of Apple,$100 ,000 of video, whatever it is, the difference between a bid-ass differential is one penny. So it's$1 to$10 ,000. That's why, you know, if you want to gamble, have some fun. But it's impossible to make money. So I used to lose three to five cents for every dollar that I was betting in FanDuel. Yeah. And the bottom fell out for me thanks to the Chiefs and the f***ing Texans and Chargers game.

33:53But anyway, so now I'm down to like six to seven cents loss for every dollar. But that's right. Yeah, I lose six to seven percent of my bets or the dollar of every. So in the trading world, it's a level playing field. And that's it. You know, it just depends on how you do it. But is it as much fun? Maybe more fun. I don't know. It really depends. I have fun gambling too, but it's different. Okay. So the question about how many people could realistically be professional traders. So think of it like a, because it's such a level playing field, if you, you know, make enough trades, it's all about making enough trades because then you average out what you're supposed to, which is just classic, you know, law of large numbers.

34:27That's like poker. Of course. If you have an edge, the longer you play. Of course. The longer that, like, the more money that edge should deliver to you. Of course. But even poker, the rake is pretty big compared to trading. But, so, I'm going to break it down like just a normal, like, this is how our customers go. 16 % of the people blow out. the attrition rate's about 16%. Within how much time does it take for that to happen? I have no idea. It could be three months, six months, a year. Michael's case, first trade. When you say blowout, you mean account goes to zero or they stop trading? The account goes to zero or they stop trading.

35:02And that's why they stop trading. Yeah. The reason people stop trading is because the account goes to zero. So 16%, all right, 16%. 16 % blowout. 16 % outperform some crazy multiple of risk-free rates. So let's say risk-free rates are 4%, right? So 16 % deliver returns over 20 % or 25%. Wow. Okay, so that's both sides of your distribution curve. Everybody else falls in the middle. Everybody. And what's the middle? Just whatever? The middle is whatever. So you have 34 % above the midline, which now for me, the midline is some multiple of risk-free rates. And then 34 % fall below the midline, which is you don't beat risk-free rates.

35:43So if there's no edge, why do people trade with you? Well, there is – we tried to optimize the mechanics because it's fun. Hell, yeah, it is. Because here, there is such a demand for speculative – there's such a speculative demand because of either asymmetric upside or just, hey, I want to do something. I want to take some risk. So I will argue the reason people trade is so that they make quicker decisions, so their brain processes decision-making faster, so they're probabilistic in the way they think about everything, and they become a much – they build wealth at a rate that is higher. If you run into anybody you've ever met that's very wealthy, they make the quickest decisions you've ever seen.

36:29And the reason for that is their brain just works faster. It works for athletes. Is that real? 100%. Really? That's why you have athletes that can play Brady. Can I pause you, though? Yeah. So then why are all the famous investors obsessed with telling you how slowly they operate? Howard Marks, Warren Buffett, Charlie Munger. Is this shtick? They're 100. I understand. That's from a year's past. But don't you find that interesting? No, I don't. I used to hate him. Charlie Munger used to drive me crazy. I couldn't listen to that guy. You know, when you start. Rest in peace. When you start. When you start.

37:03Like, I mean, I used to, until he died, I used to rant against him all the time. I'm like, shut the f*** up. You know, you're, this is not good for a business. Okay. I, there's so much. So quick decision making is alpha. Even if they're not good decisions, just the fact that you were able to be decisive, you're saying, is how you get rich. So I've been doing this on the retail side now for 25 years. 20 years I spent as a market maker, then 25 years building Thinker, Swim and Tasty. And if I told you the number of people that said, you know what? I couldn't trade for shit. But my business exploded from what I learned from trading.

37:40Oh, I love that. It's incredible. Okay. It's incredible. The number is just off the charts. Well, you know what? Money won is better than money earned. And the reward, the dopamine hit from seeing that exponential growth in a short period of time. I mean, nothing better. I'm a grinder. So I'm a little different. Like I'm somebody that like, you know, I don't really get that kind of asymmetric upside. You're not looking for lottery-esque feeling. You like to win consistently over time. Yeah. Okay. I think I'm that way too. But you can't have longevity in the trading business if you're just shooting for long shots.

38:12It just, you'll bust. Can we talk about that 16 % that are at the top of the distribution? Okay. So these are the 16 % of people who are earning far in excess of the risk-free rate, multiples of the risk-free rate. That's the only way you can measure it, right? That's the only fair way. Okay, fine. So what is it about those people? And how do you replicate them? How do you find them? And how do you bring more of them on platform? I mean, first of all, we try to bring everybody on platform. So it's not like, you know, we don't. But those are great customers because they'll be with you forever. Forever, yeah.

38:45Yeah. I mean, in this business, remember in the brokerage business, you know, at TD Ameritrade, I think it was 6 % of the customers did 80 % of their business. At Tasty, it's like 20 % of our customers do 80 % of our business. So you're right. That's what we want. I mean, we want to teach people to hang around for 40 years. Tom, are you born that way? Or can anyone become that top 16 %? Oh, anybody. Anybody can? Yeah, anybody. So you agree with the turtle traders? Like the idea, they said like basically if anyone walks in off the street and does this method, they can become a trader. So you sort of believe it.

39:26It's not exactly the trading places thing. But it's a little different. I think anybody can become a successful self-directed investor. I think the key for me is teaching people to improve their basis. Like when we first start, you know, what's the greatest thing to do? Just improve your basis. Just give yourself a better statistical chance than somebody that buys something and it's a 50-50 shot. Give yourself a better statistical advantage. And then also teaching people about financial strategies and also how to use this technology and how the markets work. It's so valuable. You understand everything.

40:02I mean, we've probably taught 5 million people over the last 25 years. Okay. 5 million. If someone's going to go on that journey with you, how much of their day does it monopolize? Because if you have options trades on, it's not set it and forget it. Don't you have to make some hedging trades right now? Yeah. You haven't traded in 10 minutes since we've been talking. No, but like somebody has to. I am a junkie, just so you know. Somebody has to be committed to like, I'm going to have alerts set. I don't give a shit. No, but. I know. I don't care. Is that relevant to the people? I mean, you don't have to.

40:37Okay. You do whatever you want. It's like, you know, all right, you like to gamble on sports. Okay. How many times on a Sunday do you look at your phone to see what the score is? A million. He never looks away from his phone. Okay. There you go. Same thing. I mean, you know, and you still work. You know what I'm saying? You figure it out. It's just like anything else. The 16 % of the elite traders, I would imagine that there's a lot of turnover in that group. Or are you saying that it's— Sure. Okay. There's some—yeah, there's turnover in everything. Okay. But you know what? Like, you can't overthink this stuff.

41:03Like, the world's moving. There is no question that on the retail side—I'm not talking about the institutional side because that never changes. It's old. It's legacy. It just stays the way it is until somebody completely disrupts it. But on the retail side, everything's moved short term. you know whether it's zero dt options whether it's you know trading you know the biggest growth we have is in futures options the biggest growth it's like we're like 25 year over year in futures options there's not enough leverage in futures options on futures options on futures as opposed to just straight trading futures yeah we're the largest we do the largest percentage of options on futures of any firm in the world okay and it's crazy but that's what customers are attracted to What's the purpose of options on futures?

41:44More leverage for the dollar? No. Strategic. Tell me more. Strategic. You can make money if you're wrong, potentially, and you can lose money if you're right. You can bet on something staying inside a range. Okay. You can risk a little to make a lot, or you can risk a lot to make a little, depending on what probability sets you want. The model for futures options is the exact same as this for listed options. It doesn't make a difference. Do you think that overall the explosion in retail trading that – I would put like the beginning of that, let's say March, April of 2020. I know retail trading has been growing in popularity forever since Charles Schwab in San Francisco.

42:25But just in the last four years, five years, it really feels like a renaissance. do you think that um on balance that's been a great thing for most people or a really great thing for a small group of people or like do you have like a philosophical take yeah i think it's been i think i think you're you're talking positive on it yeah i think you're talking about like kind of really that meme stock movement in 2021 and what exploded from that you know i don't know like uh 30 million new retail traders or whatever the number that was the inflection point most of them young. I agree. I think it was transformational moment.

42:59And of course, I'm going to say it was amazing for the business. And I don't care if some people lost money because we introduced life. Yeah. And we introduced markets and trading to, you know, maybe 50 million new people in the end, you know, because there was obviously carry on after that. So, I mean, no, it's huge. It's great. Introducing, teaching people about managing your own money is so freaking important. And nobody wants to touch this because they're all scared, but nobody realizes, hey, you know what? You're just as smart as the next guy. You're maybe probably even smarter. Yeah. What do you say to somebody who says, all right, I tried this.

43:35I tried to be very active, made a lot of decisions quickly. They weren't great decisions, it turns out, in hindsight. And it made me very anxious. Would you ever say to somebody, hey, you know what? I actually think you would be better off with ETFs and don't do this. Well, we would never say that, but I'd be totally fine. Like, I wouldn't, like like i we don't tell people i build technology and i write content right i don't talk to people about their you know their stuff i mean you're not anyone's financial advisor right i i'll answer i'm an email junkie too so i answer like a gazillion emails a year but i will help people with they have a question but i don't tell people what to do okay what's the coolest story you ever heard from somebody who learned to manage their own money and trade on your platform and what happened for them as a result the coolest story yeah like what's like a what's like an awesome outcome i'm not sure how the outcome ultimately resolved itself because there were some negative things i can't wait to hear this but the coolest story i ever heard which was back when we owned thinkorswim was there was this woman who came to an event that we did she was she was nice she was an accountant she was cpa and she was she'd gone to wake forest she really smart master's degree and we started talking because she was a huge North Carolina basketball fan because she grew up there.

44:52She loved Michael Jordan, the whole deal. And we started talking and she moved$100 ,000 from wherever she had her money because she was really intrigued. We did an options seminar, like 2005. And she emailed me a couple of times and I had no idea. And she moved$100 ,000. So So my partner, Scott, comes up to me one day. This is probably 2007, 2008. And he goes, do you know this woman? Because she says she knows you. And I go, yeah, yeah. I met her in like, you know, North Carolina. I was doing a show, whatever. Super nice. She writes me emails all the time. He goes, she's up$10 million this year.

45:28And she's firing like 1 ,000 lots, you know, in the SPX. It's like 2008, 2009. And I'm like, what? I go, she moved$100 ,000. I go, no, she's up 10 million right now. Okay. And, and she's like, you know, probably early sixties, like the quietest, nicest Southern woman, you know, like, like, and I'm like, what the hell? So, so they're watching her because when you get, when you start trading a certain size, you know, you pop up on our wrist monitors. So, you know, and, and she's a premium seller and all this other stuff, but she mostly sells puts and she caught the absolute bottom in 2000, end of 2008 to the beginning of 2009.

46:07she sold a ton of puts and over that period she made a hundred million dollars no way started with a hundred thousand dollars she made a hundred now she the story has a bad ending and i don't really want to get into it you married her no all right yeah i got my own problems there but but um uh but but she legit made and people would be like and we did a series on her for a while like we we told the story because it was great and so many people write to us like it's all bullshit you guys are so full of shit you know like and i'm like dude we watched this we watched everything because we were worried about firm risk yeah we couldn't shut her down did you copy her trades no no and she traded she was by the time what was she doing though she was trading so special she was just selling size she was just selling 5 000 lots of of different uh strangles and condors in in the spx and that's a lot back then she was the biggest trader in the world for a short period of time.

47:02So when she was right, she made a lot of money. Yeah, but she didn't have a lot of drawdowns because what she did is she always stayed long delta. She means long. She always stayed on balance long, theoretically long in the market. And so she caught from 2009 to like 2013. And she just caught that. And she developed this on her own just using your platform. Using the analytics on our platform. And when I interviewed her, I was just like, Tony and I interviewed her and I was just shaking our head. We're like, it's not f***ing possible. Like it doesn't, because, And the guys in the SPX pit who we're all friends with still, because that's where we grew up, you know, on the trading floor.

47:36So she would route the orders. And they'd be like, they'd be calling us up for like, what the f*** is going on? How does this woman write? Can you share what you nicknamed her? Because you definitely had a nickname for this whale. Oh, yeah, yeah. Oh, our nickname was Karen the Super Trader. Karen the Super Trader. Karen the Super Trader. Yeah. Okay. What did that tell you about the power of your platform? It didn't. It didn't. That wasn't it. Because, I mean, that was the thinker some days. And then when we built Tasty, you know, we changed the game again. Like, Thinkorswim changed the whole industry, you know?

48:08And it also— I was going to ask you about this later. Tell us, for the audience that is not aware of what Thinkorswim is, let's do this now. My first trade was on Thinkorswim, 2008. There you go. Why was it called that? Why do people still talk about it in glowing—people love Thinkorswim. It's a beautiful platform. What was it about it? And then why'd you sell it? It was a cult-like firm. So I was trading in the OEX pit one day in the S &P, you know, 100. And my partner was Scott Sheridan. We've been partners for 37 years or something. And we still are. And I turned to him and I go, you know, everything was going electronic in the end of 1999.

48:49And we were also short the market. And those stupid internet stocks were exploding. So we're like, I was just in a bad mood. And I go, I'm ready to try something different. I've been doing this for 20 years, standing in one spot. Literally like in two feet of space. And I'm like, I'm sick of all these guys spitting on me and sweating on me and all this stuff. Like, let's try something different. And we had already built a money management firm. So we were managing a half a billion dollars of like some institutional money on top of trading, all this stuff. But I'm like, I want to try something different.

49:16I want to build something. And I got a great name, Thinkorswim. Nobody will ever, I made it up. I was walking through my house. I tell my wife, I go, Thinkorswim, what do you think? She goes, idiotic. It's a great name. So I go, nobody will ever know. Turned out to have been a great name. nobody and that when we when we launched the platform crane chicago which is like a business paper they go worst name for a brokerage firm ever this one wrote a whole story and i'm like i told scott we nailed it because if this person hates it we got it and and so we built fingerswim and we had you know we had built it with seven guys originally and a bunch of russian developers because there was nobody around in the u.s and it turned into be an amazing cult firm with a really beautiful piece of technology.

49:55And it still exists today. It's one of the best platforms. And the reason we sold it was because, first of all, we're traders, right? And at the time was the meltdown in 2009. Because we didn't know that was the era that yeah, so we were trading over a billion dollars. And then we dropped down to like, you know, let's say 600 million because they killed all the financial stocks in 2000, end of 2008, early 2009. And then all of a sudden, And TD had tried to buy us twice before, and we turned them down both times. And then Options Express started talking to us and another couple of firms. We had three firms bidding for us.

50:32Was their offer lower than the previous ones? They were all about the same. But here's why we did TD Ameritrade. When you negotiate, is this Moglia or is this Ricketts? Moglia. No, it's not Ricketts. Moglia was the CEO at the time. Okay. And so I was negotiating with Joe, who I'm friends with to this day. Yeah, we're friends with Joe. Yeah. So my favorite Joe Mugley stories, we're sitting, we're negotiating this deal, and I'm in New York doing a show because I'm just always promoting. And I'm in New York doing a show, and Joe calls me up, and I go, why does your phone sound so bad? He goes, because I'm taking a shit.

51:04He goes, are we done? Are we done with this deal yet? And I go, I guess. How could you say no? Exactly. Yeah, yeah, yeah. Anyway, so, but here was the problem. This is even a better part of the story. So we agreed to the deal. And, you know, we think this company's worth, we think they're paying a little bit more than we're worth, but that's because all the financial stocks are killed. And TD Ameritrade's trading for$11 at the time. Yep, I remember. They killed their stock. So we're like, we don't want cash. Smart. We want stock. Like selling a putt, basically. Contrarian. Because I thought their stock was too cheap.

51:43Buying it in the hole. So I thought our stock was too cheap, but I thought their stock was even cheaper. So I'm like, I want your stock. And they're like, we want to give you cash because it's accretive to them if they do cash. It was not a good deal. I shouldn't say it wasn't a good deal. It was a great deal for them. But they wanted to do all stock. But then the beautiful thing is at the exact same time, the same exact day, month, whatever, the Ricketts, Tom Ricketts wants to buy the Cubs. Okay. And so to buy the Cubs, he needs cash. Oh, it's perfect. So he needs about$350 million cash so they could buy the Cubs from, I think it was Sam Zell or whoever at the time.

52:22So the Ricketts need$350 million. We want stock. And TD wants to do the deal for cash rather than stock. So we did a three-way deal. And we never announced this to the public. But the Ricketts got their$350 million cash. We got our stock. And TD was able to keep their stock. What a story. Perfect timing. A three-way deal at the exact same time. There would have been a cool way if you would have gotten the Cubs. But I guess we couldn't. Well, the biggest mistake I made from that is that, so when he did that, then Tom Ricketts goes, because we're all kind of friends, you know. And we even sponsor the Cubs today.

52:58We're one of their lead sponsors. He still owns them. Oh, yeah, yeah. They're great. He's the best owner in Chicago, for sure. Well, he delivered finally. But we're on the mound. Oh, that's cool. Tasty Trade. Tasty Trade's on the mound on Wrigley. Every telecast. But so Tom goes, listen, he goes, Tom, you should, we're still need a little more cash. You should throw some money into the Cubs because it's a good deal. And I'm like, I think it kind of is a good deal. But I just was like, you know, going through this intense deal to do the whole deal. So I didn't buy into the Cubs. I missed that. But anyway, that's why we sold it.

53:35How long did you sit around until you said, I got to do this again? So it was two years. And then Mowgli left, and this guy named Fred Tomczak took over TD. And Fred was great. He's a great CEO. And we're very good friends even to today. And Fred comes in, and he says, you know, he wants us to work there, me and Scott, for a couple years. We signed like a three-year deal. After two years, I went to him. I said, Fred, you know this is not for me. Like, you know, this is too corporate for me. You know, I'm a, you know, I'm t-shirt wear. I mean, I'm not, this is not me. So he goes, what do you want to do?

54:14I go, I have an idea. I go, I want to build this financial network called, and I didn't tell him what, right? Cause I know he hates all my names. He hated the name Thinkersum. And now I know he's going to hate Tasty Trade. And I go, all right, I'm going to build this financial network called Tasty Trade. He goes, that's the dumbest idea I've ever heard. He goes, but I'm in for 20 million. Cause he goes, he goes, whatever you do, I'm betting on. And so they were our first investor. We never even took the 20 million. We took a piece from them.

54:40and so he supported it, which is great. And then Tasty Chair was born in 2011. We sold it in 2021 for$1.1 billion. Wow. Unbelievable. Unbelievable. Michael wants a fist bump. So you sold it, but you're still there. You're still part of it. Yeah. Well, no, I don't need the specifics in your contract, but you sold it. Who bought it? IG group out of London. Okay. All right. Are you having fun now that you took all that risk off and you can just do what you do, do the shows and... You know what? I don't give a crap about the money. I know it sounds weird, but like... Well, you were doing okay before the sale.

55:20Yeah, you were okay before. You didn't need the money from the sale. Well, I mean, it's always... Like, you want to be... Like, it's your legacy kind of thing. Like, it doesn't... It didn't change my life at all. But, you know, I still work my ass off. I mean, the company, we sold it four years ago. It's worth double that today. So what still drives you? You're just competitive? You're a maniac? Yeah, and plus I don't have any hobbies. Well, this is your hobby. You love this. Same with us. Plus, you know what? So this is going to sound weird, but I work with all my friends. Like most of us have been together 25 to 45 years.

55:51Like these are my only friends. Like this is what we do. And so, you know, so I work with my friends. I still have fun. Dude, I get a text from Michael like every three months. And he's always like, it's always some version of like, I feel really bad for you that you can't enjoy the ride that we're on. Like we're working our asses off. He's a miserable prick. I'm such, I guess I'm, I guess I don't appreciate what you just said enough. Say it again. You're working with your friends. Yeah. It's not about the money. So I, I check every one of those boxes that you just said, I'm working with my friends.

56:23Yeah. Like I do need the money. I'm not in your situation, but like, I'm okay. It's not every day is a do or die the way it used to be when I was a retail broker. So I'm fine on money, but I just can't, like on a daily basis, I have ups and downs. Yeah, sure. But I don't appreciate it enough. And can I read this? Yes. This is what Michael texted me. It made me cry, but yes. No, because Michael's my friend, like first and foremost, right? Yes. So, and I feel bad about it because I know he's right. So he goes, I wish you could, this is yesterday, two days ago, 730 at night. I wish you could enjoy the ride.

56:58It's going to end one day. These are the best days we're ever going to have, literally. Doing everything we ever dreamed of and more. It breaks my heart that you can't find the joy in this. Or if you are having fun, you have a weird way of showing it. You don't have to respond, but I had to get this off my chest. And that's maybe the fourth time he said some version of that. I'm a good friend, right? You are a good friend. I wouldn't say that I'm not having fun, but I'm definitely underappreciating the aspect of it that you just described. Fix me. So the only thing that money is good for, the only thing that, I mean, of course, there's, I shouldn't say only thing, but the really nice thing about making some money is that you can afford to do things that you have fun with.

57:43Like, I don't give a crap about buying shit. I don't even own it. I'm a minimalist. I don't own anything. But I'd love to be able to do things where I'm having fun. And so, like, what I do, I'm having fun. Like, the investments I make, I'm having fun. The business I build, I'm having fun. I'm not going to do anything at my age. I'm not doing anything anymore, which is not fun. Okay. And you don't have to. So, all right. How does Josh have fun? Well, no, no, no. But I'm not in you. I still have to do things that I don't want. I can't help out. I still have to do things that I don't want to do, but it's okay.

58:16Like, this is part of my journey, part of my adventure. Sure. You have a lot of years on me. You probably did a lot of things that you didn't want to do, but you knew you had to. And then your success, the point that you're at now, is like you don't have to do those things anymore. So I'm not there yet, but I'm closer to being there than I ever in my life thought I would be, where I am able to say no to a lot of shit. Yeah, that's good. And I think I under, I think I underappreciate it, but that might just be, this is the way I am. I can't do anything about it. You know, one of the things also that's a really fun takeaway is that I like the fact that I have made people that have hung around with me like very wealthy too.

58:57I love that. We, Scott and I and Christy, we gave away$50 million. We gave$20 million to our employees when we sold, I think there was something, $30 million when we sold Tasty. This is in addition to everything else. We just gave them, like, just handed out checks for$30 million on top of everything else we've done. So we— That's got to be the best. The best feeling in the world. The best. Okay. And you see these people still every day or often. So one of the things with wealth is that you do lose a few friends because some people can't handle it. It's a weird thing. Somebody that I know when we were a lot younger sold their business to Goldman Sachs.

59:33And I said, it's amazing, right? And he's like, yeah, but I lost a couple of friends. I go, why? And he's like, because some people couldn't handle it. Many people that don't have the money that you do can't be your friends anymore? Yeah. Maybe from jealousy or whatever. It's something. And I see it sometimes in business. But my friends, we've been like, the hardest thing was like, there's a bunch of people that you know that I've hired over the years that I think have done your show. I think, did JJ do your show? Not yet. Oh, not yet. But like Q did your show, right? Steve Quirk. Steve Quirk.

1:00:00Yeah. So like these are guys that we all traded together in the pits, you know? And it's hard, you know, like, and Tony, same thing. The first time I offered Tony a job, he's like, I'm not working for you. And the second time I offered a job, he's not working for you. JJ was the same way. I offered him a job. He goes, I'm not working for you. And then Q is, you know, Q is the first time he's, I tried to bring him to. He's like, I'm not working for you. Like we stood next to each other in the pit, you know? And then a year later. You get that though. Because if the situation were reversed. I totally get it.

1:00:27You would probably, like if you were J.J. Kinnahan and you were like, working for Tom? No, I totally get it. And then, but you know, then years later, you know, they've amassed a ton of wealth because they just bought in and they learned so much. And, you know, it just, it's cool. Like that kind of stuff is cool. Like we have a tree that goes to every firm, like Robinhood and E-Trade and every single firm out there has finger swimmers and everything. You're like the Bill Parcells. I actually, Tom, I think that's actually the coolest thing in the world. What do you think about Robinhood? What's your, I mean, this is the most, I would say.

1:01:01I don't give a crap. No, no, no. I mean, the success that they've had. And what they've built. I think it's amazing. Yeah, it's amazing. Okay. So I think. I mean, if you. In the last 10 years, it's definitely the most exciting new brokerage business to come along. Sure. I mean, they, you know, they clicked the viral button and it worked. and the virality that they did. I mean, I was trying to do that for, you know, I mean, I'm not, I had an amazing career, but like what they did, incredible. I don't give a crap. Like, I mean, I like those guys, you know, on balance. I like those guys, but I'm also a competitor.

1:01:36I want every one of their customers. They kind of bent the industry to their will. 100%. With a 0 % commission. Dude, that's why TD had to get bought by Schwab is because of Robinhood. Why? Because the commission-free trading destroyed the business, no? of TD Ameritrade? It didn't? No chance. Come on. No. What do you think it was? That TD sold? Yeah. Because they had a bunch of idiots on their board who just wanted to take the money. They were so... But you don't think commission-free trading was disruptive? I don't know. TD Ameritrade was owned 40-some-odd percent by TD Bank. Right. TD Bank was in trouble for a bunch of crap, but they also...

1:02:09They hated each other. They wanted to hit the bid. They just wanted out of that thing. Everyone was like, you know, I mean, no, the Ricketts... Joe Ricketts and Schwa, They hate each other. They don't want to do the deal. I'm sure that's true. The way that I see it is that when Schwab - No, that had nothing to do with it. But when Schwab said, we're going commission-free too, Schwab's stock got hurt. Let's just say 10%. They only went commission-free. But TD got destroyed, and then Schwab said, we're buying you with our stock. We're just going to swallow you. No, that's not - And TD, at that point, was doing 70 % of their business in options.

1:02:38They didn't go commission-free. Okay. They only went commission-free in stocks. They didn't even care. It's nothing to them. They had a no commission platform of ETFs for the RIA custody side of the biz. Here, when we did the think or some TD deal at first, they were doing about 300 ,000 to 400 ,000 darts a day. That's trades. Daily average revenue trades. It's the number of trades. That's back in 2009. They were doing about 300 ,000 or 400 ,000. At the first board meeting, I walked in. I said, we're going to do a million trades a day because of our platform. Because you bought Toss, you're going to do a million trades a day.

1:03:18They're like, no f***ing way. Within six years, they were doing four million trades a day. When they sold to Schwab, they were doing over four million trades. They were killing it. They sold because they were dysfunctional. They didn't sell because they had to sell. So you think they could have stayed by themselves in zero percent commissions? Listen, you know a lot better than we do. I'll take your word for it. They could have survived with zero dollar commissions? They don't – nobody – we all have zero dollar commissions. Everybody has zero dollar for stock. So payment for order flow, margin lending, that like would have been enough, enough reason to stay independent.

1:03:47Of course. Okay. The Robinhood going to zero, none of us have gone to zero on options or anything else. And so we've all just went to zero on stock because nobody makes anybody on stock anyway. Let me ask you a question. Options is the better business. Options and futures. Is it because the spreads are so wide? Like why are options such a great business? because you can actually make money with them. And because the customers, the customers like them because they're strategic and the firms like them because, because they can actually make a little bit of money. Can't make any money in stocks. Yeah.

1:04:18So technology is really expensive to deliver and the marketing is really expensive. Everything's expensive and nobody helps you. So, you know, you've got to get market share. I want to ask you about option strategies in ETF wrappers. How do you feel about that? I don't care. so we do so do you think that those products are worthwhile do you think they're like executing that those strategies well what are they missing like why why aren't they working as well as they should because they stink you should have to get called for help with any of that stuff well i have one friend that's really good trader that manages one of those funds but i'm not going to bring him into this but the other is it yield max or no i i don't know the name okay so let me let me read this real quick.

1:05:00Okay. This is from our friend Jeffrey Patak at Morningstar. Yieldmax coin option income strategy ETF gained 42 % per year from its 2023 inception through 2025. Okay. Over that period, the ETF received nearly$2 billion in cumulative net inflows, and its daily assets averaged around$560 million. So Jeffrey says, how much money did investors in this ETF make in dollar terms over that period? Because it was up 42 % a year. It's only two years, but still they didn't make any money. They lost$35 million in total. How do investors lose$35 million in an ETF that's gained nearly 42 % per year? I don't know.

1:05:37So they're buying and selling at the wrong time. No. Horrifically. What else? Here's, here's the problem with these. And I don't want to get into like a lot of, the problem is that they can't use the, they can't use the listed markets because the listed markets are not big enough for what they want to do. So what happens is they are forced to go into the OTC markets and they just get, they don't understand how bad they're getting ripped off by JP Morgan, Goldman Sachs, and everybody else. And so they're at like, you know, like where customers are trading one tick off mid price. These guys are trading 10 or 20 ticks off mid price and they don't give a shit because it's not their money.

1:06:12So the ETF sponsor, the asset manager can't go into the same options market that you and I can go into because these are$500 million funds. Right. Okay. So there's not enough size in the contracts they want to buy. So they go into an OTC market where it's a little bit more of a wild west, like the pricing. The counterparty is just some bank. And the bank has to lay it off in the public marketplace in some way. So the bank has to have enough edge to find it. They have to capture something in between. Sure. Okay. So the difference is – I'll explain the difference. So the difference is when our customers trade and Citadel is the counterparty, Citadel makes money on scale.

1:06:50Not on it. The edge is tiny. It's like a fraction of a penny. But it's all about scale. It's all about doing, you know. A billion trades. A billion trades. Yeah, yeah. So it's all scale. It's just the high frequency game is a scale game. The game that these guys are playing is the old school way where they're giving up the edge to the counterparty. And then the counterparty is Goldman, Morgan, whatever. And that's just an absolute – like conceptually, I'm okay with it. It's just not my thing. I don't like the product. I mean they've gotten popular amongst investors. But remember – This is why we're asking about it.

1:07:19Remember what happened in 2007, 2008? Remember what the most popular fund was then? Closed and covered call funds. Oh, yeah. 150 of them were created. Every single one of them went out of business. Wow. They did not survive the financial crisis. Right. Exactly. Counterparty risk. Or was it something else? It was structural risk. Structural. Yeah, structural risk. And it was counterparty, structural, the whole deal. But they didn't survive. None of them did. Because you mentioned ABN Amro. There was a moment in 07 where the entirety of the retail brokerage business was selling structured notes.

1:07:52ABN was one of the biggest counterparties. Lehman, funny enough. Well, those were different, but the - LaSalle Street. When you think about the whole credit default era then, so we were just having this conversation today because we, so firms like us, we sit on a lot of cash. Like, let's say we have$8 billion in customer capital. I think it's something, but it's all cash because nobody buys stocks. I mean, nobody brings their portfolio over to us. It's all just trading. So we probably have, you know, four or five million dollars billion dollars in cash all the time so in 2008 it was a little less than that but in 2008 or 7 every firm on the street was like why are you guys leaving your money in overnight repos and treasuries you know because you could get four six percent more because that's your revenue that's your only revenue yeah and i'm like yeah but who's the counterparty like like this is customer funds and if you remember what happened in when the meltdown in 2008 e-trade almost run out of business commercial paper started blowing up money markets blowing up not only Lehman but but you know Merrill Lynch basically had everybody who laddered out just like a couple years ago when the you know with the silicon yeah but but this was even way worse in 2008 because everybody jumped into those credit just to get just to ladder out and get a little bit more money on their money even TD Ameritrade if you remember then they their money funds went under a dollar.

1:09:10Yes. Famously. Famously. So the firm that had zero risk was, was thinkorswim back there. Cause we didn't do any, we only left all the money because we're like, that's not our business. So in the middle of the crash, I called Ken Griffin and I said, cause he had bought all the E-Trade. Which crash? Oh, 08? 08. Okay. I forgot that. Ken Griffin bought E-Trade. He basically bailed out E-Trade. Yeah. Okay. So I called him and I said, Ken, we're, you know, we're doing great. We had no problems. We had no issues at all. You know, maybe we lost five or$10 million and just, you know, customers blowing out.

1:09:43But other than that, we had no other issues. So I go, I want to buy part of E-Trade from you. Okay. And he, he was like, listen, Tom, it's a, it's a shit trade because I don't know if this company is going to make it because I wouldn't feel good about selling you. He goes, if you really want one, I'll sell you a piece, but I wouldn't feel good about it. And I was like, okay. And, and we didn't, I didn't do anything because it's for that reason you're saying like why was it a shit business at that time because he wasn't sure that they were going to make it he was like he was like they got so many mortgage issues and so many credit default swap issues that i don't know if they're going to be able to pull out of this and he goes i don't know if you know what you guys can afford to lose and i'm like that's fair thank you and i didn't do it and and it and to be fair it took a couple years for him to make any money on it okay i want to i want to uh but that would have been fun if we bought e-trade i want to finish by asking you a culture question uh new york versus Chicago.

1:10:34Where'd you grow up? You grew up in New York? Queens? No, I grew up and I was born in Manhattan. My mom was a grad student at Barnard, Columbia. And then we moved to just outside of White Plains. Okay. West Chester. Yeah. Okay. About 20 miles from here. All right. You obviously are the center of the universe in terms of the Chicago trading scene. At least that's the way I've heard it. Yeah. Okay. But you've worked in New York too. Yeah. What do What are the big cultural differences between traders in New York, traders in Chicago, Wall Street versus Chicago? What are your thoughts on that? Well, the first thing we would say in Chicago are there are no traders in New York.

1:11:12There's a financial community in New York that is huge. Yes. There are a lot of lawyers and bankers in New York. There's a lot of money managers. And there's a massive business here of assets under management, things like that. But we would argue there's no traders. You would say like the activity at the New York Stock Exchange, the NASDAQ, is more public relations at this point, less trading. But I could say the same thing about the CBOE is gone. The physical floor at the CME is gone. Yeah, but those exchanges are still – they're the monsters. And mostly all the high-frequency firms. I mean Citadel moved to Florida, but mostly high-frequency firms are still in Chicago.

1:11:52And there's still a pretty dominant trading community there. Okay. but you know like ProTail and that kind of stuff, you know, professional prop firms. Tom, you're never going to stop, right? You have another trick up your sleeve. What's next? I do. Of course you do. Do you know, do you know what it is yet? Or is this tomorrow? This is tomorrow. Why do you have a big announcement coming? Maybe, maybe. Wow. All right. Good for you. Yeah. Tom, this has been such a pleasure. We, we've, we've followed you from afar. And I've always looked forward to asking you these questions. and having this conversation.

1:12:27So thank you so much for being here. We always end this podcast by asking people what they're most looking forward to. Sounds like the thing that you're most looking forward to, you can't say, but maybe what's the second most exciting thing that you're looking forward to? I don't want to make it seem like it's some mystery thing, but there's, for me, what's really fun is building stuff. Okay. You know, so I probably most look forward to seeing, you know, like, what kind of cool stuff can we build in the future? Okay. Like that's it. I mean, I'm not, you know, I'm not going to ever retire. You're right.

1:12:57Oh, it's tasty AI. I mean, I mean, when I'm doing something on stage, I always say when I'm when I drop dead here, just roll me the dumpster in the back. I'm cool with it. That's OK. I want to die doing this stuff. Love it. So, you're the man. Thank you so much, Tom. Thanks. All right, guys, we want to say thank you so much for listening. Please like and subscribe. Do all the things. We appreciate you. Great job on the show all week. John, Duncan, et cetera. Shout out to the whole team. and we'll talk to you guys soon. Thank you. Thanks so much. Was that fun? It was great. You want to do it one more time just to make sure we got it?