Anton Kreil Annihilates Retail Brokers and “Trading Educators”

so welcome everyone to this seminar hosted by the Institute of trading and portfolio management we’re lucky enough to have Anton crea with us here today managing director of the company who’s flown in from Singapore especially to give this presentation and it wasn’t long ago that I was sitting there in your position listening to one of Anton’s presentations back in 2012 with little or no trading knowledge myself and just looking for somewhere to learn and Anton certainly been a great mentor to me over the years as I’m sure he will be with you guys going forward, so that being said it’s my pleasure to introduce our speaker for the evening mr. Anton creel hi guys welcome, so we’re short on time today it’s a huge presentation we’re not going to be able to take questions during the presentation, but we’re going to be in the pub later you can see all the some of the mentors here as well from the Institute, so you can ask a lot of questions there later we’re going to aim to get finished by around 9:00 9:15, so without further ado, let’s get on with it, so here’s the schedule for today the first thing we’re going to look at we’ve called it the other side of the fence professional trading knowledge that professionals do not want retail traders to know some of the things you’re going to see today are very harsh and aggressive home truths and you might not like some of the things you see, but it’s honest it’s truthful and you just got to deal with it there’s things that professional traders don’t want you guys to know, so they are at an informational advantage in the financial markets versus you guys we’re going to look at some of the market participants the broker the educator and the retail trader how your side of the industry works, so basically not the professional side, I’m going to look at the differences we’re going to look at something called the inversion narrative, so why the vast majority of retail traders in the UK Europe and Asia lose money and why the vast majority of retail traders in the u.s. lose money there’s some subtle differences and we’re also going to look at Charlotte and educators fake traders how these guys create a story about themselves and suck naive retail traders into believing what they want you to believe, so, I’m going to show you how to spot these guys, and then we’re going to look at how you actually go about getting consistent profitability as a retail trader, so, let’s get started first things first why the hell do we care how many people here have actually traded who’s got a brokerage account, so that’s quite a lot 40% of the room who hasn’t who’s never who’s never ever tried it, so minority of the room has never actually pushed the button, so that’s quite interesting, so why do we care well people have tried and the vast majority lose money, but, if you haven’t tried, if you haven’t done anything in the retail trading world whether you like it or not you are in the finance industry, if you participate, if you’ve got a mortgage you’re in a business you own a home you’ve got a bank account a credit card debit cards whatever you are in the finance industry whether you like it or not you are a participant in the economy, but there’s another reason as well pensions the pensions infrastructure that was essentially set up in the 70s has failed the Western world what’s the pensions question the pensions question is can I get income in retirement can I live my life in retirement and the pension solution is to provide that income, but no one can retire what’s the average pension number in the United Kingdom average pension balance it’s about thirty thousand pounds in the u.s. in dollar terms it’s about sixty seventy thousand dollars in Europe it’s about the equivalent of the UK about thirty thousand pounds, so about 40,000 euros Asia there’s varying degrees, so, for example, Singapore have the highest pension values in the world the average pension value is 330 thousand dollars, but there’s reasons for that which is another lecture, but essentially in the Western world pensions have failed, so what’s happening boomers and Gen Xers are desperate, because they know they can’t retire, so people are always looking for a solution and this is why people come to seminars like this, but you’ve got to be warned you’re not the only people that have realized this everyone’s realized it and also an entire industry has been built around a narrative to provide you with solutions to this problem essentially catered to the desperate middle-class fool now this idea of learning how to do everything yourself it’s a noble idea, but it’s fraught with dangers, because there’s a lot of bad people in the world, if you want to cater to the middle-class fool and those bad people do things that are not good for you they’re only good for them and I’ll cut our continuous campaign at the Institute is to basically first show you guys how it actually works show you basically how the landscape how the industry works, so you can figure out how not to lose money how not to fall into all the traps how to make all the classic errors as a trader or an investor, and then the second thing we do is actually teach you how to then go and make money, so the first thing you have to do as a retail person in this industry is to essentially make sure you have no downside don’t do all the stupid things learn how basically to avoid all the mistakes then it’s about learning how to make money over time and we’ve been providing the information in this seminar, for example, for close to five years in closed seminars, so it’s never been publicly available and this is why we’re filming today, because we’re now going to stick this on YouTube and the whole world is going to see it and this is why you have to, if you’ve heard of this phrase be woke, what you’re going to get taught today pretty much every retail trader will never ever figure it out and it’s pretty simple straightforward stuff, but most retail traders the vast majority will never figure it out and even, if they do they’ve been on a journey where they’ve lost, so much money to figure it out it’s now pointless, so here we’re literally saving you a lifetime of losses or, if you figure it out up to ten years a decade of losses, so this is really useful information first thing you have to do when entering any industry whatsoever, if you were going to set up a new business the first thing you would do is do an industry appraisal who are the winners who are the losers how’s the industry set up what parameters can I operate in how do I be successful what mistakes do I need to avoid, if you were going into any industry you would do that as a small business person why would you not do it in trading it’s the first thing you have to do and there’s been some major trends in the last thirty years that really affect retail and they’re very important they have significant consequences the first one is how the market set up who owns the exchanges the exchanges is where all the business is cleared every time you press the button it goes the order goes down a pipe through a broker through an investment bank to the exchange who owns all the exchanges well there we have it IntercontinentalExchange ice owned NYC and Euronext that’s the majority of business in the market the Chicago Mercantile Exchange owns the Chicago Board of Trade 9x and Comex, so basically we have a monopoly slush jewelley what does that mean what do we think it means who does economics here monopolies do we like them what’s the negative of monopolies he puts potentially pricing power and control, so we’ll come back to that later, but the exchanges are now basically owned by a couple of companies and by having a monopoly they can control the market, if they want to how the market is set up how the players must operate who they incentivize parameters like this will come under it later again second technology obviously technologies played a major role in the last thirty years first things first infrastructure massively increased retail trader participation thirty years ago you’d be on the telephone calling your broker and just accepting the price on the phone whatever you got what have you got now well internet penetration internet capability speeds very low power very low barriers to entry everyone can’t rave on their bedroom or their phone very easy access is that is that necessarily a good thing, if you have access does it mean you’re good of course not hardware microchips processing speeds massively increased, and then that’s effective the penetration of retail traders much lower cost of production again lower very lower barriers to entry software connectivity to financial markets and everything being organized for you, so making life easier none of it actually means that the trade is going to be profitable it just means you’re supposedly you’re supposed to have better access and better capability it’s supposed to help you more, but it doesn’t necessarily mean you can make money regulators every problem we’ve had in the financial market in the last 30 years the regulator’s done nothing to stop it before it’s happened it’s always happened afterwards the regulator is always passive and reactionary in pretty much every geography in the world, so in 2010 one of the main instruments that retail traders use are contracts for difference they were banned in the United States why, because too many people lost too much money too quickly also in 2010 IB contracts which we’ll come to you later does anybody know what IB stands for, if you do it means you’re in the industry and you’re on the brokerage side introducing broker contracts are you a broker congratulations you’re not going to like this Center ok, so I B stands for introducing broker we’ll go into the details on those later, but essentially it means that people introduce retail traders on to the brokers platform and get a kickback for doing, so they were banned in Singapore in 2010 why do you think they were banned why do we think they were banned in Singapore, because they’re great conflict of interest hit the nail on the head loads of bad people were turning up into Singapore like they do all over the world and teaching people absolute nonsense putting them on trading platforms and everyone was blowing up and losing their money, so the regulator government stepped in and banned them and this is very typical of regulators they do it after the event, so what does that mean, if you’re a retail trader well history tells us as a retail trader you have to regulate yourself, because the regulator is not going to save you their passive reaction we you’ll lose all your money then they might change a law afterwards doesn’t matter you’re done you’re out the game financial markets volatility volatility in all the major asset classes since the financial crisis, so 809, so from oh nine onwards has been crushed what does that mean for traders sure, so volatility for traders is the lifeblood of a trader a trader is a slave to volatility, because without volatility you don’t have any risk and you don’t have opportunity and risk an opportunity or two sides of the same coin it’s called volatility and, if volatility gets crushed risk and opportunities get crushed which means returns over certain periods of time over certain time horizons Peter to zero, so wise financial market volatility being crushed in all the asset classes well the first main reason was the monetary policy after the financial crisis, so, if you remember the Fed was implementing QE quantitative easing what does that do guaranteed buyer bonds suppresses yields permanently that feeds over into other asset classes, because money keeps buying other asset classes to chase yield which suppresses yield, so it goes all the way through the asset classes obviously they stopped a few years ago, but there’s other reasons as well technology why does technology and access for retail traders suppress volatility, because there’s more market participants why there’s more market participants suppressed volatility, because it increases liquidity why there’s more liquidity equal less volatility in most cases it means there’s more willing buyers and more willing sellers at every price for an asset which means, if you have an infinite amount of willing buyers and winning sellers are sets don’t move create zero volatility, so this idea of trading now being like it used to be 15 25 35 years ago where you can just turn up Gatorade and we used to call this scalping it’s not existence anymore it hasn’t existed for a good six seven years and this is why day traders have basically not made any money or lost money over the last six years, so this is a big this has had a huge impact on retail traders, because there’s less opportunities over shorter time horizons, so the professionals have totally changed their approach in the last seven years why, because professionals do what the market tells them to do not the other way round and we get this message through the Institute probably 10 times a week exactly the same question through the website and it’s literally worded the same all the time I am a Forex day trader can the Institute’s Education help me what’s wrong with that statement why is that we think it’s the most stupid statement or question anyone can ask as a trader why do you think that is exactly, so the person is literally saying I only trade one asset class and I only trade over one timeframe that’s all I do now think about it like this euro dollar most liquid Forex pair in the market what’s euro dollar done in the last 18 months 104 to 130 that’s been the range what happens, if euro dollar is 106 from now to over the next 250 trading days and every day you buy it at 106 and sell it at 106 what happens can you make money well of course not, so this idiot is going to be sitting at his desk for the next 250 days saying I am a Forex day trader can the Institute help me what mistake is that person made they’ve limited their opportunities, because they’re only trading one asset class one time horizon and they don’t have any ability to trade anything else over any time horizon that’s the first error everyone makes in retail trading what you have to do in your first one to two years as a retail trader is to learn how to trade everything and get yourself a proper educational foundation, so you can follow the volatility or predict where it is and go where the money is, so, if you’re over one time horizon in one asset class and it stops working you can shift and move you don’t define yourself by one asset class over one time horizon and the only way to do it is to emulate what professional traders do and that’s what they’ve done, so on the left hand side we’ve got pretty much all the behaviors of a professional trader and on the right hand side all the behaviors of a retail trader what’s the approach of a professional trader systematic mostly longshore portfolio management across multiple asset classes no narrow definition every trader wishes they could have an infinite discretion we mandate to be able to trade anything at any time in any way they wanted, so they could just follow where the money is, so this idea the popularized perception of a trader as in you see lots of guys screaming on a floor like in the movies it doesn’t exist anymore it’s complete nonsense, but, there are people in the world that wish it was the case, but it’s all pretend it’s a narrative that people use to get you to do things that you don’t want to do the pro trader approaches 80% fundamental 20% technical in the vast majority of cases investment banks at prop desks and hedge funds retail traders what’s the approach what the retail traders tend to be when they approach the market short timeframes everything’s over one day four hours two hours five minute candles one minute candles always looking for quick returns that potentially don’t exist, because they’re not actually monitoring volatility correctly what’s the outlook of risk for a professional trader this is where they differ as well investment bank drop desks and hedge funds will have multiple positions long and short and they will build portfolios usually position sizes of five to ten percent of portfolios, so you’re looking at 10 to 20 positions in a portfolio and they’ll trade correlation within the portfolio and not one position will be allowed to blow them up that’s why they have position limits like this what’s the retail trader approach what happens when you open a typical retail trader account well actually a very high percentage of retail traders don’t have any positions there’s a massive problem in the brokerage industry and we get asked to try and solve it all the time which is dormant accounts guys who go to seminars with brokers and educators they get convinced to open a trading account they deposit a couple of thousand dollars or ten thousand dollars or twenty five grand they go home and they realize they don’t have the confidence to pull the trigger why, because they realize that what they just learned is a load of nonsense, and then they leave their money there it earns no interest and every month they pay in activity fees to the broker what does the broker want to do the broker wants them to trade of course what about the rest of the guys, if you open up their account typically two or three positions their favorite Forex pair long or short, because it’s in the news every minute of every day short the S&P 500, because they’re reading doomsday research online I’m watching too many YouTube videos and usually their favorite cheap stock which they bought two years ago it’s now down 50% and they’re moving it over to their pension, because they can’t bring themselves to sell it that’s a typical retail trader account think of all those mistakes they’re really really common professional traders don’t do that it’s all about portfolio management and getting consistency in return which is the next point with pro traders consistency means risk adjusted returns risk adjusted returns what does that mean, let’s let’s think about this food with two traders as an example trade of one and, let’s say you’re pitched to invest money in either of these traders trader one takes 50% risk per annum annualized volatility in their portfolio you can measure the volatility of a portfolio very easy 50% risk a year and gets 25 percent return and trader 2 takes 10% risk per year and make 16% we’ve done it who’s the better trader of course trader 1 you can’t invest in, so whatever you put with trader 1 he could blow up literally in six months and your investment is zero with the other guy he could lose ten percent in a year, but he’s knocking in sixteen percent his return is higher than the volatility of his portfolio he’s an efficient optim optimized trader and a lot of these hedge funds are literally employed to do that, so they will have a volatility cap on their portfolio that they can’t go over they’re not mandated to take the market risk they’re mandated, for example, to take 10% risk that’s why their investors are investing, so, if they don’t beat the S&P they don’t care, because that they’re signing up to take 10% risk no more what the retail traders do everything short of short-term binary, so they’ll have no positions or one or two positions they’ll sit around for three weeks waiting for the non-farm payroll number, and then they’ll take a bet three minutes into it or two seconds after it and the vast majority vast majority of time they’re cutting afterwards and that’s probably one of the stupidest trades you’ll ever do, because all the professional traders have got a very good idea what the numbers going to be and when a retail trader reacts to it the professional traders have already predicted it and retail traders are providing the liquidity to the professional side to get out of the trade, so professional traders have predicted that number for a month before and even, if it’s higher or lower than consensus which is economists the professional traders have predicted that it’s going to be higher or lower than consensus it’s called the whisper number and the market moves on it only, because of retail traders professional traders don’t trade on it and initiate positions they use the liquidity to get out, so it’s all short-term binary for retail traders and the short term binary approach provides liquidity for the smart guys who are predicting the future it’s providing liquidity for them to get out what’s the outcome of a professional trader what do they want to achieve well the first thing is capital preservation, and then growth the retail trader wants to achieve big money very quickly and not necessarily consistency and the outcome is they just blow up capital destruction, so the key difference is here the professional traders have realistic expectations and targets and their target is to get rich slowly and they want to trade forever or at least until retirement or until they die retail traders very unrealistically high target something never meet their targets, so they stay poor or get poor quicker expectations and never ever met target to never met and they just blow up that’s the typical scenario now I want you to think about this in terms of a retail broker a professional traders broker is the investment bank that’s an institutional broker, let’s think about a retail broker who’s got 10,000 retail coins and 90% of them lose money how does the how does the business grow, let’s think about the reality of this business, if you own the brokerage company how do you grow it, if 90% of your clients lose money you have to spend a significant amount of the money that you make from the guys blowing up and it’s usually between 30 and 50% on marketing to get new guys to open accounts to replace the accounts that are blowing up and closing down that’s the only way you can actually stay at the same level, if you want to grow, you need to open more accounts than the ones that are being closed up, so imagine you have 9,000 out of 10,000 clients down at any one time what would you do, if you had access to 9,000 traders who always lose money come on someone think outside the box here there we go you take the other side of their trades with you why, because then you have a 90 percent win ratio you’d be the best trader in the world, so what we’re going to show you here applies mostly to international markets outside the US as we mentioned earlier us CFDs are banned, so we’re going to look at CFDs mostly how these contracts operate how the brokers operate within that industry we’ll have a look at u.s. brokerage companies later u.s. guys mostly trade options, so we’ll concentrate on outside the US as in the rest of the world, so we’re going to be looking at UK Europe Hong Kong Singapore Middle East Australia New Zealand South Africa what we’ll show you here initially is what happens in all of these territories all the same brokers are in all the same places, so I’ve mentioned this briefly again the nineteen ninety phenomenon who knows what that stands for yeah 90%, let’s be specific of how it works 90% of retail traders said the retail brokers clients lose 90% of their deposited margin within 90 days, so what is margin it’s the money you put in your account and you get leverage when trading CFDs, but what is the CFD well you don’t actually own the asset CFD is contract for difference, so, if you were to buy a CFD on a stock it’s a contract that is supposed to mirror the price of the underlying asset as in the real stock, so when the real stock goes up a point the contract is supposed to go up point it exactly the same time that’s what it’s supposedly, so when you’re on the platform and you press the button to buy on a CFD platform you don’t own the stock you own a contract that mirrors the price and that’s why it’s called a derivative, because the price of the contract is derived from the underlying asset and there’s two types of margin there’s the initial margin that you put in your account, and then once you have a position what we call variable margin how much your margin is going up and down how much you’re making or losing, because what happens at the end of the day, if you buy the contract and the stock goes in your favour the broker pays the difference into your account contract for difference, if you have the reverse situation the broker takes money out of your account, if you’re losing money and what happens when your margin goes to 0 you get a margin call you have to deposit more money in your account and, if you can’t the broker will stop you out of the position and you’re done your accounts blown up, so that’s why we call them contract the difference, because the difference is taken out or put in typically in 4 X obviously 4 X is a very popular instrument for a popular asset class for retail traders typically in forex whatever you deposit in your account you are allowed to borrow up to 100 times that what you put in your account, so what does that mean well it’s 1% variable margin which means, if you lose 1% it goes to 0, so, let’s say you put $1,000 in your account you’d be allowed to take up to $100,000 of risk equivalent in the currency pair that you’re buying or shorting and, if you lose 1% you’re gone the only people 10 grand in your account, so in that scenario you lose 100 percent of your margin what, if you put 10 grand in your account and had a hundred grand risk well, if you lost 1% you’d lose 10% of your module that’s how it works, so what the most retail traders do what do you think the average balance of a retail traders trading account is in the UK Europe, so this is in rest of world outside the US it’s a couple of thousand dollars and what are they doing taking two hundred thousand dollar positions in forex and blowing up in days hundred times leverage we call it with stocks commodities ETFs you’re looking at 10 times leverage, so the numbers work exactly the same, if you lose 10% you add, but think of all these guys on the platform trading in the way that we’ve discussed in the opposite way the way that the way we tell two professional traders do it will it be amazing, if we ran a company where we could just take the other side automatically every time they trade it we’d win 90% of the time and this is the big problem the way the brokerage industry works is that there’s major conflicts of interest with retail traders, so major conflicts of interest between the broker and their clients that we the retail trader that create a scenario where that literally happens, because those guys wanted to happen the infrastructure has been built not for your benefit your objective is to turn up and make money that’s not their objective their objective is the opposite to yours which is to take your money, so the first two conflicts of interest are really obvious there’s four main conflicts of interest spread and Commission, so spread what spread well, if you buy something you’re buying it in the market, for example, at six and, if you sell it you’re selling it at five, so the broker makes one you pay the spread, so the broker has two clients the broker can buy it at five and sell it to you at six, so one seller one buyer they make a spread, so make a spread on every trade and take turns we’ll use this phrase again in a second the word turn taking a turn is buying something at five and selling it at six, so the spread and Commission, so spread happens in forex there’s no Commission in forex you pay the spread in forex you pay the spread in stocks, but in stocks you also pay Commission, so you’ll pay a percentage Commission to trade in and trade out, so those two a really obvious conflicts of interest that everyone tries to ignore them for some reason, so what does that mean those two things mean that the broker by default is absolutely 100% incentivized by volume and frequency, so they want you to trade in the biggest size possible as frequently as possible, so put two and two together why do they lend you a hundred times what you put in your account, because they get paid the next two are not, so obvious the financing turn and the OTC game does anybody know what OTC means over the counter right, so CFD contracts are over-the-counter contracts, and when they take the other side and make money it’s called an OTC game first incentive we’ll just get it down now first retail broker incentive volume and size trading as frequently as possible in the biggest size possible that’s how they get paid the other two not, so obvious this is how it works, so the first one financing turn who finances the leverage with brokers does the magic money fairy from the sky come down and give brokers money to lend to you what does it come from comes from investment banks, so, if you want to set up a retail brokerage company get yourself thirty fifty million dollars go to an investment bank use that money to collateralize some debt and ask them to borrow two hundred and fifty million dollars asking, if you can borrow two fifty you get yourself a revolving credit facility build a build a trading platform, and then farm out the credit on the platform to retail traders, so you borrow at pretty much now this will be the case you borrow a two and three quarters farm it back out for a point higher, so you take a financing turn on the debt, but what else gets collateralized how do you get away with turning up to the investment bank with only thirty to fifty million dollars regulatory capital, and then borrowing 250 how do you get away with that, because retail traders are going to open trading accounts and when they put their money in the accounts that money is collateralized as part of the revolving credit facility, and then you’re basically putting the money in your account and sponsoring the broker to lend you money at a point higher, so essentially you’re financing your own rate that’s how it works now of course, if 90% of clients lose money and you want to take the other side you want to borrow as much as possible, so you can take that other side, so of course you’re going to lend out as much as possible teach people how to trade as frequently as possible in the biggest size possible, so they pay you take a point on the financing, and then you get the gain on the other side when they lose, so retail broker incentive to provide third party financing with no risk or very little risk take a turn out the financing and use the credit facility to encourage retail traders to trade as frequently as possible in the biggest size possible and take the other side of all the trades not a bad business and again why we looking at this, you need to understand the realities of the industry step one this is how it works step back for a second and think how long it takes you to open a trading account quite a few of you have open trading accounts before how long did it take you someone shout out ten minutes what did you provide to open the account plus sport utility bill, so identify yourself utility bill confirm address you are who you say you are what else did you have to do you’ll sign some terms and conditions, because they’ll qualify you as someone who’s got money did you read the small print shook and we’re assuming everyone’s non-professional, so in the terms and conditions what are you actually doing when you sign them off the only line that matters is one line and it’ll be in there somewhere I’m happy to lose all my money and the broker is not and the broker it’s not his fault broke has got nothing to do with it it’s a risk disclaimer I’m happy to lose all my money, so that’s all you do passport utility bill fill out the terms and conditions sign it off I’m happy to lose all my money then what happens you’ve got a trading account you’ve got access a total stranger who’s never met you is willing to lend you a hundred times what you put in your trading account, because you provided them a passport utility bill and said I’m happy to lose everything welcome to the world of retail trading, but why are they doing that why is it, so simple and straightforward well think about the regulator’s passive don’t care they react we tell brokers clearly with these conflicts of interests are absolutely incentivized to create a narrative around the infrastructure that increases your chances of losing money in fact the infrastructure itself is self-perpetuating think about it like this, if you own that company where you’ve got 10,000 clients and 9,000 always lose money and you’re spending 30 to 50 percent of your money to replace them every month the ones that are closing down what happens when a new guy opens their account well you know you’ve only got 90 days to write them, so what do you do do you wait 90 days no you get on with it you you do it as quickly as possible before he disappears you’ve only got 90 days to take the money and make and take the ownership of that money from his account to your account, so it becomes self perpetuating it’s a very negative feedback loop, so they’re very very heavily incentivized to make you believe in short-term trading and to trading the biggest size possible, so they can make the for revenue streams spread Commission financing turn OTC gate, so write them down make sure you don’t forget them this is how the industry works volume and sizes incentives spread and calm third party financing with the turn an OTC game and this is what the industry looks like this is what the trading industry looks like the infrastructure on the left hand side we’ve got exchanges in investment banks and everything to the right of that is retail brokers trading educators retail traders we’ve put a few labels under each, so the investment bank what are they doing they’re providing the credit facility and clearing to the brokers and that order flow goes through them electronically down to the exchanges and trades it all happens within within less than seconds what’s the retail broker doing, but the retail broker we skip the educator for a second the retail brokers providing the access, so platform and software financing leverage and liquidity now that’s important, because without the brokers you wouldn’t have liquidity, so that’s the positive that retail brokers provide, so we tell traders you can access liquidity that you wouldn’t get anywhere else as a retail trader, so what does that tell you it’s a necessary evil to use retail brokerage platforms as a retail trader you have to use them we’ll come back to that later, but what type of education do you get from brokers well there’s an incentive there’s a conflict of interest you’re not going to get education that helps you makes money you’re going to get education that makes you behave like a monkey press the button as many times as possible per day until you blow up and it’ll be wrapped up in some sort of strategy usually a technical analysis strategy very short term less than a day in hours in minutes follow this line on a chart every time that every time this line crosses this line from below by every time this line crosses this line from above sell signals very typical you’re not going to get education that works, so they’re providing this for the retail trader what have we called the retail trader dumb money why, because they believe everything that the broker tells them and on the left hand side we’ve got the smart money investment bank traders on prop desks why do we call them smart money, because they believe in nothing that anybody tells them in the market who has conflict of interest we’ll go into more detail on that later they do the opposite of the dumb money what’s the retail trade of paint spreading Commission what are they providing they’re providing the demands for the financing there’s demand for the false narrative and the demand for losing trades, so they’re providing the liquidity for all of those conflicts of interest and we have the acronym they’re COI, so, if you see that in the presentation later the acronym CLI conflict of interest and the education is a false narrative the people are going to go into a little bit more detail on how this works in terms of the OTC game and how all of the conflicts of interest work help the drivers of conflict, so spread Commission financing turn on OTC believe it or not it actually happens automatically it’s now all being set up to be automated it’s been going on for seven eight years already, so, if you’re only learning this now you’re well behind well behind think of the 10,000 clients broker example what happens when a losing client comes onto the platform and presses the button well at 7:00 a.m. all the losing clients who’s accounted down go into one liquidity bucket and all the guys who make money go into another liquidity bucket the guy who loses money comes on presses the button they provide the liquidity automatically instant take the other site they could, if they want hedge it they could go into the market the real physical market and purchase the physical underlying asset, so then they special the contract and they buy the underlying asset, but they don’t they say short the contracts retail trader losses comes back sells the contract back to the broker broker buys closes out the position retail traders closed out brokers closed out broker makes money takes the difference out the account what have they made on that trait they’ve made every revenue stream spread calm financing and OTC gained and literally it’s all automatic it’s automated software it happens in a second, so the hedge, if they choose to put it on will happen automatically down the pipe through the investment bank it’s just a two-way pipe now what happens, if it’s a guy who makes money well the guy trades buys the contract on the platform brokers shorts automatically hedges by buying the underlying asset the guy makes money comes back sells the contract broker pays the difference into the account after unwinding the hedge has the broker lost money no, so what’s the broken mate they’ve made spread Commission and financing done, so they haven’t made the OTC gained what else has happened that what else has happened in that trace look at the green bar they’ve hedged they need money to hedge winning clients are annoying for two reasons for the broker one, because the OTC gain is eliminated, so they only make money on three revenue streams, but two they have to commit twice as much as twice as much capital relative to a losing trader, because they have to hedge, so winning guys cannibalize the broker’s capital, so they’re annoying losing traders are fantastic, because they get the full revenue streams and they use X capital to trade with that client winning traders are annoying, because they make less money and commit twice as much capital to X, so remember this trend over the last thirty years the monopoly duopoly situation where’s the credit coming from it’s coming from the investment banks this is the value chain or supply chain of liquidity in the trading and portfolio management industry who owns the narrative who’s the what’s the perfect retail broker to lend money to one that pedals the narrative why, because the investment bank can lend them money and make money out of it forever, so starting to add up there’s a monopoly duopoly situation with exchanges and investment banks who were the biggest clients of exchanges investment banks more on this later, but smart money and dumb money this is why we labeled smart money on the professional side investment banks prop this dumb money on the right hand side as the retail traders smart money understand how the financial markets work they understand conflict of interest it’s professional trading 101 it’s the stuff you get taught in your first couple of months at Goldman Sachs or any firm that’s good they avoid trading in the way that other participants in the market who have conflict of interest want them to they avoid it and they do everything in the opposite way to the way we tell traders do it what a dumb money do believe everything they’re told and rely on the infrastructure provided to them by financial market participants with conflict of interest believe that the infrastructure has been built for their benefit when it’s actually been built for the opposite purpose they trade in the way that they’re told to trade and they do everything in the opposite way, so the way professional traders do it, but there’s a catch we talked about it earlier with the non-farm payrolls example that’s very typical smart money requires dumb money to exist who’s supplying the credit facility the investment banks who’s the perfect broker the one that pedals the narrative who’s the perfect client the client that believes the narrative and it creates the negative feedback loop and the professional traders win we can also have other hedge funds and pension funds into here, so in the grey box on the Left hedge funds are smart money they’re basically exactly the same as investment bank prop traders pension funds are slow money they’re investing over long time, but the key here is is they are the market participants that are on the professional side and they are the biggest clients of investment banks and combined investment banks hedge funds and pension funds are the biggest payers of exchange fees on the planet and two companies own 90% of the order flow on all exchanges in the world it’s a monopoly, so what you’re looking at ladies and gentlemen on the left hand side is Wall Street and, if you don’t think they all work together you’ve got your head up your ass.

Leave a Reply

Close Menu