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♪ Got to sort of tell 'em ♪ Two destinations, one loyalty card. Visit yamava.com/palms to discover more. - Live from the Trade King podcasting stage at FinCon 2015, I've got the CEO himself, Mr. Don. It's time for Radical Personal Finance. (upbeat music) Welcome to the Radical Personal Finance podcast.

My name is Joshua Sheets and I'm your host. And today we have Don with us. Welcome, Don. - Hi, I'm Don Monteiro, CEO of Trade King. Really excited to be on the show, Joshua. Thanks for having me. - So I'm gonna rib you about your personal life. I'm gonna grill you on your company.

We're gonna solve all the problems of the financial world today. Sit back, relax, here we go. - What are we gonna do after those 10 minutes? (Joshua laughs) (upbeat music) (upbeat music) - So Don, as we begin here, I'm gonna start by a big thank you. Not only are we here on the Trade King stage, you're a major sponsor here of FinCon.

I also think I ate about three pounds of your pork last night at the big giant party that you guys hosted. You wound up, you planned a party for, you said 400 people and you had 600 people show up? - Yeah. - So. - Yeah, that's a good thing except when you're trying to get everybody fed really quickly.

- Yeah, it was a bit of a line, but how many pigs did the barbecue people wind up killing for the event? - We had two pigs that were north of 250 pounds and we had 400 or 500 chickens, I think. - That is. - Yeah, it was pretty good.

- The vegetarians are crying. - Yeah, yeah. - That's rather unfortunate. - And that's not mentioning the mountain of pork rinds, et cetera. (Don laughs) It was a fun time. We're so excited to have FinCon here in Charlotte and to have Charlotte recognized as the financial services innovation hub that I really think it is for the East Coast.

- Right, right. So you guys are based here? - Headquarters is in Fort Lauderdale, Florida. - Okay, near me. - Which is my home. - I live in West Palm Beach. - Yeah, I know you're a Floridian as well. Yeah, but I split my time between here and Charlotte.

- Okay. - This is our second location, but we're growing much faster here. We have about two thirds of our employees are here. - Awesome. - Yeah. - So I'm gonna grill you today and I hope you know what you're getting in for. - I'm ready. - I hope you brought your A game.

But I wanna start with a little bit of your personal story and I would love to know, how did you become the rich and successful CEO of a major trading company? Like what was your career path? - Well, we all know rich is a relative term. So I don't, I, it's a long way before I ever apply that to myself.

I certainly have some wealthy investors. I'm proud of that. I started, I went to undergraduate school at Notre Dame. I went to law school at Catholic U in Washington, DC and about halfway through law school, I realized I didn't wanna be a lawyer. But I finished and I moved out to California and passed the bar.

And the reason I moved to California was I had an interest in the stock market and I had a friend who could get my foot in the door at a brokerage firm there. - Right. - And in particular, they were one that was just starting in the early 90s with online trading, with giving customers access through what way back when was CompuServe on a 2400 baud modem.

- Okay. - And I took a job, much to my parents' chagrin, as I passed the bar exam in California, I took a job for $8 an hour working in the mailroom at a brokerage firm to get my foot in the door. - Wow. - And I worked, I opened-- - After the law degree, you took a job for $8 an hour working in the mailroom.

- It's true. And believe me, I opened the fastest envelope anybody has ever opened. And really kicked butt in the mailroom. And it was a company culture. I had a company called Quick & Riley that I've really, we've tried to emulate myself and my team through a couple of iterations and now proudly the owners of Trade King.

- Was that the same company that is now Trade King? - No, no. It was a company called Quick & Riley. I worked there for a few years. Ultimately was lucky enough to be put in charge of their electronic trading. So launched Touchstone trading and software trading, put Quick & Riley on the internet.

Then had the idea that customers deserved a much better price. If they were committed to just doing their financial services primarily through electronic channels, they should get a much better price. So I launched another company called Sure Trade that was a subsidiary of Quick & Riley that later got bought along with Quick & Riley by Fleet Bank.

But I was lucky enough to run that for a few years. Didn't really like the big bank world. When Bank of America was coming in to buy Fleet, myself and most of my co-founders at Sure Trade kind of dispersed and did a number of different things. I did some consulting for some stock exchanges, etc.

We watched a tremendous wave of consolidation that happened after the dot-com bubble burst. There used to be 100 online brokers. It went down to five. So you got Schwab, Fidelity, E-Trade, Ameritrade, Scottrade controlled 95 plus percent of the online trading market. I think Ameritrade bought 40 something firms in over three years.

Huge consolidation. And what suffered, what we observed, me and my friends who were outside the industry or the specific niche of online trading, what we observed was that customer service had really gone away. When there's such a concentration of like an oligopoly like that of just a handful of players controlling a market, they can, even without colluding, recognize, "Hey, nobody's answering the phone in under 10 minutes.

Neither do we have to." And our bailiwick was always fantastic customer service at Quick & Riley, at Sure Trade, really caring about people, really. And that being the difference. Because at the end of the day, if you pay $4.95 a trade king to buy 10 shares or 50 shares of Apple, or twice the price, $9.95 at Ameritrade, or 10 times the price, $100 at Merrill Lynch, it's the same 50 shares of Apple.

It's the same thing you're getting. Exactly. So the difference is, if you're smart enough or find resources that steer you to a better value and taking advantage of that value, and then it's around service. Who treats you better? So you went from those two companies to Trade King, and you and a friend actually started it from scratch?

Myself and six friends. So we bootstrapped it. We had friends and family money and our own money. We started the firm ourselves. Ultimately, we did take venture capital and private equity investment to help us propel the growth. We started in 2005, and so we're having our 10-year anniversary this year.

It's been an awesome run, and now we're just taking our company into the next stage of maturity of a financial services firm and getting into a little bit of an advised relationship. So until now, every client of Trade King's has self-directed their investment for a great value proposition, $4.95 a trade or $0.65 a contract on top of that if you do option trading.

But we've noticed and learned that a number of our clients either don't have the time to spend, and you really do need to invest time in using our free education resources, paying attention to the market, to really be a good shepherd of your own finances. They either don't have the time or have discovered and admitted themselves that they're not good at it, and they need some help.

So we launched Trade King Advisors recently, which is a really great value advisory platform where you can go through either goals-based planning process or risk tolerance questionnaire, and then we'll help you get into a portfolio, which we'll manage, again, backed by really great, caring, and prompt and courteous customer service.

We're super proud of that. So have you been running the company from the beginning because you were-- Yes. Yeah. So I've been CEO, and my co-founders are all still with the company. Seven of us, we're all still here. Wow. Yeah, and we're now a company, 150 or so people strong.

We just announced an acquisition recently of a California-based broker dealer called MB Trading. The MB stands for Manhattan Beach. So we'll be getting up over 200 employees when we finish integrating those two firms, and it's just been such a wonderful, wonderful path. And we started the company with a motto, which is "Be good," and with the philosophy that we could do a good thing, treat people really right, bring them a great value, and still have a profitable business.

And those things don't have to be in conflict. People understand you're going to--$4.95, that's what it is. And it's a really fair price to do a transaction in no time and have great mobile apps, a great platform, free education. It's a great value, and we're proud to offer it.

So I did a little bit of due diligence on you last night while talking with some of your employees. Here it comes. Here it comes. And for some strange reason, they all seem to love you. At least the ones that I talked to had a lot of great things to say about you.

And so, at least from my cursory due diligence, I guess that's kind of a-- - Like an oxymoron. - Exactly, an oxymoron. You're not supposed to do cursory due diligence. From the few conversations that I had, to be accurate, it seems like you're doing a good job. I'm interested to know-- - Well, I like them too.

- There we go. Good. Well done. What has been the biggest challenge for you in your own personal development to go from working in a company in a mailroom, working through these companies, to having the guts to found the company, to today leading it for the last ten years?

What's been the biggest changes that you've had to work through in yourself and your character in order to do that effectively? - I guess it's really staying centered around who you are. And we like to say-- I give--my favorite talk that I give at our town hall meetings is centered around what I call the three most important words in the English language, which are "I don't know." - Right.

- As a company, me as a leader, me as a company, we embrace the truth and the reality that you can't grow if you don't say, "I don't know." - Right. - And while it might seem counterintuitive, saying, "I don't know," having the courage to say, "I don't know," not just to yourself, but to your partners, your teammates, your business partners, your colleagues, and importantly, to your customers, that is something that gains-- that grows your confidence, that grows your credibility, doesn't make people lose confidence in you.

So if a customer calls and asks us questions about self-directed investing or having an advised relationship, they ask a question, we answer it. They ask a question, we answer it. They ask a question, we answer it. They ask a question, we don't know the answer. We just as rapidly say, "I don't know." Now, what you have to follow it up with is, "Go run and find out." - Right, right.

- And then share the answer with the people sitting around you. So we have this culture of learning and teaching and learning and teaching, and it just makes it really, really fun to grow. So as--I guess it's a constant challenge, but it's not hard if you stay centered around those precepts as you go from seven people to 15 people and to now 150 and 200 people to really make it so that every single person in the organization walks and talks that reality and to keep that personality.

While we're all individuals, we have a common core of beliefs that we center around, and keeping that firm is, I think, the biggest challenge for any company is it scales. - How did you learn that lesson? - I learned that lesson very early on when I got my first group of people that I could manage, my first office that I really managed at Quick & Riley, and I had about 60 brokers, had a real big trading error that happened one day, and I was about a week into managing an office, and I--you know, when you take big jumps in your career, sometimes you have what they call an imposter complex, right?

You wake up every day and say, "Somebody's going to figure out that I shouldn't be doing this job." You know, "It must be somebody smarter than me that can do this," right? And then this big error happened. It was the customer's fault, but we got stuck with a loss in a trade, and I didn't know what to do, and the market was closing in 30 minutes, and rather than stick my head under my desk and try and run from the problem, I called everybody I knew that was senior to me at headquarters and said, "What do I do?

"We're 200 grand in the hole here. What happens?" Knowing that--not even caring that. That might be my last day there. Really caring to do the best thing for the firm and just to be honest, and you don't lose sleep if you're honest like that and you just go at it.

So that worked out so well, and I was rewarded as a leader at that firm for having raised my hand and said, "I screwed up. I made a problem. I need help." And they said, "That's how we know we can trust you with even more responsibility." So it was both my biggest challenging day but also my biggest learning day to say, "This is--I love this path I'm on, "and if I can build my own company this way "where just being honest is a virtue and an asset "and can propel me and everyone else forward, "man, I sleep well at night, "and I think all my employees do, too." You've, I would imagine, hired dozens, if not hundreds of people, at least over the last 10 years with your company and before that.

I'm interested to know, when you're interviewing candidates for a job, what are the biggest things that you're looking to see in them and in their character to connect them with an employment opportunity that you're offering? Yeah, so it differs a bit in different spaces, right? Depending on the company-- I mean, on the department within the firm.

So certainly our technology guys, they have a whole--literally a skill set test of puzzles and things that they'll challenge people to solve a coding problem or something right on the spot during an interview. So there's a certain amount for certain roles of experience or technical expertise that you have to have to perform the functions of the job.

But beyond that, we really are trying to see if you have that--the proper balance of what we would say is courage and humility. So you really want to go--you believe in yourself, you know you can achieve more, yet you are willing to admit when you don't know something and you have an area you need to grow in.

And you can look at a job description and say, "I don't have every single thing you're looking for here, "but that thing I don't have, I know I can learn it "if you take a chance on me. "That's the person I want, "not the person that is full of themselves." So we really try to find people that will adhere to that cultural core of honesty and just being somebody that you-- you spend more time at work than you do doing anything else, really.

So if you don't enjoy it and enjoy the people you do it with, then, man, what a terrible life it is. So I think everybody at Traking-- I believe everybody at Traking really enjoys what they do and enjoys the people we do it with. And that makes for a cool company.

And you can sense that when you touch us through our customer service channels-- email, social media, live chat, call us on the phone. Or through your roast pigs. We want to do a nice thing, right? So we wanted that to be a really fun party. Not with us blaring, "Trade King, Trade King, Trade King," all night.

You knew we sponsored it, but we wanted people to have a really genuinely honest, good time. And I think it happened. That's what we wanted. And we think benefits accrue, naturally. So think back over the last 10 years of running Trade King and consider--or in other previous companies-- think of one or two people that you've promoted the fastest or have seen promoted the fastest and for whom you've increased their pay the fastest or you're aware of increasing their pay the fastest.

Like you described to me, the character traits, the qualities, and the actions that those people took that brought them to your attention and resulted in their rapid advancement. What do they look like? They're a person that really is constantly striving to improve, that is trying to first learn-- because we're behind the scenes.

We're a process company. There are steps that have to be taken, and we're a regulated company. So there are things that have to be done just a certain perfect way, absolutely perfectly, in opening an account, funding an account, making sure the person really is who they say they are, doing all those core things.

You have to embrace all that stuff and do it perfectly and be striving to learn it, do it well, and improve it while you're striving for the next spot and at the same time teaching somebody behind you how to fill your seat. Because you can't move up-- a mentality that tries to create a long-term employment opportunity by hoarding knowledge, you'll never move anywhere in Trade King.

If you're the kind of person who tries to really share knowledge and make sure if you're called upon to take a step up, there's somebody else that can hop in your chair and do it just as well as you, with as much enthusiasm, and then you can move on.

And we've had people-- you can look at every department in our company, including technology-- technology, product, marketing, compliance. They all have key members and leaders in their teams that started like I did in operations, in the mailroom, ground-level customer service, and worked their way up and moved from department to department, and they learned the business holistically because they're passionate about it.

So I think enthusiasm beats almost anything else as a core quality to succeed. The comment about training your replacements and leading your replacement into that job is probably-- I would say the forgotten one. I don't think of that much, but it makes me just think of how John Maxwell in teaching about leadership always talked about that leadership is not in the title.

Leadership is something that you do, and you don't have to wait for the title to be a leader. But one of the hallmarks of leaders is you've got to equip followers and you've got to bring people in. And I appreciate you pointing that out because I don't think much about that.

But if you want to be-- I think no person and no business can scale without it. Right. You're right. Any one person can only do so much. So most of the really great accomplishments, I think, in history are team accomplishments. A leader is recognized for whatever reason, but almost no leader can get anything done themselves.

And if you want to get promoted, the idea of your being promoted, you're creating a problem for your boss because your boss has to fill your shoes. So if you want to make it easy for your boss, train your replacement, tell your boss, "I've trained my replacement. I think I'm ready for responsibility." And when they agree that, yes, you are, they'll handle it.

The saddest thing that can happen is a conversation at the company you work for that goes on about you in a room that you're not in, talking about, "Hey, who's going to take this new role or this new responsibility?" Someone brings up your name and someone else says, "We can't give it to him or her because who's going to do their job?" They're irreplaceable.

And you don't know you missed a great opportunity by not being a coach. And sometimes you never know that, and that you were passed over, not because you couldn't do it, but because no one understood that someone was ready to do your job. So people, again, you have to turn that fear around and be confident in yourself and confident in the company culture and do that and reach and teach.

So I'd like to pivot and talk a little bit about the marketplace, specifically of owning stocks and trading stocks. There's an image that's burned into our minds based upon what we see when they report the Dow Jones Industrial closing average at 5 o'clock every day of a trader on the floor of the New York Stock Exchange wearing one of the mesh coats, looking completely exhausted.

So if I go online and click the little button on my smartphone app with my Trade King smartphone app, do you just pick up the phone and call the trader on the trading floor? And then they go ahead and wave their slips of paper in the air and say, "Buy, buy, buy," at 43?

Describe how the modern financial system, the clearing system, works for the ownership of stocks. Lay aside options for a moment. Keep it simple with stocks. How does it actually work? Sure. How it actually works is you go to our app or to our website or however you want to interact with us, and if you're in your car and driving and you, you know, say, on-start call Trade King and want to talk to us over the phone and place a trade that way, you can do that as well.

It's all $4.95. 99.9% of our trades get entered electronically. You send that trade, you click it, it enters a system that we've built that does, in milliseconds, checks to see whether the order is appropriate, whether you have the money to do it, whether you're approved for that kind of trade, does all the checks that a human broker would do that we've automated and coded over decades now as a team.

It instantly processes it and figures out where the best place to route that order to is to get you the national best bidder offer or better, and often we can find a better price for you than the posted trade because markets are moving so quickly. It gets routed electronically, gets executed electronically, gets matched in an electronic book either in an exchange or a market maker or wherever we've routed that order and reported back electronically, and it happens so quickly that when you go from the screen that says, yes, trade, and then by the time you click back over to look at your positions or your order status, if your order is at or near the market price, it's all that has already happened and the order's already there and in your portfolio and shows you the price you got.

It happens that fast. So it does not go to a human who's flapping his arms in a pit anymore. There's still a role for those guys, but typically they're on the other end of an institutional trade, somebody who is saying, over the next month, I want to acquire 5% of that publicly traded company.

So then they're in the mix literally trying to accumulate without exposing that intention, trying to catch moments and then quickly accumulate, and sometimes they sell to head fake and things like that, but they're an acquirer or an unloader of a position, and sometimes it's better to have a person with a feel doing that.

So there is a role sometimes for a very large trade or trader to have somebody down in those physical pits, but it's shrinking over time. Is it possible to have any idea who's on the other side of a trade? You can -- it is possible, yeah. Typically you won't, and it's who is on the other side of the trade initially doesn't necessarily become the final owner of the other side of the trade.

So sometimes people are transacting because they're acquiring a large position to hedge something else and then they roll that over, so it's possible sometimes. It really doesn't matter. It really doesn't matter. Why would you want to? Well, no, it's just interesting to me. Do they call -- do I have my terminology right?

Do they call them -- is it black pools? Dark pools. Dark pools. Dark pools, yeah. Explain the concept of a dark pool. So the concept of a dark pool is if you take that institutional large trader, for example, so let's say I'm Warren Buffett, right, and I decide I want to buy more of a publicly traded railroad company or something.

Well, if I just go and go to Trade King's application or something, right, and enter an order to buy 20 million shares of a company that trades a million shares a day, well, by just exposing that order to the public markets, you have made it more expensive for you to buy that because the demand is exposed and the price will move up accordingly.

So it instantly shows the price of anything is balanced by supply and demand. If you expose a very large demand you have to acquire something, that will drive up the price of sellers. They'll say, hey, somebody's trying to buy millions and millions of shares of this. We can raise our sell prices.

So the sales will go up. So dark pools are a way for somebody that wants to do a large transaction to be able to only expose little bits of that trade at a time. And, again, it's something that used to happen all the time with human intervention. I think dark pools is an unfortunate name because it sounds devious and dark.

It sounds scary, right, but I think it's really valuable. Noir pools or something. But it's extremely valuable. And all it was is a disintermediation because you used to call what we call a block trader, a human being, and say, hey, buy me 20 million shares of this thing as soon as you can, but try not to move the price up.

So that human had that knowledge, and he would enter an order for 5,000 shares, see some action, enter one for 50,000 the next day, and accumulate the position for you over time. A dark pool is just a programmatic way to do that. In my mind, it's a good way.

I haven't thought fully through the whole thing, but it seems like a value. I mean, imagine if you're running a multibillion dollar mutual fund and you're going to make a trade where you're going to be running millions and millions of dollars into a stock, and if you expose that in the public systems, hey, there's a buy order for $10 million worth of shares.

Well, all of a sudden, everyone's going to be running your shares up, and your whole trade may fall apart. And think about it on the sell side. So you've carefully constructed an investment thesis, acquired, if you are running a mutual fund or something, you have many retail clients who own a small part of your fund or your ETF.

Now you own millions of shares of X. Your investment thesis was right. It's moved up X percent in the window that you wanted it to. Now you want to realize that gain for yourself and your fund and all your individual investors. Same thing on the other side. If you expose, okay, now I'm done.

I want to sell my huge position in IBM or AT&T or whatever it is. Well, by exposing that whole order, you drive the price down and you hurt yourself, you hurt all your clients. So you need to be smarter about your liquidations as well. And that's true for small and big traders.

We like to say plan your trade and trade your plan. So you really want to have an entry and an exit strategy and hypothesis, a thesis, before you get into something. You don't just buy a stock because you're a fan of it without an idea of what your expectation is.

You should have a plan that says, I think this thing will go up 5 percent in a year, plus they pay a 3 percent dividend. That's an 8 percent return for me. I like my money there as opposed to over here. And then stick to your plan. If it's not moving the way you thought, reexamine and get out.

Do you trade accounts for yourself? I stink at it. Yeah, I'm really -- I'm too emotional. So I do become a fan. So I love Apple. I love Apple products. I love the company. I'm an early adopter of the watch and all their stuff. I love it. So I buy that stock.

I can't talk myself into ever selling it. I can't talk myself into ever selling it. I become like a fan boy. So my investments are mostly passive investments in broad-based ETFs. And also, I'm busy. Like many of my clients, I'm busy all day long interacting with folks like you, trying to build a business, talking to my shareholders.

Coaching my team. I don't have time to be staring at the market all the time. So for me, a broader-based strategy that's more passive is more appropriate for me. How long does your average customer hold their -- again, saying specifically stocks here, not options. How long does your average customer hold their ownership on your platform?

It really varies. We have people that will go in and out within a period of days. But we certainly have clients who have held positions their entire 10-year life with us. And have been adding to those and collecting dividends and adding other stocks to their portfolios. They're really buy-and-hold people for the long term.

So our clients aren't -- we have true retail clients. People that are your listeners, and that's why we have a tremendous affinity for this event and the people who come here. Because the people that you speak to and your voice resonates with, that's who our client is. They're not professional traders.

They're not what's known as day traders. They have regular jobs that they're really good at. They've accumulated a little bit of excess capital. And they want to turn that money into more money towards some noble goal for them and their family. I want to put my kids through college.

I want to have enough money to make sure I can feed myself and my wife and my kids after I retire. Or if I get hurt and can't work anymore and can't earn. And they're great at what they do day-to-day. Whether it's being a doctor, a school teacher, a plumber, whatever they might do with their normal job.

A podcaster, whatever. But that doesn't necessarily mean they're going to be great or have the time to invest all the time. So they appreciate the fact that we have a website and mobile apps where they can do their work on the weekend. Enter a limit order that will execute during the week or do things at night.

But they're trading 20, 30 times a year. Not thousands of times a year like a professional or a day trader. Do you think the average trader on your platform makes money? Yes. Yeah. Do you have any sense of what their returns are? Well, we only see the microcosm of what's held at Trade King.

So we do track that and look at it. And if we see a client not doing well, we're a rare firm in the online world. We will reach out. We'll give you a phone call and say, "Hey, we see you seem to be losing a couple thousand dollars a month and repeating what looks to us like it might be the same mistake over and over again.

Can we help you with some education or can we talk to you?" And those calls get split about 50/50 between people who say, "Oh, gosh, thanks so much. What's the webinar I should look at? What do you think I should do? What do I need to learn? What am I missing?" And we steer them towards some of our great free education.

And about half the time that client will tell us, "Yeah, I know what I'm doing, silly. I have my $5 million over at Merrill Lynch. I have my $200,000 with you. And if this account ever does well, it means I lost all my money at Merrill." So this is my hedging strategy I have with you.

So we say, "Okay." We want to check in and they're astounded to get the contact. They love us more for it. Sometimes it's a teaching moment and sometimes it's a learning moment for us. Let's switch and talk about options because this is, in my observation, learning how to structure options trades is a seductive part of the market, extraordinarily seductive.

I haven't spoken much about options on Radical Personal Finance, but I'd love for you to start with, describe the concept of what trading options is like and what it actually, the types of trades that people are actually establishing on your platform and how they work and why people use options as a tool in their portfolio.

Sure. So options are really well named because options give you options. You can, buying stock, which is what most investors, all they are exposed to or know about in terms of investing, buying stock or ETFs or mutual funds, you have one strategy, which is I buy something and I hope it goes up.

So that's a one arrow quiver. But options allow you to essentially bet on up, down, sideways, volatile. If you make, see or believe any of those predictions, you can lay in an option strategy that if you're right, you can profit from. So you can profit from a prediction that says, I think this stock is going to go exactly nowhere over the next year.

Or I think it's going to go down. Or I think it's going to have a lot of volatility and I don't know whether it's going to end up higher or lower, but I think this is going to be really volatile. And there are strategies that you can learn for each one of those theses or hypotheses where you can profit.

And we're centered on giving a lot of free, really high quality education. Brian Overby is my teammate here who wrote the Options Playbook, which is the only book about options trading that won't put you to sleep, I say. It's entertaining. It's engaging. It's really honest. And it's really carefully divided.

We use a lot of sports vernacular, but it's divided into a rookie's corner, like for trades for beginners and teach you how to safely enter options trading. More veteran trades and what we call all-star trades that have more risk but higher return potential. So a great example would be this.

Let's say there's a stock that you like, that you want to own, that's trading at $50, that you think, you know, if that ever comes down to $45, I'd like to buy it there. I think that's a good price to buy that at and it'll do well over time.

So what a normal, somebody only armed with stock trading tools would do is enter a limit order to buy that at $45 and enter it good till canceled so it stays open forever. And you just wait. And you wait until sometime the market corrects or something happens to make that stock you like come down to your price and then your order executes.

Now you're an owner at $45. So that's a strategy. That's one way. And then you're in the stock you want to be. By adding options to your strategy, what you can do is you can begin earning income and trading options as an entry point. So you could sell 45 puts on that stock, which is saying I'm selling somebody else the right to sell me this stock at $45 whenever they want to.

And you earn the income from selling those contracts. So you sell those puts, you sell those puts, you sell those puts, and you're making a couple hundred bucks, a couple hundred bucks, a couple hundred bucks, a couple hundred bucks. And one day the stock comes down to $45 and it gets put to you.

Now you've bought the stock. Now you own it. But you own it at $45, but really your cost basis is much lower because you made money on the way in. And now we advocate or try to teach people that then you can start to say, now what's my planned exit?

Well, I thought buying this at $45, I think it's going to go to $60. So rather than just wait and maybe collect a dividend along the way, start selling covered calls. Selling people the right to buy it from you at $60 and start selling those options and making money that you add to the dividends you create.

And then when it gets to $62, you're going to miss the ride from $60 to $62 because somebody is going to put it to you at $60. But your thesis of I want to own it at $45 and sell it at $60, you've executed on that. Plus you've made money before buying it and you've made money while you've held it.

So when you add all that together, if it's a stock that's yielded 5% during that time, often that investor with those added on option strategies has made 8% or 10%. And they're really safe strategies. They're smart. If you learn how to do them properly and do them when you're covered, you have the money to cover the trade and you're ready.

Or you own the stock in case it goes away from you so you don't have to go buy it at some crazy price to cover your trade. If you can learn about the option strategies that are right for you and apply them in scenarios like that, it really can enhance yield, especially in an interest rate environment like we're in.

That difference of a few extra points of return, it's significant. So what's the settlement system, the actual infrastructure to settle options contracts? Yeah, so options settle in one day. So you need to have the money available or the position to support the hedging strategy in your account with Trade King or any other broker before you place that trade and they settle the next day.

And then you have your position. And then it depends. There are different expirations. One of the things about options is they have a time value. Right. So there are ones that expire every week. There are ones that expire monthly. There are ones called leaps that are long-term ones that you can go out a couple of years.

And there are two aspects in what an options contract costs. And one is its intrinsic value. Right. So if I want to buy the right to buy a stock at $45, that's $40. It's got $5 of intrinsic value. Why is that a $6 option? Because it's got a dollar of time value.

Right. So you're paying or getting paid for both the real value of the asset plus its time value. A lot of people are concerned about the integrity of the performance of public securities markets. Whether you go back to what was it? I don't remember what year it was when we had that flash crash.

2010. Okay. So 2010. May of 2010. Yes. I would imagine you remember that day. I do. I do. I remember it well. It was still rather inexplicable, frankly. And that's an embarrassment, I think, for the industry that more work has been put into figuring out and making transparent exactly what made that weird gyration happen on that one day.

And I think that's odd. But truly in the 100 plus years of publicly traded markets in the U.S., that was one really aberrational 15-minute period, frankly. Right. And then also as we record this here on September 18, 2015, a couple weeks ago we had the thousand point plus drop in the Dow.

August 24th. There we go. You remember that day too, huh? That was a fun morning of work. Yeah, yeah. These days are -- we did -- the Friday before that, things had started to get volatile. We had a record trading day at Trade King Friday, August 21st. That Monday we set a new record.

It was 150% of the trades we had done the Friday before. Wow. It was a crazy, crazy day. Wow. But clients who were tuned in did well. So many people -- there's in many ways kind of a sense, a feeling that markets are becoming more volatile. Because unlike perhaps the way that we envision our grandparents buying and selling stocks where they only bought long and maybe there were a few brokers that would sell them short.

But the options marketplace with all the different strategies, as far as I know, was non-existent at that time. Not attainable for a retail investor. Right. And so you're looking in the newspaper and saying, "Well, I think I'll go and buy GM this week." It was a very slow market.

And so although there was obviously volatility, it feels or there's a sense that things are more frothy, more volatile these days. Is it mathematically more volatile or is that a misperception? I think there is some more volatility. We're in a different period in history than has ever happened before with interest rates being so low all around the world for so long.

That's never happened. So that is muted volatility. But when there's any kind of news that might affect that dynamic, it has created moments or months or days or 15-minute periods of extreme volatility. So I think a lot of it is perception, but there has been some reality. There are more participants all around the world.

And information used to be the edge that kept retail clients disadvantaged and the institutional clients advantaged. So when I started in this business, I'm old now, right? But when I started in this business in 1991, if you were a retail investor, you got your quotes by reading the Wall Street Journal in the morning or if your local paper in their business section had a quote section.

You read that in the paper in the morning. And then if you wanted to know what was going on during the day, there wasn't even CNBC or that kind of thing. There certainly weren't websites with streaming quotes. You had to call your stockbroker 10 or 15 times a day and say, "Where's Apple?

Where's Sun Microsystems? Where's GM? Where's Ford?" And there were whole desks, and I worked on one during my progression in my career where all you did was answer the phone and give people quotes all day. One of my co-founders worked at a company called Waterhouse. He worked on the news desk where people would call all day and say, "Is there any news on Apple, any news on GM?" Because there was not real-time news anywhere.

There wasn't CNN, much less CNBC. It didn't exist, right? But institutions, but large, really large investors, they had access to information in real time. They had quoting of stocks in real time electronically. So the information edge was tremendous, totally unfair for a retail client. So you were only left with buying something and forgetting about it and literally getting a certificate and putting it in a safe deposit box.

That's all you could do. Tremendous disadvantage. Now that playing field is really leveled. Everybody gets the same information in real time in a really easy to access mobile format, and so it's fair. So if you want to be in there, you know you're not being disadvantaged against the big guys, against the institutions.

You have the same information they do. There is no information edge. So that creates more players, can create some more volatility and more information through more different streams and things like that. But overall, still buying and holding a diversified portfolio over a long period of time, you can't slice any period of 10 or 15 or 20 years in history that that hasn't been a smart thing to do.

A lot of people have concerns about, I'll use the marketing words for it, call it the derivatives time bomb. And the idea is a derivative is just simply an asset that's based upon the movement or what happens with another asset class. So something that depends on something else. So with every movement of a stock, as with the explanation of the different options trades, there might be multiple contracts that are going to be executed based upon a movement of a stock.

And so when you start totaling the total value of the derivatives market and compare it to the market cap of the companies, it dwarfs the market cap. I'd love for you to talk for just a couple of minutes about where do you see the market structure that we have right now for settling trades, handling these things?

Where do you see the strengths and where do you see the weaknesses? People do talk about that derivative bubble or side market or whatever they want to describe it as, as if it's a bad thing. And I don't think it is. And people talk sometimes about option trading and derivative trading and the fact that there are speculative strategies you can do that are adding leverage to, that will allow you to control a larger position with a smaller amount of money and therefore amplify your returns up or down.

And people think that's a bad thing. It isn't, because you asked earlier about who's on the other side of a trade I do. Well, so who's on the other side of a speculative trade is somebody who's making a really safe insurance bet. If you think about it, that's what it is.

It's a natural market. So somebody wants to safely protect something and to find somebody who wants to take the other side of that, that's somebody who thinks something really, really aberrant, really volatile is going to happen with that asset. So it's the same thing that happens in insurance markets.

So certainly the value of things that are insured and the trading that happens in insurance vehicles behind the scenes with insurance companies and then companies that they then trade off of their risk to, the reinsurance companies, it's the same thing. The risk of your homeowner's insurance is spread amongst many parties, layered out there.

And some of them are gambling, if you will, on a big storm knocking down a bunch of houses. Right. But you need that if you want to buy a policy that supports your house getting rebuilt in the storm. Right. So you need speculation to balance kind of the safe strategies.

That's what you call a natural market. So my guess is that your office and your conference room from time to time throughout the year have a bunch of charts demonstrating the landscape of the investment servicing world. And so I'd like to ask you to give us an overview. Pretend for a moment that I've got $50,000 and I'm saying, "I'm going to invest this $50,000." Ignore for the moment what I'm investing in.

But I'm considering my options, everything from taking it down to the guy that has the bull on his desk and on his business card and saying, "Here, you invest my $50,000." I'm considering going to a direct purchase stock plan directly with the companies that I'm considering buying. I'm looking and saying, "Man, there's some online guys.

There's Trade King. There's E-Trade." I'm looking and saying, "These trust companies." I mean, it's across the board. How do you look at the investment marketplace and kind of stratify these companies serve this space? And how would you encourage that $50,000 investor to just consider the landscape of their options?

So you want to know yourself. So you want to know how much time do you have to contribute to the process of shepherding your investments through their life cycle? Are you somebody who can tune into an online account once a week or every few months or every night? So that part of your level of engagement and your time commitment and your interest or passion to do so is part of what that decision is.

The more passive you are, the more you need to trust somebody else to be active on your behalf or to be looking after things on your behalf. So that's one decision you have to make. And then really educating yourself about fees and what people really charge for what essentially are commodities.

Again, like I mentioned, you get five or 50 or 100 shares of Apple or GM or Ford or AT&T stock from Trade King or Merrill Lynch or through an ETF that holds a bunch of things. It's the same stock. It's a commodity. So if you have the time to look and find out the different ways that you can acquire that and you can do it for $4.95 with Trade King or $9.95 with Ameritrade, spend the time to ask yourself why.

Why would somebody pay twice as much to do the same trade there? So then you ask yourself, do you like that platform better? Does that have that much more value? Oh, you know what? I see Ameritrade commercials on every night on every channel. Like maybe I'm paying for an advertising budget for them to get next year's customers.

So just being a smart consumer like you are anywhere else, you check the price of something in a grocery store, you should shop around and check the price for your financial services and network. So we were the first firm at Trade King to incorporate social media into our trading platform.

So we allow our customers to speak to each other. And we monitor those conversations in case anybody tries to give advice when it's not their job or try and pump up something that they own and do something inappropriate, which rarely happens. But the beauty is it brings what used to be a really lonely and solitary experience of being an individual investor as opposed to a professional investor who typically sits literally at a desk, a bunch of tables with 20 people who are all doing the same thing.

And sharing information, sharing charts, sharing news, teaching people their lessons that they've learned. Teamwork happens in an institutional trading environment. We've brought that to the retail trading environment. So interact with other people. Ask them what works for them. Ask your friends who are in similar positions. Ask your parents.

Ask people that you respect, that you see, you think are doing pretty well and are level-headed. Ask what they do. Be willing to say, "I don't know and I want to be involved, but what works for you?" And solicit a bunch of opinions and ultimately something will resonate with you.

And trust your gut and go with it. It's definitely a different experience. From time to time I like to talk to guys like mutual fund analysts. And they describe – I went to American Funds in town a few months ago and I went to one of their presentations. And I was sitting there talking to a couple of guys that were mutual fund analysts.

And he was just describing when I was younger I always thought one of my ideal jobs would be to be a foreign analyst for a mutual fund company. I just thought that would be awesome. I get to travel to China and go and find the best new companies that are really going to be perfect for our fund.

I remember those old Janus commercials, right? Where it was like, "Hey, we look through the garbage of people and we talk to the janitors." Exactly. And it's like, "Hey, we find out the real story." Yeah, it's sexy. It always appealed to me. These days a little bit less, but that really did appeal to me.

But if you look at – but the point of the story was in talking with them about their environment. When you've got the senior analysts, you've got the junior analysts, you're putting together your reports, you get in the big room. You say, "Here's our investment thesis." And then you just take that to the trading team.

That's a little bit different of a structure than just me sitting at my computer saying, "Oh, I'm going to figure this out." So you've got to recognize that sense of community can be really helpful. It bridges the gap. So we offer education, tools, and that interactivity. You can interact with us, of course, but interacting with peers or people that have been investing five years or five weeks or five days or five years or 50 years longer than you, the lessons that you can learn off of somebody else's putt, if you will, off of somebody else's putt, it's so valuable and it's free.

It's like, why wouldn't you do it? All you can do is say, "Well, I don't like that person's opinion," and discard it if you want. It doesn't hurt. It can only help you. So final question, and here's your softball. How on earth are you going to stay in business and crush your competitors at $4.95 a trade and describe your business plan so that people who are listening, who are trying to figure out who they should work with, would know whether or not you're a good fit.

The way I think about it is if I'm running a company that charges half the price of what Ameritrade does, if I work twice as hard as Fred Tomczyk, who's the CEO of Ameritrade, and everybody in my company does the same, then we can do it. And honestly, if I'm willing to have a company that has a 25% profit margin and he wants to have a 50% profit margin, I'm okay with that.

I'm okay with that. That's a nicely profitable business. We're profitable. We make money. We just don't have as high margins as guys who charge a lot more. So if you want to think of companies, people like Sam Walton have made a whole life and a whole career and changed the whole world with offering value to smart purchasers.

And we are down here on the ground level. We will talk to every single customer that wants to talk to us and just be ourselves and bring value. And we think that works well. We know it works well because referrals are our largest source of new accounts. People telling their friends that, "Oh, you're going to get involved in self-directed investing." You know who are good people offering a good value and no baloney?

It's Trade King. And we get a lot of business that way, and that's the most emboldening thing that happens in my life. Well, I love the competition because I tell you, if you go back 50 years or go back 75 years and you compare the cost of what it used to cost to trade stocks, and you go back and you think through what the commissions were that you paid when you called up the stockbroker, you watch Pursuit of Happiness, and you think about how much you had to pay him to sell your trades, and you think about in today's world that you can pull out your phone and make a trade at $4.95.

It's an amazing world we live in. Or you have to pay that happiness guy if you want to go to one of his investing seminars now. He's raking it in now. I say go to Trade King's site or many other sites, but the exchanges are good sources of free education.

But we have tons of it on our site. You don't have to open an account. It's free for anybody. Go to OptionsPlaybook.com if you want. It's free content. We want to empower everybody, and we think that if our introduction to you has given you some free education and empowering you, you're going to trust us when you're ready to take that step.

Don, this has been fun. Thank you for coming on the show. I really appreciate it. Thanks so much for having me on, and I hope to catch up with you on the floor. Do you do any personal blogging on Trade King, or do you have any kind of personal call?

I do. On Twitter, I'm @DonMontanaro, and you can find my blog on our website, but it's also DonMontanaro.com. I think, as far as we know, I'm the first CEO of a financial services company in the world with a blog. So I started back in 2006. I've published 1,500 blog posts or so.

So I'm available. I'll have to connect with you next time I come down to Fort Lauderdale and come by and see. I'd love to see the operation. I'd love to have you there. Thanks. Thank you. Don't just dream about paradise. Live it with Fiji Airways. Escape the ordinary with Fiji Airways' global Beat the Rush sale.

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