From Chicago Pit Trader to Robinhood Exec · Steve Quirk

One of the things that I think is the most valuable lesson that's learned from the world of trading is there's an expectation that you're going to be wrong about 50% of the time and you're good with it. Like where else in the world of business do people say, 'Oh yeah, I know I'm going to be wrong 50% of the time. If I'm right 51, I'm going to be winning.' That's not the way people are wired, but it teaches you to be wired that way and I think that's such a valuable lesson for people in general.

But I also say that the other really important point is the way that you approach a trade, at least when you were in the world of market making on a trading floor, was we're handed trades a lot of times. We don't really have a choice. We have to make a market in it and take the other side. That's our job. So the first thing that I always did and many successful traders did was we look at the absolute worst case scenario of that trade and then work our way up to what's the best case scenario, and that way I understand all the risks. So if the worst case scenario unfolds, I'm not going to have an emotional reaction because I understand the reality of what it could be. And it works, and I work my way all the way up to the best case scenario. The people that panic the most with investments or trades are the ones that don't understand what the largest downside is, because when it hits, they just freak out.

Thanks so much. I really appreciate it. Wow, that's a wonderful, positive introduction. Hopefully, I live up to the billing.

You know, I always was interested in the markets. My father liked the markets. I used to give him for Christmas Louis Rukeyser's newsletter. And I'm going back a ways, so I'm sure there probably aren't a lot of people that remember this, but he was a market pundit that put out a newsletter. And he would do a show on Friday, and whatever he talked about on Friday afternoon, on Monday morning it was going to pop. Like the stocks would go up because he was talking about them and lauding them. And if you would subscribe to his newsletter, you'd get those in advance and see. So, I think for Christmas I gave that to my dad a few times, which he really loved. But I always was...

They were rushing to get that newsletter. And this is, you know, I mean, as you pointed out, this was the days before there was a lot of information that was publicly available for people on stocks and other things. But I always had an interest in it. And then I had a couple friends I grew up with in Wisconsin that were in Chicago and they were working on the trading floors. And look, this was kind of the heyday. It was right before '87, so things were popping and the market was hot. And they're like, you got to come down here and check this out. So, I did.

It was what happened afterwards that was kind of interesting because there wasn't really a lot of clarity on which institutions were even going to survive what had happened. And what I mean by that is there were clearing firms, there were trading firms that some did very well, but some did very poorly. And same thing with individuals. And so, they actually, I don't know if people remember it, but then they shortened the hours because they were so afraid. I think the hours went to 9:30 to 1:30, which is what a lot of the commodities were trading at the time. So, they shrunk the hours and then gradually made sure the foundation was still stable enough to be able to support the activity that was happening. But it was quite scary for a lot of market participants and even investors to have a drop that big.

No, there was no halts, yeah. And it's really funny, not to get too wonky on things, but if you understand options skew, which obviously today, if I take a put that's 10% away from the money and a call that's 10% out of the money, the put's always going to be more expensive because, as they say, the market walks up the steps and falls out the window. It moves a lot quicker to the downside. And so, at that point in time, they were evenly priced. That was before there was really this concept of skew. And so, I think a lot of things changed as a result of '87. But I mean, most of them were beneficial. I think we always learn from incidents and make the market better. So, there's always a positive to these events. Unfortunately, there's many negatives, too.

It was kind of fun, chaotically fun, you know? It was interesting. It was just a really fast-paced, interesting thing. The thing that people would always come, and you've probably seen the movies and people have seen scenes from trading floors when things are going crazy. And even when people would come and visit, they always would comment that it looks like absolute chaos. There's no organization or methodology to understand what's happening. It's actually more organized than it appears. So, a lot of people would equate it to a bee's nest, you know, and all this back and forth and nobody knows what's going on, but they all have a place. Everybody has a role. It's understood a lot cleaner than what it looks like. And there's also honor in the world of trading that I cannot emphasize how important it is because, you know, I was in the pit with 600 people and you hold your tie up to say, 'Me, are you trading with me, not him, not her.' Your word is your bond. And so, there can be instances where there are what we called out trades. So, like you might think you were trading with somebody, and whatever the protocol is to take care of that, that protocol has to be abided by at all times. In other words, you can't say one time, 'Well, I thought it was you, but it wasn't,' and the next time, 'Oh, it was you, but it wasn't.' You know what I mean? So, I think that part I always liked because if you didn't have that basically that code of honor, people wouldn't trade with you because they couldn't trust it. And so, they quickly weeded out anybody that wasn't going to stand up to whatever the protocols were.

I think the one common is that it's not the known that causes these, it's the unknown. Like the known that everybody is fearful of usually isn't what triggers something. Like nobody knew what a CDS was before 2007 and 2008, right? I mean, sure, some people did, but they didn't appreciate that. The whole flash crash in 2010, that was wild, crazy wild. That was caused by unknown circumstances which then were fixed as a result of that, basically the limits and triggers and limit up, limit down. So, I think there is some continuity in that each one of them is caused by, I would say, a previously unknown, but the reaction is often similar to whatever is causing it. And that part is kind of interesting because there's so many instances where people say, well, rationally you can't see XYZ happening. That doesn't matter what's rational in those instances. People don't act rationally.

The one thing I would say though about the fascinating thing about people in the world of trading is their reaction in times of extreme stress. There are people you would look at them and you had no idea that they're down a significant amount of money and have a position that's got them in real, real peril. You can look at them and you had no idea. And then some obviously you could read like a book, and that usually wasn't favorable for them to be able to be read in that way. But they're also super, super decisive. Like the one thing we always joke about is if you go out with four or five traders to dinner or lunch or something, they're going to look at that menu and those decisions go real fast. And one of the things that I think is the most valuable lesson that's learned from the world of trading is there's an expectation that you're going to be wrong about 50% of the time and you're good with it. Like where else in the world of business do people say, 'Oh yeah, I know I'm going to be wrong 50% of the time. If I'm right 51, I'm going to be winning.' That's not the way people are wired, but it teaches you to be wired that way and I think that's such a valuable lesson for people in general.

Yeah. So, I was in the world of trading probably for about 20 years. You know, I started with a trading firm called Trade Link. Then there was a small group of us within the firm that started our own firm, and then there were a bunch of European firms that came in to buy the market making firms because they thought it was very lucrative to do so and get involved in not only the European markets, but the US markets. And a Dutch firm was looking to potentially acquire the firm that we owned, three partners and I, and my partners were 10 to 15 years older. So, they weren't really interested in selling or working for somebody. So, they bought me out and I went and worked for a Dutch market maker. The value in doing that, which I didn't even realize at the time, was a lot of the exchanges in Europe had demutualized. In other words, they went public, so that now, instead of the people standing in the trading pits owning that pit, and look, it's in their best interest to limit the number of participants because they basically interacted with all the trades, and it was a lucrative thing to do. But, as soon as they went public, now the whole world is a market maker. Anybody can be a market maker. So, they all created technologies to make the access to those exchanges even wider. And so, I got to participate and watch and learn about those technologies that were being developed broadly for not just market participants on a trading floor, but for the world. And they probably were seven or eight years earlier than this happening in the US. So, that experience was super helpful in building technologies for retail traders. Because I always used to joke with people, when I was on a trading floor, our technology, which is inferior to what exists today and up for free on an iPhone, it cost us 10 grand a month. 10 grand a month we paid for that technology, and that was unaffordable, of course, for any other market participants.

This technology was like a handheld. It was like the size of a brick, a little bigger, you know. And it would provide you quotes, it would provide you information and other things, and a seamless way to have those trades entered.

Yes, exactly. Yeah, and now it became free to everyone, and it opened up the market in a way that nobody could have imagined.

Well, I think they eventually... So, if you're familiar with Interactive Brokers, with IBKR, they started as a market making firm and then they kind of morphed into a retail brokerage firm and they were ahead of the curve on their technology. They had technology on the trading floor that a lot of people didn't. And so, that was kind of interesting because they also are global. They're on other exchanges as well. So, they were an early leader in technology and they had technology that a lot of people on the trading floors didn't. So, it just permitted you to be quicker, and being first was critical in the world of trading in those days.

Well, I think there are a lot of... And again, Tom Sosnoff started it. So, he recruited... he was a friend. We'd never worked together, but he and a couple other friends had started Thinkorswim and it was early, but they were growing like a weed. And so, we were a small company, but growing really quickly and the audiences were just growing for self-directed retail was just growing like mad at that time. And so, it was really well timed to be an entrant at that point in time.

I remember that conversation, these conversations that they had, and you know, they're well-intentioned, but their marketing team came in and some of their suggestions were quite laughable. And I remember the conversation very vividly because Tom's very passionate and he built many businesses successfully, but they were kind of saying to him like, 'What is Thinkorswim?' And Tom's like, 'What is Google? What is Yahoo? I mean, what do you mean?' And there was an argument about whether it had brand recognition. And they had indicated that they had done a survey and people didn't know what Thinkorswim was, and Tom told them that they probably did a survey in a nursing home and he'd do his own, which he paid for, and it had a lot of recognition.

You know, the other thing that's kind of fascinating, Kevin, is in addition to... So, I'm just going to take myself all the way back to the late '80s. The technology was inferior. If I'm just a retail customer, the pricing, forget about it. We were paying nothing and people at that time were paying 75, 80 bucks a trade. Access to information was not there. They didn't have access to the information that we had, and the education on how to do this just wasn't there. And so now I put myself in the current environment and say, 'Wow, this playing field has been leveled in a way that I would never have imagined.'

Sure. Yeah. I mean, I think it's one of the things that has been a source of frustration for retail customers for a very long period of time. And it's just that there are things that institutions or wealthy individuals get access to that they don't, and they just don't think that's fair. And it's not equitable. And so, it's something that we've been working on very hard with Robinhood. Robinhood cracked the code on removing the friction and half of our 27 and a half million customers are new to the market. And so, we have to provide them with financial literacy so that they can be successful and do it in a suitable manner. But then, when you deliver what's tradable today, then they push you and say, 'Hey, why can't we trade around the clock? All these other assets do. Why can't we get access to pre-IPO securities that are seeing all the appreciation? Why can't we get access to IPOs in the way that the larger institutions or wealthy individuals do?'

And the nice thing is, you've seen the percentage of trading that's done by pure retail go up in equities and options and crypto and every single asset class, futures, everything. But you're also seeing the percentage that's getting allocated when companies go public, because we have an IPO access product which gives people access to IPOs, and we used to scratch and claw to get 1% or 2%. Now, we're having firms come to us and say we want to give you 20%. That's amazing. So, this is the most positive development in my mind for retail customers is that all these walls are getting knocked down. And we're still fighting on some of them. Accreditation rules. Do accreditation rules make sense? I'm somebody who's 54 years old that got a windfall of $10 million from a parent or grandparent, suddenly I'm more qualified to make an investment than a 31-year-old NASA space engineer? I don't think so, right? So, I think there's more to come. I think there's more to come.

They're easier conversations because we are the customer, basically. I mean, I've been trading, as you know, since the 1980s. And so, I know exactly what I think I would like to see. And all generations have ideas of things that they'd like to see. So, we always listen because we have to deliver for them. But sometimes, we have to deliver things that they didn't even consider. You know, that would be very useful to them, because sometimes when they ask for something, there's really something behind that. You know what I mean? Like that old quote by, I don't know if it's really attributed to Henry Ford or not, but it kind of goes back and forth. If you ask a customer what they want, they'd say a faster horse, and he's like, they really meant the car, right?

Well, I think I would have said like all the things that I talked about earlier, the cost structure, the technology, the education, the access to information. Man, if we did the reverse of Back to the Future and went back and you had all this technology and everything, you'd do pretty well in those days. So, that would be cool to say. But, even like I've made this comment before, even 10, 12 years ago, if you would have told me, because I've traded a lot on the trading floor, I spent a lot of time trading options, and if you would have told me that the largest retail option trading firm, which is Robinhood today, is doing 98% of their trades on a phone, I'd say I don't think it's possible. I just don't think the technology would permit it to be able to be done in a way that would be understandable to people, but look at where we are. The advances are crazy.

Yeah, yeah, almost all of our... it's probably 95 now with Legend growing the way it is, but it's a big percent of our option trading that's happening.

Yeah, 60% of households. We're roughly... because we use some of these figures when we go talk to elected officials or when we talk to regulators. We're about 10% of the people that are over 18 have a Robinhood account.

It goes up and down based on market...

conditions. You know, so we'll have, you know, weeks where there's millions and other weeks where, you know, it goes down a little bit and it's all kind of dependent upon market conditions, what's happening and what gets hot.

You know, the part I actually like I like a lot of facets of the business. You know, when you're a market maker and you're just kind of basically working for the bottom line, that's what you do. You know, you're just trying to I mean, your goal is to make money. That's what it is. It's how you're judged. That's how you're paid. That's how it is. It's actually more rewarding to help a whole bunch of other people do it as opposed to doing it yourself. And I always joked about this because, you know, my dad was military and then he sold paint. My mom's a teacher. I'm from Wisconsin. I'd explain to them, 'Oh, what do you do?' When I'm trading, I'm like, 'Well, I provide liquidity. Say somebody wants to buy IBM, but nobody wants to sell it, then I buy it and then I sell it to them.' And they're like, 'Is that helping the world exactly?' And I'm like, 'Uh touche. Yeah.' So, when I started working for Thinkorswim on the retail side, one of the first things I did is we used to educate. We would go huge 600, 700 people in rooms and we would showcase our technology, but we would educate them how to use it. And I jokingly say, you know, as soon as I told my parents, 'Yeah, this is what I'm doing. I'm educating people.' They're like, 'Now you can sit at the adult table at Thanksgiving.' You know, you don't have to sit at the kids' table anymore.

Exactly. Yeah. So, it's just more fun to build for huge audiences and see an impact and see what they can do. And man, when you talk to people who like really get into it and have been successful, especially if they started a young age, they're so thankful that they got into it and you know what it does? It gives them agency. Agency that they didn't have. So, in today's day and age, and again, I'm dating myself. You know, we used to have four or five jobs. I mean, my kids will have four or five jobs by the time they're 30, right? And so, if they learn how to manage their investments and have agency to be able to say, 'Maybe I want to take 6 months off.' Or maybe I don't I want to do something that doesn't pay as well as something else, but I have the latitude to do that because I'm managing investments that are generating income for me. That gives them this agency that's just so powerful. They're not tied to anything. They're tied to whatever they want to do. And I love that.

Uh well, I think you first you have to have a product that people love. And Robinhood excels in design and there's wicked intelligent people here that spend a lot of time on thinking about every aspect of the investing journey for people. And customers appreciate that. And so, it makes it a lot easier to scale because you're basically getting referrals because people say, 'I'd love to do everything with Robinhood. Can you please continue with your journey of providing me more capabilities?' And so that kind of makes it easy. But then you have to find the audiences. So, one of the things that we have done more recently is said we're not just going to be focused on the US. We're actually going to go abroad because as great as the retail participation is in the US, 60% of US households, it's in the teens in Europe, it's in the teens in Asia, and there's a lot of room to grow. But you have to have the tools and the education to remove all the friction for these people so that they can enjoy the benefits of capital markets the same way people in the US do. And by the way, the regulators and elected officials in those countries desperately want that to happen because then they don't have a reliance upon the government, you know, when they get to an age where they're retiring, they have generated enough wealth on their own to be able to take care of themselves. So, when we go and have initial conversations in countries or regions, we get a very warm reception because they understand what we can do.