Editor’s note: This story contains language that some readers might find offensive. Also, the subject matter contains a plethora of non-capitalized proper nouns, which are the actual names of the firms.
The team behind retail brokerage thinkorswim, and more recently the financial news network tastytrade, is once again hoping to take the retail broking industry by storm with the opening of their new brokerage, tastyworks.
Launched on January 3, the low-commission offering is the next logical step in fulfilling the goals the group has had since thinkorswim was founded 17 years ago, despite the fact that the plan “was never to open another brokerage firm,” according to Tom Sosnoff, co-founder of thinkorswim and tastytrade, and 30-plus-year options trader.
TD Ameritrade bought thinkorswim in 2009 for $606 million, but the group behind it lives on in the “tasty nation.”
The new brokerage, tastyworks, is now part of tastytrade, which includes the web-based financial network founded in 2011 that is geared towards self-directed individual investors with a focus on derivatives. New tastyworks customers will trade on a platform based off of what the tastytrade team developed in 2013, an options trading system called dough. So while tastyworks is a new brokerage, it is quite familiar to many.
Sosnoff is surrounded in the venture by several long-time colleagues. Former thinkorswim CFO Kristi Ross is tastytrade’s co-CEO; thinkorswim co-founder Scott Sheridan is tastyworks’ CEO; and former thinkorswim CTO Linwood “Woody” Ma is tastytrade’s CTO.
Left to right: Sheridan, Ross, Ma and Sosnoff
The flat fee structure of tastyworks is notable: $1 for an options opening trade, $2.50 for a futures opening trade (although futures are not yet available – see accompanying table below) and $5 for a stock opening trade. Closing trades are free. This structure makes tastytrade one of the least expensive options in the retail space. For Sosnoff, the new entity aims to support its tastytrade business and the message that you can succeed in the investment space.
“You want to change finance, you have got to give the individual investors a chance to make some money,” Sosnoff said. “How do you give them a chance to make some money? If somebody is paying 20 percent of what they make in fees, it’s too much. If they’re paying 6 or 7 percent and they’re active, thats a great number. They can be very successful. That’s what we’re trying to do.”
Developing the tools to kill passive investing
Sosnoff’s self-admitted schtick for the last three decades has been his absolute disdain for what is generally deemed passive investing. Thinking that throwing money into the market simply hoping it will continue to go up is an investment strategy irks him. The two and twenty structure irks him. The culture of Wall Street – predatory, greedy and not much else in his eyes – irks him. He believes that only by actively managing one’s own investments can you be successful in the long-term and, perhaps more importantly, actually learn about finance.
That viewpoint has driven every one of his endeavors. Almost 20 years ago he didn’t think there was the right technology or brokerage out there that properly addressed the needs of an active trader, so he built thinkorswim. He didn’t think there was the content out there to enable investors to deploy active trading strategies, so he started tastytrade. And in the case of tastyworks, the group needed a means of supporting tastytrade’s content and research team. Now, all of pieces to enable investors who actively trade — technology, price and content — are in place.
“I do this because this is my legacy,” Sosnoff said. “This is how I’m going to change the world. I’m convinced we’re going to change the world with respect to passive versus active investing. I’m going to kill passive investing over the next 10 years of my life. I’m going to murder it.”
Sosnoff certainly has the venue and audience. He is on air for four of the eight hours of tastytrade’s daily programming, which covers markets and trading with a healthy dose of talk radio flair. They have an audience of some 100,000 people, the average of which tunes in for 2 1/2 hours a day. Since tastytrade shows Sosnoff and his bedfellows trading with their own technology, a lot of the fan base’s goodwill carries over part and parcel to tastyworks. Plus, the users of dough who want to continue using the platform have to go to tastyworks. If someone regularly follows the show, chances are that they agree with their philosophy, follow the tastytrade strategy book and want to use the tech their trading sherpas use.
And these aren’t empty rants. The research team, which produces all sorts of quant goodies for tastytrade followers, released a whitepaper on why deploying a buy-and-hold strategy with the S&P 500 was less successful and more risky than one which involved buying the S&P 500 and deploying a simple covered call strategy. It’s not a day trading plug. The tastytrade ideology simply involves taking the reins of your own capital investments and wealth creation and knowing how to acknowledge and manage your risk. (Slides from tastytrade’s research and blogs and video discussing it can be found here, here and here.)
Loving the designers
The success of thinkorswim is no secret and Sosnoff knows how to make it click again. An important component of his past and future success comes from knowing that platforms needed to improve their visualization tools and aesthetic appeal.
“You can’t ask somebody to build a really cool trading application if they don’t understand trading and very few people truly understand trading at a retail level. That’s number one,” Sosnoff said. “The second thing is that with all the firms I’ve ever been with or worked with, I’ve never met anybody that really hires designers first.”
With tastyworks, designers have that priority they lack elsewhere in the industry and are involved in the development process from the start. (The very beginning was 1 1/2 years ago, and consisted of five employees working in secret at Chicago tech incubator 1871.) These are also many of the same designers from thinkorswim.
“We feel like we have the best design skills in the whole industry. Look at who we’re up against — big dumbass firms like Fidelity, Schwab, you know, Scottrade,” Sosnoff said. “You couldn’t have bigger, dumber, more legacy designs than those firms have. That’s it. It’s not that hard — the bar is set low for us.”
By operating in a manner and with products that make it less conflicted than many other financial services firms, its fans and users appreciate the unorthodoxy.
“We suggest, ‘Hey, you’re smart enough to learn this stuff and don’t believe all the bullshit on Wall Street.’ Wall Street is full of shit,” Sosnoff said. “It’s all about excessive fee ripoffs and everything else. Their whole business is conflicted. We don’t do any of that stuff. Our business is very straightforward. It’s an intellectual challenge. That’s it. It turns people on.“
Their aim to be completely transparent goes so far as tastytrade has already begun incorporating a segment from the tastyworks offices in Google’s West Loop building, about a half mile away from tastytrade’s offices and studio.
The world is an oyster, and it’s tasty
Sosnoff’s goals and those of the firm seem more than achievable to his crew. When he looks out at the retail broker landscape today, he sees firms with platforms that don’t get people excited about trading. Let’s just say he takes a dim view of the competition.
“Listen, you think anybody really wants to be at Scottrade? Do you think people are like, ‘Wow, I can’t wait to open up an account at Fidelity!’ I mean, come on. Do you really want to go to Interactive Brokers? Come on. I’d sooner stab myself. I’d like to chop my fingers off if rather than trade there,” Sosnoff said.
Sosnoff adds that many firms today “don’t provide any content, they’re not fan friendly, they’re not supportive.” As such he wants to beat the industry and in spectacular fashion. The goal for tastytrade is to have 100,000 accounts by the end of 2017. For context, it took thinkorswim 10 years to reach nearly 200,000 accounts. With that growth comes an expectation that its headcount will grow. Currently some 90 people are employed by tastytrade and tastyworks. By the end of the year that number looks to be in the ballpark of 150 to 200 people, with most of that growth coming from the brokerage side.
For Sosnoff, his trademark beret is on and he’s set for another round with bigger opponents.
“I’m going to be 60 years old this year. I’m going to do 23 road shows this year and I work 15 to 16 hours a day right now,” Sosnoff said. “I don’t know how much I have left. And I don’t need the money.”