Here is the interview folks! The actual audio is at the bottom of this article so scroll down to listen. This is an interview with Richard Jaycobs, President of Cantor Exchange. Cantor Exchange is a subsidiary of Cantor Fitzgerald and offers a place for traders to get together and trade binary options.
Richard came to my house and spent about 8 hours discussing all kinds of neat topics about the exchange. We then sat down and recorded. Below is the transcribed interview. There were a couple of words that I was unable to make out. These are noted with […] followed by the time index of where it occurred in the recording.
Up Close and Personal with Richard Jaycobs / Cantor Exchange
Ryan Herron: Welcome to a very special interview with the president of Cantor Exchange, Richard Jaycobs. My name is Ryan and I run a little service called Joaquin Trading. Now, I met Richard a few months back at a trader’s conference and what I saw in that presentation just blew me away. Here’s a little bit about what they offer.
First of all Cantor Exchange is a subsidiary of Cantor Fitzgerald and they offer an exchange for binary options trading that allows retail traders the ability to participate in the market for only one dollar per contract. They also offer something called flex contracts. Which means you can write your own strike price and your own expiration. They also offer something called rolling strike which means that the market cannot move into an area that is untradeable.
Cantor Exchange makes their API available for everyone for free. This allows you to create your own products, to connect directly with the exchange, and they allow referring partners and introducing brokers.
Now Richard came to my house; he met with me, we sat down at the kitchen table for about five hours and discussed all kinds of ideas that are just flat out awesome for the retail trade as well as the institutional trader.
As the day progressed he also met with a houseful of local traders. They all came to my house. We all ate food. They asked him questions. We just had a little exchange of ideas and the night was just, I mean it was great.
Now the Cantor Exchange is changing the way binary options are traded. […] (00:01:42) one of the few things that are just going to make your jaw drop in this interview so let’s get to it.
Okay so if you want to learn about Joaquin Trading or the Cantor Exchange you can go to joaquintrading.com. You can go to cantorexchange.com. If you would like to sign up for an account you can do that at forestparkbx; they are an introducing broker.
Now in this interview, since it was recorded in my home office, my voice may sound a little distant but Richard’s voice comes through loud and clear.
Alright. Let’s get started.
We’ve got Richard Jaycobs on the line today. Actually he’s here in my office. And he has flown all the way down to Knoxville, Tennessee to see me, and we’ve been talking for about the last three hours about the Cantor Exchange. Now I’ve got some questions for him that I would like to get answered and so I’m just gonna jump right into it.
Richard, can you give us a little bit of history about yourself? How did you get involved in the industry? We can read the same post over and over online but we would all like to hear it in your own words.
Richard Jaycobs: Well I have been fascinated by markets since I was in high school and had the opportunity to go work with one of the great hedge fund traders of all time, Paul Tudor Jones, when he was chairman of an exchange called Finance New York back in the eighties. And launched a number of new financial products at that exchange. I’ve been in the futures and options business ever since, since 1986. We’re on a couple of exchanges. We had the, I had a company that had the first CFTC approved internet exchange called OnExchange and then joined Cantor Fitzgerald and started Cantor Exchange which was originally going to trade futures on movie box office results. So I love new products and Cantor Exchange and the binary options offering we have right now is just the next, the next part of that, of that strategy.
Ryan Herron: Alright. Well you spoke about Cantor Fitzgerald, how are they connected to the Cantor Exchange and why did they start the Cantor Exchange?
Richard Jaycobs: Well Cantor Exchange, Cantor Fitzgerald is the parent of Cantor Exchange. It is, Cantor Exchange is wholly owned by Cantor Fitzgerald. It was begun as a retail oriented exchange, as I mentioned, to trade movie box office futures. We’ve since moved into binary options trading and trade products currently in foreign exchange and gold; but we’re going to be moving into a number of other commodity and interest rate equity markets as well.
Ryan Herron: Alright. Okay. Good deal. Now, the majority of traders out there have no idea about this market called binary options. Can you explain a little bit what a binary option actually is? What is it used for and how are they traded?
Richard Jaycobs: A binary option is a simple statement on whether or not something will happen. So today, for example, if you look at the DOW industrials you might have traded a binary option basically whether or not the DOW Jones would close above or below eighteen thousand. If it closed above you would, in our case, win one dollar per contract, or receive a payout of one dollar per contract. And if it didn’t the contract would not payout at all. Basically when markets are at key turning points, binary options can be a, a good vehicle for traders who are interested in trading those kinds of markets. When markets are trending there are other products that work well but binary options are a unique vehicle if you have a view on whether or not markets will reach certain threshold levels or they won’t.
Ryan Herron: Okay. So, when the vast majority of traders who do know what binary options are, they’re often confused. Can you us an example of the difference in regulated binary options or non-US binary options? What’s the difference between the two?
Richard Jaycobs: Well, in the US only exchanges are allowed to trade binary options. There are no unregulated markets that are supposed to be operating inside the US. Cantor Exchange is one of those markets that can trade inside the US. We’re excited because we are regulated. We are regulated by the US Commodity Futures Trading Commission and what that really means to the trader is that we provide a venue that is the fairest possible market for traders. That’s our mission. We are a, what’s called a Self-Regulatory Organization. Our job is to provide a level playing field for all traders. All traders are treated equally on out platform and again, this is our mission; to provide the fairest possible marketplace for binary options trading.
Ryan Herron: You’re gonna provide a fair market for binary options traders and you’re self-regulated. How is the self-regulated versus CFT regulations, what is the difference between the two?
Richard Jaycobs: Well, what self-regulated means is that, for example, we get to decide the products that we’re going to trade. So we list the products, we enforce the trading of those products, we make sure that all traders are trading fairly. If someone does not trade fairly we have to take an action in those cases. That rarely happens but if it does happen that’s our job. We make, again, our primary objective is to make sure that those markets are run fairly, as any exchange would be. If you’ve traded stocks or more traditional options you’re familiar with, you’re familiar with that kind of regulatory function. And that’s our, that’s our mission.
Ryan Herron: Okay good. Good. How can the exchange compete in the world of regulated binary options? What are the main advantages of trading with Cantor Exchange versus any other exchange?
Richard Jaycobs: Well again, we are, we offer some unique products in binary options. Our products are, basically we trade one dollar contracts. That means that they’re very accessible to traders. The risk can be defined at a level that’s comfortable for pretty much everyone’s risk profile. Of course trading is, is a, is, is a risky business so there are some traders who, or there are some folks who maybe shouldn’t be trading binary options but assuming that you’re suitable for trading them we do offer them at a smaller size. We offer markets that are not offered elsewhere. And so we’re excited about our competitive positioning.
Ryan Herron: Okay. So let’s say a trader gets in there and they want to start trading binary options, but they also trade in other markets, can they use binary options to offset risk in any way?
Richard Jaycobs: That’s probably one of the biggest examples of trading currently using the Cantor Exchange marketplace. Because we are principally trading foreign exchange right now we’ve got a number of foreign exchange traders who have longer positions on in the foreign exchange market. And they’ll come in and again, if the market’s at a key turning point, or at a level think is, is important for a breakout of the foreign exchange market, they’ll come in and they’ll take a position in the binary option to protect their existing position in the underlying market that they’re trading.
Ryan Herron: Okay. What kind of protections can the exchange offer the traders? During recent times, back in the 2008 meltdown or the Swiss National Bank debacle, traders are more concerned with their accounts nowadays. Such as are their accounts segregated? Can you speak about the protections of the exchange?
Richard Jaycobs: Sure. There are two aspects of that. One is, all client funds are held in what we call a separate member property account. In our case those funds are held at Harris Bank. So customers’ funds are protected and actually carried by the equally regulated Cantor Clearinghouse. So your funds, your funds are segregated and protected. I think separately, the nature of binary options traded at Cantor Exchange is, whenever you put a position on there’s no leverage involved. So if the market moves in an excessive manner relative to what you might have expected, it’s possible to lose your capital but you can’t lose more than the capital that you put into the trade in the first place and we think that’s an important feature of binary options at Cantor Exchange.
Ryan Herron: One of the issues talked about regulated binary options is liquidity. Traders need to be able to get in and out of their positions rather quickly. Where do professional market making firms fit into the Cantor Exchange model?
Richard Jaycobs: Well, Cantor Exchange offers API access to all traders, not just to firms that would traditionally be considered market making firms. Anyone who wants to provide electronic bids and offers into the marketplace contributes to liquidity and we are actively encouraging firms to sign up with Cantor Exchange and provide that liquidity. Currently we have several firms that have signed up to do, to basically provide bids and offers electronically. And most of the traders that are trading speculatively will typically place orders against those firms. So the more we have the better and we’ve got several right now and expect to have several more on board with us shortly.
Ryan Herron: Now the spreads; how are the spreads determined? Many traders feel that they are too wide. How can these spreads be lowered so that traders can be able to take advantage of trading opportunities?
Richard Jaycobs: Well spreads are determined by market participants. If you think spreads are too wide then we encourage all traders to come in and put their own better offer inside of whatever spread they’re seeing on the screen. I would make one point; the electronic traders currently that we have, are trading with each other quite frequently. About seventy percent of our volume is electronic traders trading with one another. And what that means is the spreads are effectively zero in those, in those times when the traders, electronic traders are trading with one another. So if you place orders into the market there is a good chance that one of the other electronic market makers will take your position. By the same token it’s possible if you put a bid or an offer in the market another small trader may take that position from you. So what we encourage everyone to do is look at the market, decide if they want to trade at a price that exists in the market and if they don’t like those prices put your own price into the market.
Ryan Herron: Okay well, this next question is one of my favorites. So many binary options traders they love trading in NDX, or […] (00:12:45) or commodity. Currently Cantor Exchange offers a few currency pairs and gold to be traded. What are the future plans for adding additional products to the exchange? For instance; will there be contracts available around the clock or on a weekly basis or even will you be offering anything like a bull spread or a vertical type spread in the future?
Richard Jaycobs: Lots of new product ideas are coming out. And you’ve mentioned, you’ve mentioned many of them. First in terms of what I would call asset classes. As you point out we have foreign exchange in gold currently, we are adding silver and other metals. We’ll be adding energies, equity indices and yields on interest rates hopefully sometime in the late third, early fourth quarter is our plan to do that. You also mentioned bull spreads; bull spreads are a little different than the binary options we talked about earlier. Bull spreads allow a market not to settle at just zero or one but at a value in between and we also have a plan to launch those by year end as well. I think the important thing is, we respond very much to our customers’ interests. If we customers who notify us by calling us or email requesting certain products we’re happy to put those products to the front of our new product list and get them up and trading for our traders as quickly as possible.
Ryan Herron: Fantastic. I can’t wait for that. So here’s another question. How will the exchange be assessing technology issues? For instance; will various popular platforms, such as MetaTrader 4, be able to integrate with the exchange or will there be an ability to write your own code for stop losses or auto-trading programs that will be compatible? Can you explain a little bit about your partnerships you already have with vendors, you know, platform providers?
Richard Jaycobs: So, absolutely Ryan. The exchange has an open architecture philosophy. That is a fancy way of saying that we want everybody who is interested in getting our APIs to write our APIs and access our market electronically. You mentioned a couple of vendors we already have relationships with. That’s part of what we call our Independent Software Vendor Strategy. Each vendor, we have four that we’ve announced so far, there will be others that we’ll be announcing, but each of those vendors has their own idea of what kind of trading interface traders like best and they’re in the process of producing them and making them available to traders. And when traders come and register as part of Cantor Exchange they’ll be able to pick from those vendors for trading in a trading interface. By the same token we are excited to have a number of individual traders, for example, that are using the API to develop their own signal generation services either for themselves or to vend those products out to other traders on our platform. Bottom line is it’s an open architecture platform. We’ve seen in technology in general that open access works well. It brings creativity and competition to the marketplace and that’s the core of our strategy.
Ryan Herron: So how do traders actually place trades through the exchange? Let’s say they wanted to trade on MT4 or they wanted to trade on the Spot Option platform, how do they actually place the trades? Do they go through an introducing broker or do they go directly through the exchange? Who handles the customer service side of the business? You know, issues like this. Who do they trade through?
Richard Jaycobs: So all traders are Cantor Exchange, we call them participants, directly. Everybody trades direct with the exchange so no matter what independent software vendor you may use to actually connect to the exchange and execute your trade those trades are coming straight to the exchange and they’ll be matched against all the other traders on the exchange. You mentioned introducing brokers; we have a program for introducing brokers called our referring participant program. What that means is that we encourage introducing brokers who have clients to create value added services. They can take our trading interface, embed it in a platform that they’ve created, let’s say it’s their website, and basically provide an additional level of service for our traders. So the traders always trade directly with the exchange but the introducing brokers will provide value added services as part of that as well.
Ryan Herron: Okay so what are the, let’s say a trader wants to go ahead and get started, what are the minimum deposits to open a trading account and what is the waiting period before traders can withdraw any funds?
Richard Jaycobs: So there is no minimum deposit. Basically traders go to an onboarding, a website that allows them to onboard themselves into the exchange. In that onboarding process they decide the kind of funds they want to deposit to the exchange; as we say, there’s no minimum deposit. And then at some point if they wish to withdraw those funds they simply put in another withdrawal request and we return the funds to them. There is a waiting period, the exchange has a waiting period if the account is open for less than sixty days we have some regulatory reasons why we have to do additional checks. Having said that, if we’re in communication with the trader and the trader wants their funds back inside of sixty days they can usually get their funds back the same day that they put the request in.
Ryan Herron: How can you open an account? Is it through a bank account? Can you do credit cards? How would I actually go about opening an account?
Richard Jaycobs: So the most common ways folks open accounts is electronically through our website. We use an E-Check system typically, we also accept wires. Under US regulations credit cards are not permitted, but what we’re finding is that traders have been very comfortable using the E-Check system, works very well and can all be done directly through our website.
Ryan Herron: The put and call on the platform is confusing and looks similar to offshore binary shops according to several traders. Now will you be putting a buy or sell button on there or is it just going to be a put and call button?
Richard Jaycobs: Well let me, let me just come back to the key point which is that we have an independent software vendor strategy so currently the platform that is available to traders has been produced by a company called Spot Option and it’s their view for their platform that’s being provided to traders that the put and call trade entry buttons are the easiest to use. I come from a futures background myself and I’m more used to a conventional bid/offer, buy/sell type presentation. Cantor Exchange also offers a mobile GUI; for example on iPads and Android devices, that has a traditional and conventional presentation. So each independent software vendor will decide how they want to, what they think their customers want to see in terms of trade entry and trade exits. And again, we enable them and I expect as more software vendors come online we’ll see different, different kinds of presentations that suit different kinds of traders.
Ryan Herron: Now, you said, you said a funny word. Mobile GUI. I understand what that is but can you explain that for, in layman’s terms?
Richard Jaycobs: Ya, okay. Apologies for that. Mobile just simply means it’s a, it’s not on a desktop computer. It’s on your iPhone or Android device or iPad. That’s the mobile part. GUI just means Graphic User Interface, or more commonly in this world it’s the trading platform. So that’s what we mean by that, is that you can trade directly from a mobile device and the presentation there is a little different than on the desktop right now offered by Spot Option.
Ryan Herron: Okay. Okay. So, currently the only option for traders in many countries in the world are trading through non-US brokers. Does the exchange have any plans to accept international clients in the future? If so, what countries will you be starting with?
Richard Jaycobs: We are aggressively looking at onboarding clients from outside the US. We need to confirm a number of regulatory issues in each country that we take customers from. We’re in the process of that right now, we have a team looking at it and I expect that between now and year end we’ll be onboarding the better part of thirty or forty non-US, traders from thirty or forty non-US jurisdictions. Again we do have to go through a regulatory process with each of those jurisdictions and we’re doing it. And hopefully by the end of the year we’ll have those countries signed up.
Ryan Herron: I see many different exchanges mentioned on CNBC, Bloomberg, or Fox Business, such as the New York Stock Exchange, or the Chicago Board of Trade, among many others. Do you see a spot for Cantor Exchange to be an integral part of these networks in the future?
Richard Jaycobs: Well I think that binary options, in Cantor Exchange’s binary options in particular, provide a unique opportunity for media to provide additional information that is otherwise not available in the marketplace. A binary option, for example, traded at noon today actually gives a probability about whether or not the market, Stock Market or the Oil Markets or the Gold Markets, will close above or below a given level at the close today or at 2 PM today. That’s valuable information that right now is not captured by any of these media outlets. For example, one of the, one of the trades we’ve seen quite frequently is when the FOMC minutes are being released we see the markets, out markets moving around. And it’s a probability statement on whether or not the, you know, the fed will be taking an action or it won’t be. So again these markets offer unique information, they offer unique trading opportunities and I do think the media outlets, as they become more popular, will pick them up.
Ryan Herron: Good deal. Okay so, here’s a big one; does the exchange offer any type of educational content on how to actually place trades or any strategies?
Richard Jaycobs: The exchange is in the process of launching a distinct education website called the CXMarkets.com website. We haven’t released it yet, I expect it will be released sometime in early August. When we open that site up there will be trading information on there; educational information on there. Of course we’ll always be adding to that content so, so we encourage everyone to be on the lookout for it and as soon as that market goes live we’ll be sending a notice out to all of our traders and interested market folks, including you, Ryan. And look forward to continuing to put more information on that site.
Ryan Herron: Alright. Well would there be anything else that you would like to say that we have not covered yet?
Richard Jaycobs: No, just again, Cantor Exchange is, is trying to be, and believe we are being, a very innovative exchange and we want to be very responsive to your audience and traders in general finding out what it is that they’d like to trade; what it is that they’d like to see in user interfaces and their trading interfaces; and try to deliver all of that to them as quickly as we possibly can. So I appreciate the opportunity and look forward to getting feedback from you and your clients.
Ryan Herron: Well I do appreciate you being here today. This has been a fantastic experience and I’m going to post where they can find out more about the Cantor Exchange such as CantorExchange.com or any various websites in the show notes today. So, Richard thank you for being here.
Richard Jaycobs: Thank you, Ryan.
Ryan Herron: And there you have it folks. That was Richard Jaycobs, the president of Cantor Exchange. If you would like to find out more you can go to CantorExchange.com. If you would like to find out more about more about me and what I provide you can go to joaquintrading.com. If you would like to open up an account trading on the Cantor Exchange go to forestparkbx.com; that is an introducing broker and Justin can help you out.
Keep your eyes open for CXMarkets.com because that’s going to be the educational resources for the exchange. And if you’re like to talk with other traders about the exchange go to www.facebook.com/groups/cantorexchange.
You guys have a great day and I will see you next time.