Brokers v Market Makers

TradingDesk

QUESTION: Mr. Armstrong; You previously mentioned you cannot trust the big firms in New York. Does this apply to their branch offices outside NYC?

Thank you;

JT

ANSWER: That comment referred to MARKET MAKING where they keep track of who buys what. That is totally different from having a broker at a major firm where you buy stocks or commodities or even ETFS and bonds.

That comment referred to only MARKET MAKING and that really applies to proprietary dealing concerning large players or buying debt issues the firms are reselling. That does not apply to normal shares or futures contracts. That is where a major company is buying a particular bond issue over-the-counter of a specific entity – not even US government bonds.

Having a local broker at a firm even at Merrill Lynch is totally dependent upon each broker. You want someone you can trust and is not going to sell you crap because he is told to do so from the firm’s lawyers or management. That is more of a bucket-shop that was highlighted in the movie Wolf of Wall Street. I saw that movie with a friend who was not familiar with the industry and she turned to me and asked – is that what you use to do? That was the classic pump-and-dump shop, not one of the larger firms.

The key is to find someone you can trust – that is everything. If they are familiar with our material, generally you have a kindred spirit and that is 90% of the battle. If they are in tune with what we are about, then this shows they have a desire to understand HOW the market functions rather than throw you to the wolves to make the highest buck.

Typically after a crash, the lawyers come in and run a firm. You need to ensure that your broker remains independent minded and does not offer you investments because the lawyers upstairs told him so. Good brokers will usually buck that trend.

You normally want someone with some experience and exposure to at least one boom and bust. That is critical so they know what goes up also goes down and he is not afraid to say sell when it is time rather hold and average in – the mark of a promoter.

We have been asked if we could put a list of brokers together who we know follow our work. We will look into that. Sometimes the best way is to meet them at out conferences.