How Millennial investors are changing online trading

Ryan Belanger-Saleh, Gatsby Co-Founder joins the Yahoo Finance Live panel to discuss how Gatsby, an options trading platform, is taking on Robinhood.

Video Transcript

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- Well, that GameStop story, which feels like a million years ago, but wasn't that a fun one? Shows that retail trading particularly among young people cannot be ignored. A one new platform getting into the game is Gatsby and the unique spin that they have on other retail platforms is a rewards program. And Ryan Saleh, he is the co-founder of Gatsby, joins us here on Yahoo Finance to share a little bit more.

Ryan, what caught my eye is that the average age of your users on the platform is 28. So tell us a little bit more about the trends that you saw just over the last two months or so in the retail trading space, and what Gatsby hopes to accomplish by capitalizing off that.

RYAN BELANGER-SALEH: Yeah. Yeah. So I mean, the stories you're hearing out in the world are very true on Gatsby. It's true on Gatsby as they are anywhere else. We've got a lot of the people who are looking to trade these so-called meme stocks. What what I think makes Gatsby a unique experience is we love to see increased interest in retail trading in general and really in options trading more specifically.

But it does no favors to traders, to brokerage firms, or to the industry at large to have traders coming in and having a bad time. So it's very central to how Gatsby runs as a platform to have a step beyond what a normal brokerage firm would do in terms of suitability and guardrails to make sure that traders are not getting themselves in over their head, and that their early trades are well informed and relatively safe.

- So we've already seen issues of course, with Robin Hood earlier this year. "Gatsby" I love the book. It doesn't end well. How are you convinced that your app is going to not end up like Robin Hood?

RYAN BELANGER-SALEH: Yeah. I mean, there's a few things. One, we are very careful with how we extend level three options trading to customers. So just because you answer a few suitability questions correctly doesn't mean that you can come in and trade spreads, or sell naked, or do things that really have uncapped risk in their entirety. It is fundamental to trading options not that you make money. Many options traders don't make money. What's important is that when you lose money, you know why you lost money.

I often equate it to a casino. If you walk in and you sit down at a slot machine and spin the wheel and your money's gone, you're not going to come back because you had a bad time and you don't know the mechanics of what when into you losing money. But if you sit down at a blackjack table and you draw the wrong cards and you lose money, that's a very different prospect.

So for us, it's not about making customers always make money and always be on the right side of the trade. It's about making sure that traders are aware of what they're doing, they know the mechanics of options, and that they walk before they run. So Gatsby really forces traders to demonstrate some proficiency in trading before we let them do things that can have unmitigated risk, which is where you hear the horror stories that you've heard on other brokerage platforms.

- Now Ryan, on the other hand, there's been a lot of interest and intrigue in the whole model of how this industry works when it comes to payment order flow. It's because of the relationship with these market makers that you're able to offer commission free trade. So first of all, how exactly does your company Gatsby approach payment for order flow? And have you seen a lot of inquiry into whether or not you really are executing on the best trades for your users?

RYAN BELANGER-SALEH: Yeah. I mean, so this is me speaking personally, not-- this is my personal opinion. I really believe that when you're trading a small account, and generally small trades in general, payment for order flow is a better pricing mechanism for the user than commissions are. It would take a lot of volume for your paying for order flow rebates that are generated on your trades to outweigh what the commission would have been otherwise. I think the problem that we've all run into is lack of transparency.

There's obviously the potential for customers perceiving a conflict of interest in the payment order flow model. And the second they start to smell that brokerage firms are not being transparent about it, they really get a bad taste in their mouth. So yes, Gatsby makes money on payment for order flow. It's been central to our thesis when we started the company to be very, very open about that.

The other thing is that especially in options trading, poorer execution quality is a non-starter. Customers don't want to hear about it. Any poor execution quality you get on the equity side of the equation is 100 times worse on the options side of the equation. So it's really important to us that customers know they're getting top notch execution quality and that their brokerage firm is being open, and fair, and honest about how they make money.

- Talking about transparency, there's also a social element where people can actually be transparent with their trades as well as an idea, letting your community see what you're doing. Is that something that is resonating and people want to do? Or are you finding people want to keep it close to the vest?

RYAN BELANGER-SALEH: Yeah. Yeah, it's always an option on Gatsby. You can always shut it off and have your trade stay private. We see a huge amount of social sort of follow on behavior that is just sort of driven by what they see other people, what traders see other people trading. It is actually in my mind more a function of how modern traders trade in general. There is a much heavier reliance on your peers, and your friends, and others in your trading community, whether it's on a private channel or on social media at large, that inspires trades.

So we're trying to bring some of that onto the platform and give people a sense for what's going on. And of course, we show people what's trending on Gatsby and what's popular in the day. But it is really, in my mind, more of a shift in how young people trade as opposed to how people did a generation ago.

- Ryan Saleh, thank you so much from Gatsby. He's a co-founder there talking to us about his new options trading platform. Great to talk with you.