184: The Best Trading Capital Funding Platform – Michael Berman
The Best Trading Capital Funding Platform – Michael Berman – Show Notes
In episode 184 of the Desire To Trade Podcast, I interview Michael Berman, co-founder of PsyQuation.
He gives an overview of the PsyQuation platform and how you can combine it to an AxiTrader account to get trading capital (i.e. trade for others).
Topics Covered In This Episode
- Who is Michael Berman and what he does 00:33
- How was Michael's first experience with trading and how that evolved to Prop Trading 02:17
- How PsyQuation came to be 05:51
- What is PsyQuation and what is it about 07:49
- How does PsyQuation work as an incubation platform for traders 10:20
- How does a trader get a PsyQuation score 14:01
- How does the PsyQuation score can help you become a funded trader 14:46
- What are the new updates and plans for the future for PsyQuation and the amazing tools they are developing for traders 18:34
- How you can find more about Michael Berman and PsyQuation [ 24:09
- And much more!
- Our idea was very simple. If you can identify where people make mistakes and you can help eliminate those mistakes, by default you'll be more profitable. If you're gonna lose money you're still gonna lose money you're gonna just lose less, so what I don't believe in, is I don't believe there's a holy grail.
- Welcome back everyone, it's Etienne at the offices of AxiTrader in Sydney with Michael Burman. How's it going, Michael?
- Okay, yourself, nice to meet you.
- Very good, very good. Thank you for welcoming me here, it's a beautiful view we have on the whole Sydney, which I really love, the view's always the best about these offices at the top floor, that's awesome. So, Michael tell me a bit about yourself, what you do, just a bit of background so people know who you are.
- Sure, Etienne you know I've been trading for more than 15 years, I started trading a hedge fund, well firstly I started in investment bank as a proper trader and then from there I progressed and set up a fund and was running a fund, and that was back in South Africa, and I moved here 11 years ago to Australia. And I once again started trading some proprietary capital for some high net worth individuals, and along the way, 2012, my partner and I decided to set up an emerging manager platform where we wanted, the company was called RAPA, stood for Risk And Profit Analyzer, and the idea was, that we would incubate, take the experience that we had built up over the years of trading ourselves, and incubate other traders. And RAPA took on another form, it was eventually merged and bought out by another, by an American firm, and my partner Vlad and myself were left to do our own thing, and in 2016 we came up with PsyQuation, and I can talk a little bit about, I'm sure we'll talk about PsyQuation.
- Yeah, that's very interesting by the way, which I just wanted to, yeah.
- So we are traders first and foremost, not just academics or salesmen, our first love is trading. And I know how hard it is, and I know what it's like to eat what you kill effectively, which is a trade. You're only gonna eat well if you make a profit, so I think we bring a lot of that into what we do at PsyQuation now.
- So I wanna go back in time a little bit, and when was that first experience for you with trading, did you start on your own, did you start with a fund? You said you worked for a pro firm? How did that happen exactly?
- It's an interesting question. So it actually goes back a long way. I started trading with my Bar Mitzvah money, so as a Jewish boy you become a man at 13. And you have a big party and receive money, and so with that money I started, my mother, my father's a businessman and he wasn't so interested in the stock market, but my mother was, and I remember I bought my first, at age 13 I bought my first share, the stock was Manganese mine, and kind of from there I was always trading on and off, doing a little bit of this and a bit of that, but certainly no particular style, it was reading the newspaper, I was one of those curious people, I studied the newspaper from cover to cover, and thought I knew something about the market.
- Nice, and how did that evolve to you being in the pro firm?
- So, yes, so how it happened was, my career post-university was in commercial real estate. I was an asset manager and a developer. And I was really enjoying a great career in the space, and we were part of a public company. And then I started wondering how would we do as a public company in a market downturn because at the end of the day, property's cyclical, it's interest-rate dependent, and interest rates go up and they go down. They do that in longer cycles, but I was trying to figure out a way how we could make money in any market conditions. And that's when I became aware of shorting and all that kind of stuff, so I made a pitch to the executive board at this investment bank I was working at, and said look, I've got these ideas and all this kinda stuff, they said go do some research, and put a board paper together, which I did, like a business plan, and I never looked back. I basically, they said okay we'll set you up and give you some capital with risk metrics and suddenly I was on the trading floor with guys trading SNP futures and options and all this kinda stuff, I knew very little, I just knew my thing, like I'm quite an intuitive type of person, and some people argue that that's like an excuse for not having a system, but yeah I figured, I called my style quadrunity theory, which was simply, I traded fundamentals, I traded technicals, and I traded quads, and I put a behavioral overlay on top of it. So it sounds like a mouthful but it kind of worked for me and my trading returns were really good and got me going. I've got a bit of a background in it, I've got a Ph.D. in behavioral finance, so I'm one of that kind of guys who likes to read a lot, and today, in today's world with the internet it's quite incredible, because you've got information at your fingertips, you can follow on Twitter and whatever social media, you can hear it from the horse's mouth, and I'm a great fan of podcasts, I'm listening to quite a few at the moment, so you can hear all the way up from Jeff Bezos talking about Amazon, you can hear what's going on in people's lives and how they go about things, so yeah, that's a bit of my background into trading.
- I think the other side to this, the information effect, that you can be overwhelmed pretty fast by because there are too many things out there.
- Yeah. Which is interesting, because that actually was the whole philosophy behind PsyQuation, and I can just maybe use that as a slide segue into launch pad into describing PsyQuation. When we started PsyQuation, in 2016, so we launched it in June 2016, and if I can just, the name PsyQuation stands for Psychology and Equation, so my partner Vladamir Krouglov, who was a mathematician, so he handles the, in PsyQuation I'm the psychology side and he's the equation side of the partnership. And we've been working together for nine and a half years so there's a lot of, we've been collaborating and we understand each other well, so I think we're quite a good team in terms of how we run the business and what we bring to it. But you mentioned the word information overload, and that was precisely the point when we launched it. Our dashboard was even more cut back than it is right now. We basically said less is more, only focus, whatever we're gonna show you is important stuff, the rest is just noise. And we've evolved somewhat, and we're not as purist as we were in the beginning, because people genuinely needed certain bits of information, even we did. And they would go to another platform for that information, and we thought okay let's keep it in house and take away this need to jump around to all these different applications, rather give it, serve it up but most importantly focus on the most important stuff. Cause we are all buffeted by all this data that's coming through, and most of it's not important.
- True, so it's easier some times with all these tasks and thing to look at it, but it can be very easily too much, too much that we don't really need to have. So I wanted to tell them about what is PsyQuation, because I've had time more recently with Ben, kind of show me around and everything. Tell me what it's about and what I can expect with this.
- So when we had this blank canvas in 2016, it was end of 2015 beginning of 2016, we had this blank canvas, what do we wanna do. We come from a trading background, we've come from an incubation platform, and we've never specifically built software for the retail trader, what do we wanna achieve? When we set out to start PsyQuation, our goal was simply to help traders make more profits. And I say help traders make more profits, not, this is not a holy grail, we were never setting up PsyQuation as some sort of money making platform software. Our idea was very simple. If you can identify where people make mistakes, and you can help eliminate those mistakes, by default you'll be more profitable. If you're gonna lose money, you're still gonna lose money, you're gonna just lose less. So what I don't believe in, is I don't believe there's a holy grail, there's no one, well there's no system that's gonna make money continuously and you've gotta understand that, this sounds like I'm talking against trading, but one of the things I like to try and emphasize to traders, newbies, even to people who've been around the block, is to realize that how tough this game is. It's a zero sum game to be frank, because somebody's winning, somebody's losing when you're trading derivatives. And then you factor in transaction costs, the net expectancy for someone who trades forex or futures is that they're gonna lose money. So you've gotta somehow find yourself in the winning camp and it's difficult, so anyone who tells me they've got, they can, with high degrees of confidence say they're gonna make money, or they've got a massive edge, this is a very very competitive industry, and you're up against the biggest brains, the biggest banks, all people who've got access to information flow that you don't, so the odds are heavily stacked against you, not to say you can't make money, just gotta realize that your edge is on the margin, like you will only have a slight edge, and its up to you to cultivate that edge and turn it into profits.
- And the thing is, if you don't improve, then you kinda fall behind, and you cannot become better.
- Correct, I guess I've given you a long answer, but in short, the reason we started PsyQuation was to help traders avoid their mistakes, they'll become more profitable. And then what happened was, it was a kind of, it just evolved as we grew as a business, that we had previously incubated traders, we're building all these analytics, and people said to us, well can't you create some incubation platform, and before we knew it we had investors who want to allocate capital to traders, and we now, I'd say the best way to describe PsyQuation is two fold. We software for analytics, we analytics for traders, but we're also an incubation platform, and very soon we'll be, I know I've been saying it for some time, but we've been trying to get all the regulatory issues out of the way and make it a great offering. We'll be a public trading platform, or let's say, where people can invest in other traders who've come through our system. And I think one of the main differentiators between PsyQuation and anyone else is, we back everything around our score. So we've got this thing called the PsyQuation score, and before, in our previous company, we allocated close to 60 million dollars and it was based on the RAPA score. So I think some of your viewers will appreciate this kind of thing, because I've been there on the other side where you've gotta go through all, jump through all these hoops, you've gotta meet with people who are allocators of capital, and then do they like you, don't they, do they believe your story, don't they, did you go to the right university, are you, whatever, did you work at Goldman or Merrill or how few people have actually done that? So we said let's build something that's a pure meritocracy. It's merit based, we actually don't care if you went to university or not, we don't care where you worked before, and to a large degree we don't really care how much money you manage in, because we're only interested in one thing, is do you have skill, we call it skill, another name for it is edge, can we decipher, through our algorithms, whether you've got edge? And how you manage it, what's your risk management like. And if you are somebody that shows that you've got merit, you've got a score above a certain threshold, we'll allocate money to you. And there's no interviews, and frankly your dress code is irrelevant, so as you can see I'm not exactly the most best dressed, and I didn't shave this morning, so you'll forgive me, if I don't look professional.
- But I think in general that doesn't matter. For traders, yeah.
- Correct, so we're not interested in that kind of stuff. So yeah, that's our differentiator, and we put a lot of value into developing this algorithm that measures these different things. So we're not a team of just two people, we're not just Vlad and myself, who both got PhDs, but we've got a team now of 23 people. And we've got a data science team, we've got a database of connected accounts now, with over 150,000 empty full retail accounts, mostly retail, not all, there's some institutional within there, but the point being is that, we've got access to information we've got access to smarts, and we think we've built a pretty damn good algorithm at measuring the probability of you achieving success in the future.
- And it's no guarantees.
- Yeah, but that's just an awesome thing to be able to do. To be able to calculate it's core, it's based on some numbers of course, and predict that, that's amazing. I think that's a big thing. So tell me if I'm wrong or if I'm missing your point, but the way it works is that people, they connect their accounts
- On MT4 to PsyQuation.
- Then they will get a score. They have to have a track record of six to 12 months, then they get a score.
- So, no, so you're correct, any MT4 broker can connect to PsyQuation, we've got a strategic partnership with AxiTrader so we have a few extra bits and pieces in terms of update speed and access to our premium tools free, et cetera, but anyone can connect an account. And you need, our system needs 30 trades before it'll score you. So you could get scored on the first day, if you do more than 30 trades. And then there's a filter process. So if you want to get into our incubator, you need a score of 75 or more, and a track record of six months. Although if you've got a lower score but a track record of one year, so if you've got a score of 65 or more and you've got a one year track record, you can get in. And it doesn't matter how big your account is, it's a simple process, we incubate you with 10,000 dollars standard, so, and then there's a progression process from, we call it the incubator phase, and from there you will progress to an accelerator phase, so you'll be two months in the incubator, two month in the accelerator, and if you progress, there are steps that you need to progress or just maintain your score, let's call it that, you'll make it into what we call the pro phase. By the way, we do bump up our allocations to you along the way.
- And then, if you're in the pro phase, we will then take you to our, we wanna take you to our entire audience where people can copy you, and we open you up to the broader public. Now that's the leg that we haven't implemented as yet, due to getting the regulatory framework. But we've got 15 plus pros. And what we think is gonna be really helpful, because copy trading or social trading's got a bad rap, and rightfully so. Firstly, a lot of the platforms promote people with the highest returns, so you've got 1000 percent return, and you'll be at the top of the list and everyone will invest in you, and they'll lose all their money. Because, not to say that you can't, it's unlikely to maintain, normally if you've made 1000 percent you've been pretty risky along the way. So we don't promote that. PsyQuation's score's got a risk adjusted component to it. And not to say we won't allocate to people with really high returns, but that's not what we promote. And I mean, we will provide, people who wanna copy people with traders who we think have got the best probability of success going forward. So it's kind of like moneyball.
- We've been allocated, I think we've allocated to more than 45, 50 people in the year that our incubator's been running, we've had I think 12 people blow up already, and our program is still positively profitable. And the idea is to spread it across multiple traders, cause you know, the guy with the highest score, there's still a probability he's gonna blow up. So you don't wanna put all your money with the top guy, you wanna spread it around, diversification, for those of you who haven't studied finance, they say, if I'm not mistaken, I hope I'm not messing this up now, but Aaron Markowitz, the Nobel prize winner, founded modern portfolio theory, he said the greatest asset, well, the greatest discovery is diversification, that's the one thing that really adds value. You can also, without getting too academic, you can also over-diversify, and take away the edge, but yeah, we believe our platform, by filtering traders and kinda giving a stem, will help other investors who want to get involved, have somebody decent to copy.
- Yeah, that's awesome, that's very good. And the thing I like about PsyQuation is two things, first of all you're with a broker, which means that it feels more reliable, and the bars to entry are not that big compared to other platforms. I've seen places where holding like 50,000 dollars in the account to be considered valid, which kind of doesn't make sense, or places where you have to pay, to be able to be considered as valid also.
- Yeah, I mean, correct. Yeah, we're not about that. So there's quite a lot happening on the PsyQuation side because we're coming up to our third year anniversary, so we've got some exciting new tools coming through, but if I can just describe, we launched as an alert system. So the alerts would tell you when you would make your mistakes. And we've still got those. And there's alternate loads, and you should take note of them when it tells you, when it alerts you, as much as you don't wanna hear it, it's based on hard facts, data science, we've got, as I said, well over 100,000 accounts where we've been able to see, okay, in those circumstances it's liable you're gonna lose money, it's gonna lead to losing money. So people who observe and take note of our alerts do better. And we've got the stats to prove that, that people who, if we take a blind sample of people who don't use PsyQuation and people who use PsyQuation, people who are using PsyQuation will do a lot better. But we've got a whole bunch of new alerts coming in, more descriptive statistic based alerts, so telling you interesting tidbits about your trading relative to the broader universe. Cause often you wanna know, I'm doing this, is it good or bad? Or we might not say its good or bad, we might say what you're demonstrating is different to the majority of people who are profitable. So just to give you an example, a concrete example. There's a thing called the disposition effect. The disposition effect is something where it describes where people cut their winners early and let their losers run. Now every academic will tell you disposition effect bad. And major academic careers have been launched on this notion that disposition effect is bad. I can't tell you how much literature there is on the disposition effect. The interesting thing is for the last three years we've been researching the disposition effect and we can't tell if it's good or bad, so it just shows you, you can torture the data to tell you anything at the end of the day, so maybe it's not a one size shoe fits all. So maybe not for everyone disposition effect is bad. So what we wanna do is say to you, Etienne, this is how you demonstrate the disposition effect, and for you its profitable or its not profitable. And we can demonstrate and this is a border group of people who have disposition effect and this is how it behaves. So instead of telling you good or bad, we can just provide you with information that you can have on your own. And you can do with it as you wish, because some people will be adamant that my strategy has got edge and all this kind of stuff, even though I've got disposition effect. Most of those people by the way, who'll be telling you that are Martingale traders, who are fooled into this mistaken belief that they've got edge, that somebody with no background in trading and understanding of the markets thinks that they can, just because you can trade a micro lot, and therefore you can keep doubling up as the markets go against you, you will guaranteed go bankrupt with the Martingale strategy. Not to say that if you've got some smarts on top of that you can't trade with the Martingale, but its very risky and dangerous. So we've also just recently launched a bunch of tools. One of them for instance is a thing called OFSI, Order Flow Sentiment Index. Indicator, not index. What that's all about is, many different brokers or let's say sites, will show you what the buy and sell is of a large group of traders, on, let's take an instrument, the euro-dollar. They'll say its 55 percent buyers, 45 percent sellers, hence there's an upward buy. Or there's a strong bias towards the upside on euro-dollar. No one I know has made money trading that particular indicator, because who is behind it? So you've got 10, 15, 50,000, 100,000 people behind that. But you've got no understanding of who they are. What PsyQuation's done, is we've given you the ability to segment that order flow, so because everyone on our platform has an equity curve, from the inception, so we are measuring everyone's returns at a high level of detail. So you can, on our OSFI tool, you can choose, oh you only wanna know what are people who are profitable doing, or people with a PsyQuation score above 50. So you can segment your audience and say, okay this is the wisdom of the smart crowd, I wanna follow people who are smart, or smart being trading well.
- And that type of thing, so everything we try to do is trying to give people an edge that is not currently available to retail traders. So we were institutional traders back in the day, we've also now got the benefit of a data science team and a whole research capability, we've got a big platform of data, and we're very into open sourcing and sharing. Our model is really to get as much talent on the platform as possible, and give you as many tools that can help you grow, and then find capital to allocate to those top traders. So we just wanna give the best tools available, and to utilize our experience and expertise. We're not altruistic, in the sense, we're not a charity, we make money along the way, but that's our goal.
- That's awesome. So it's a different platform than what people have seen in most places, I feel. Where can they find out about PsyQuation.
- So if you just go to our website, psyquation.com I typically write a weekly thought piece. I'm quite provocative often, in my writing, I'm not one to run with the herd. So yeah, I'm a contrarian by nature so, but I like to put in stuff there, stuff that traders can think about and take away, and we've got a whole bunch of, we're trying to keep our communication and we try to push everything through the site, and while we haven't been the greatest at helping people navigate all the information and the tools on our site, we've been focused on delivery and giving you tools and kind of letting you play with them. As we've grown up and become a little bit more mature, we're no longer teenage kids, as I said we're coming up for our third year anniversary, we're putting in walk-through tours and we're gonna be a little bit more focused on educating real newbies along the way. Yeah, we've been like hammering, going going going, and focusing on all the new and kind of just left some stuff in our wake where we didn't polish it and make it as user friendly as I guess some people would like. But we're hopefully gonna fix that up.
- That's awesome. So you guys check it out, I'll put the link, look for that if you wanna go see the performance of different people, and even take the test yourself. Michael, thank you, I appreciate it.
- Thank you.
- And we'll catch you guys pretty soon.
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