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Interview: Michael Berman of PsyQuation

Michael is the former CEO of an online emerging manager incubation platform and hedge fund manager for more than a decade. Michael was a director of public company in his 20’s and worked for a number of leading South African investment banks. He has a Bachelor of Commerce (Economics), Master of Science (Real Estate) and a Ph.D. in Economics (Behavioural Finance).

Across the retail CFD/FX industry there has become a greater focus on lifetime value of clients and extending how long the client relationship lasts. What role is PsyQuation looking to play in this new focus?

”Increasing the lifetime value of a trading client is the main value proposition for PsyQuation. The retail FX industry has largely matured in the western world with modest annual gains in client growth, the reason for this is simple math. A large majority of the retail FX traders lose money and eventually give up trading, this places pressure on the brokers to replace clients that are lost through attrition with new ones from a shrinking pool. To compound this problem, the cost of acquiring new clients has shot up more than 5 fold over the last few years due to the proliferation of small boutique new brokers all competing for the same commission dollar. It is against this backdrop that the industry is now focusing more of its attention on retaining their existing clients and trying to maximize the life time value of their clients.

The PsyQuation team believes it can increase the trading life of our clients by identifying and correcting trading mistakes which we all make at some time when we fall under the influence of some of our emotional drivers. These behavioural mistakes typically manifest in risky and irrational trading, which is quite obvious to the observer not under the emotional influence.”

 

What is the history of PsyQuation?

”The PsyQuation story is a natural continuation from our previous startup RAPA an incubation platform for traders. My PsyQuation co-founder Vladimir Krouglov was also a co-founder of RAPA where we designed a scoring algorithm to measure trading skill.

We were very successful in identifying trading talent and were approached by one of the largest FX brokers in the world who asked us whether we could make their traders profitable”? Our response was an emphatic no, but we said that we do believe we can make traders more profitable.

We white labelled our RAPA technology with a US based incubation platform and took equity in their business, which gave us the opportunity to do other things. This idea of making traders more profitable really resonated with Vlad and me so we decided to give it ago and incorporated PsyQuation in March 2015.

PsyQuation stands for psychology and equations, I have a Ph.D. in Behavioural Finance and Vlad has a PhD in Mathematics. With my 10+ years as a professional money manager and Vlad and my experience analyzing thousands of traders equity curves we felt confident we could build a business that could deliver on its promise.

I think you need to be very cynical of anyone who claims to be able to make a trader profitable. The chances are if you have an ‘edge’ you are not going to sell it. So PsyQuation is not a trading system with a statistical edge, rather we are a money management overlay to a trading system that helps you optimize your existing edge.”

When did PsyQuation become available for clients? Are there clients currently using PsyQuation?

”PsyQuation went live for business on the 8th of June 2016, we spent a year building the system which we believe is the world’s first Robo Trading Coach, and have the capacity to scale to millions of traders.

We have quite a few live clients, i.e. clients who have connected their real accounts to PsyQuation through our comprehensive broker partner network. We also offer a demo account for interested parties who would like to kick the tyres before connecting their live accounts, but this is less than ideal as demo trading does not capture the full emotional experience associated with real trading.”

Who is the team behind PsyQuation and why does this team feel it can assist traders to be become more successful?

”As mentioned earlier the two co-founders have been working together for more than six years. We recently added a seasoned pro to our senior management, David Hobart has 22 years of institutional trading experience with the last nine years as a peak performance trading coach. Our team has a diverse cross section of skills with an equally expert advisory board, including 7 Ph.D.’s to speak to our high level of technical competence.

We believe our domain experience and our collective technical skills have allowed us to build a very sophisticated product quickly and economically as we have been able to build everything ourselves from the ground up understanding how everything fits together. With this strong foundation we have identified a number of new complimentary areas we can add to our existing business.”

Is PsyQuation just for MT4 or will it become available for other platforms as well?

”PsyQuation is currently available for MT4 platforms, we have also built connectivity to the FXCM, Oanda, IG Markets api and will be looking to add Saxo Bank, Interactive Brokers, CQG, IRESS & FIX in the near future. We also plan to add other asset classes such as CFD’s, Futures, Options and Equities in due course.”

As we know brokers rely on client trade activity for income, does PsyQuation prevent traders from over trading and is this been a concern for brokers?

”This is one of those paradoxical situations; one of the main reasons for traders doing badly is that they overtrade i.e. they trade too frequently and or make excessive use of leverage. These are all good for the broker in the short term, but result in the broker eventually losing their client. As we mentioned earlier our goal is to increase the life span of a trader by making them more profitable, therefore PsyQuation alerts most definitely advise the trader to trade more sensibly and cut back on overleverage and excessive trading.

The brokers who PsyQuation has partnered with clearly identify with the fact that through PsyQuation their clients are likely to produce less revenue (commission) in the short term. However, they understand that by making their traders more profitable they increase the lifetime value of their clients.

We have had no pushback whatsoever from any broker, not even a whisper to say can’t we make them trade a little more.”

What are the client requirements to use these products? Is there a minimum trade size or maximum trade size this product can be used for? Does the product only work for traders who already have a trading plan? Minimum account balance?

”There is no minimum we have one client who only has $100 in his account who is trying to follow the alert suggestions religiously. I will caution though against using too small an account as research suggests in the case of trading, Size Matters. You can see in the chart below the larger the account the smaller the median loss.”

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