Why Use Algo Trading & Common Objections Answered

Welcome! I’ve got Jeff Sekinger back to the channel, fortunate enough to do another podcast with us. Thank you for hopping on. This one’s going to be a bit different from the other ones. I want to do a rapid fire to give people the most amount of value in the 10 minutes we have together. So let’s get straight to it. Ready?

Jeff Sekinger: Do it.

Matt Jimenez: All right. Now, let’s say I have six figures and upwards of seven figures of disposable income. Why on earth would I even consider an algorithmic trading software? It’s so new to the retail side of things. How can you debunk this or give some insights?

Jeff Sekinger: Yeah, so I think most people make a major mistake in investing by just doing what everyone else is doing. You have to realize, when you’re playing in the secondary market, meaning you’re buying an investment or trading on an exchange or a broker, you are playing against everyone else. This game is a zero-sum game. If you do exactly what everyone else is doing, there’s no way that you’re going to get an above-average result. The problem with average results nowadays is they’re not even keeping up with inflation. People think that the CPI number is exactly what they need to be outpacing when in reality, that’s a highly manipulated number. The CPI has been between 3% and 9% in the last few years, but that’s a basket of goods that’s heavily manipulated to fit a narrative. They include things like museum tickets, funerals, milk, and they don’t put proper weights on important things. For example, my rent in Miami went up 100% in two years—from 2020 to 2022. That’s a very significant portion of everyone’s expenses on a monthly basis.

I did some calculations and deep dives, and I’ve talked about these statistics with a lot of our clients. I just spoke at another event in Miami called the Money Show event. When people realize this fact that I’m about to mention, it completely shifts the dynamic of how you invest. The M2 money supply in the last 23 years has gone from 4.6 trillion to over 20 trillion—it went up 347.5%. That’s about 7.5% per year, or if you were to compound that, it’s 6.53% compounded annually. The problem is people are thinking, “Oh, CPI inflation is only 3%.” So if they’re doing 6%, they think they’re still net positive 3%. But in reality, you need to outperform the debasement of the currency or the amount of new currency being printed. That’s what you need to determine—whether you are actually outperforming that. Even if the numbers are going up in your brokerage account, you’re still losing value because everything is denominated in US dollars. You’re looking at your equity portfolio denominated in US dollars, your house, Bitcoin—everything. So you need to understand, if the denominator, the US dollar, keeps going down in value because we continuously print more and more, it’s all based on supply and demand. When there’s too much money chasing too few goods and services, the new money is stealing value from your old money. It’s a silent tax that erodes your wealth.

If you’re not outperforming that 6.53% compounded annually, or if you’re pulling profit like you’re in an annuity or something, you need to be doing over 15% a year to outperform what’s happening—the debasement of our currency. It’s not going to get better because our debt is now over—we’re an obese country with 120% debt to GDP. The reason why that’s important is because that has been growing quicker. I think it’s up almost 400% in the last 23 years. It went from 5.7 trillion in 2000 to 33.7 trillion in 2023. The reason why the debt is important is that they print more money to devalue the debt to make it cheaper to pay back. As our spending gets worse and worse, and we pay for all these wars and do all this crazy stuff, we have no budget—we just continuously spend money. Where does that money come from? It comes from us continuously printing more and more. The problem is going to keep getting worse, so you have to make different decisions with where you’re putting money and how you’re investing money.

That’s why I’m such a huge proponent of alternative investments. At the rate things are heading, you have to have higher performance in your portfolio. I’m not saying put everything into a trading algorithm or Bitcoin, but you need to start thinking about switching the allocation in your portfolio to some extent and starting to be in alternative investments that can yield a higher rate of return so that you’re not losing value. If you’re in a whole life policy that’s earning 4% a year, you’re losing value. People don’t understand that concept. This is somewhat of a new concept because we came off the gold standard 50 years ago, but the problem is getting exponentially worse. That’s why I dedicated my career to alternative investments. I pretty much only focus on crypto-based investments, FX, and commodities—those three different assets.

Matt Jimenez: If I heard you right, no decision is still a decision. Even if you just leave your money in traditional investments, maybe a savings account or CDs, you’re still getting eroded by inflation.

Jeff Sekinger: Exactly. People don’t realize that holding your value in cash is an investment, but that investment is guaranteed to go down. You’re guaranteed to lose value, not money. The number will be the same, but it’s a silent tax that erodes your wealth.

Matt Jimenez: So people are almost forced into a position to become savvy investors beyond traditional ways, right?

Jeff Sekinger: Yes, you have to. If you don’t, you’re losing value. It’s a zero-sum game. When we’re investing on a brokerage or trading on an exchange, we are betting against other people. You have to have some type of edge to outperform the rest of the market. To do that, you have to think differently. That’s what our whole brand, Nurp, is about. It’s a weird word, and it came off of a house that I saw explosive growth in—it was a very oddly shaped house. I named it that because I saw explosive growth and, number one, we think and act differently. You have to invest. If you don’t and follow the herd, if you’re just with your financial advisor putting you in the traditional 60% equities and 40% bonds, you’re going to do just the best you can do—the average. If not, you’re probably going to even way underperform the average because people are getting smarter and smarter. You need to be leveraging different types of investments to outperform what the market is doing.

Matt Jimenez: I agree with all of that, and I’m in total agreement. Let’s pivot from here because you brought up Nurp. I actually want to move the remainder of this segment into the awareness of Nurp. The way I want to do that is to know what are some of the common objections or objections that you’ve handled in the past with your trading software company, Nurp?

Jeff Sekinger: I think the biggest thing is just people aren’t educated on how it works. A lot of people don’t realize the difference between investing and trading. This is a really key piece to understand—the seasonality piece. You can get rid of the fluctuations and timing of markets when you start to trade. When you trade, you’re extracting value from the market. When you invest, you’re waiting for that asset to appreciate long-term. But in trading, your positions sit in cash. When the algorithm senses an opportunity, it’ll execute on that opportunity, and then it goes right back into cash. You don’t have to worry about Jerome Powell raising interest rates, the economy going into a recession, or the stock market coming down. The algorithm is betting on both the long and the short side—betting on price going down or up. It doesn’t Matt Jimenezer what the market or the economy is doing. That is so key. If you talk to any investor, if you have uncorrelated returns that are not affected by the traditional markets, that is massively valuable. Compound interest is insane when you understand that piece. If you can continuously grow something over long periods and grow that growth on top of the previous growth, it’s incredibly powerful.

You know, what’s the quote we were just talking about? The eighth wonder of the world: “He who learns it earns it; he who doesn’t pays it.” The people that are going to pay the compound interest to people like me are the ones who don’t understand the inflation metrics that I just talked about and aren’t educated to think about alternative investments and how that could fit in their portfolio.

Matt Jimenez: Alright, filtering objections. So, I’m going to act as a filter here. Basically, the objection here was that they’re unaware of the ability of the software, how it works, and what it’s actually solving for them. So, they’ll come in and they’re just like, “What is this thing and how is it even working?” I’m assuming that’s what you mean.

Jeff Sekinger: They just don’t understand trading software.

The other piece is, obviously, our performance is really high, so people flat out don’t believe that we’re achieving that type of performance. Even though we’re showing them—we’ll literally log into the live accounts, we show them the withdrawals that we’re taking, we show them third parties that are connecting to the account that shows every single trade. I mean, I’ve been documenting thousands of trades. We’ve been documenting it from the complete setup of the account, the deposit of the money, the withdrawals that we take. I mean, I don’t know how much more we could document, but we are even going through a third party to audit our statements right now so that we have another party to verify that performance.

But here’s the thing that I think is important to understand. People look at their portfolio and they’re like, “Wow, I’m doing 8% a year, and how is this account averaging 8% a month?” The thing is, this is still a speculative, high-risk investment. That’s it. You have to realize that when you have higher percentages, you typically have higher risk. I’m not going to say that buying a treasury bond and investing in an algorithm is the same, because it’s not the same whatsoever. Obviously, the performance is way different and the risk is way different. You have to understand risk and reward, and if you are shooting for a higher percentage, you’re likely taking more risk.

The reason why the accounts can do it is that we are using accounts that have a higher degree of leverage. A lot of our strategies are just looking for very short-term fluctuations in price, and then they capitalize on those really short-term fluctuations. We’re looking for very small moves in the market and we’re putting a higher degree of leverage on that move. Some of our algorithms will look for a 0.1 to 0.5% move. So, they’ll enter here and wait for a 0.1 or a 0.5% move, and then it’ll close that trade but with a large amount of leverage. In FX, you can do this because the markets typically move very slowly—like a 4% move over a week is a big move. A lot of the brokers will allow you to have a higher degree of leverage, and that’s how we’re able to get these higher returns.

The accounts are leveraged and we’re also trading 20, I mean, some of our strategies involve a dozen or over 20 pairs—20 different pairs at the same time. So, we’re looking for all these micro-opportunities on 20 different assets at the same time, and a lot of times, it’s many different trades on those 20 different pairs at one time. It’s not like we’re just saying, “Oh, we’re doing 8% a month by buying an investment.” No, it’s looking for a ton of micro-opportunities on dozens and dozens of different assets all at the same time, using a higher degree of leverage.

If the investor wants to lower the risk, they just lower their position sizing. Some people are happy with 2% a month.

Matt Jimenez: Kind of like my account.

Jeff Sekinger: Yours is a little bit lower of a setting. It’s a black-box solution: we’re all trading the same type of strategy, but the user can adjust little things like their position sizing. If they don’t want to take a lot of risk, they can set a stop loss for it to close all the trades at a 10% drawdown. So, if the market went crazy and your position was conservatively placed, the account balance comes down by 10%, the algorithm will just cut all the trades to get out of the trades so that you don’t lose more than 10%. It’s up to the user.

Matt Jimenez: We only have a few minutes left. There’s one objection that I would love for you to answer. I’ll give my own narrative on it, but I think it’s quite funny and comical because I’ve gotten it more than once. I’m pretty sure you’ve gotten it before. People say, “If it’s so good, why would you sell it?”

And, let me just give my two cents. My two cents is, why would anyone make anything to sell it anywhere then? Everything that goes to market is something that’s good, right? You just have to be a businessperson at the end of the day. Why would you want to make 12% by yourself and just make 12% for a long period of time when you can make 12% and also run a business in tandem, making tons of money for tons of other people? I think that’s way more exciting, and it also expedites quantum leaps in your wealth.

Yeah, I mean, it’s quite a logical answer, right? There are many different reasons why, but I would say, if you were to use this logic and apply it to anything financial, you would say that no one would ever be in a financial business. Why does Ray Dalio run a hundred-billion-dollar fund when he’s already worth tens of billions of dollars himself? Because he can help more people. He’s in a scalable business, and he wants to make more money for himself and for his investors, right? You could say that about anyone. I mean, why is Warren Buffett still working when he’s worth 90 billion? Because he thinks he can probably make more and help more people. It’s the same thing.

I’ve run the math. I think it would be a pretty dark, dull life to just grow your wealth by yourself and not see an impact on anyone else. I did some deep dives on personal development myself and took courses from people like John Demartini. One of them was a values determination test, and I found out what my highest values were. I wanted to have freedom, options, and choices. I wanted to see an impact on people, and I wanted to have uncapped earning potential. I wasn’t having any of those three in the corporate world when I was at the biggest bank in the United States, so I thought, “I’ve got to design a life that’s going to fulfill those three things because that’s what, at the end of the day, makes me happy.”

I can’t tell you why, but that’s how I function. Designing businesses around my values is exactly what makes me purpose-driven and focused. Like I said, I’ve done the math. I don’t have $100 million in cash that I can put into an algorithm right now. I’m not that liquid; I’m not that wealthy right now. But what I did do is run the math on what would happen if I had $5 or $10 million in cash and put that into the algorithm, and I compounded at, let’s say, 6 or 8% a month for the next 10 years. I’ve done the math on whether I’d go that route and run that model, or what if I run that model to an extent but don’t put as much money into it, and then I also build a business around these different trading strategies.

The amount of enterprise value that I can build through a recurring business that’s in SaaS—software as a service—we can get multiples anywhere between 9x in today’s market. I’ve talked to a lot of investment banks, the biggest investment banks in the world, over the last nine months. They said in today’s market, you can get 9x on recurring revenue based on where you guys are currently at. In a good market, it can be as high as 30x. So, you can get paid 9x your revenue—this is not EBITDA; this is your top-line revenue if it’s recurring—or up to 30x, which means that you’re getting anywhere between nine times your annual recurring revenue or 30 times your annual recurring revenue in one year.

You can make 30 years of income in one year from running a software-as-a-service business that has a recurring revenue model. So, I can actually, instead of going the Jim Simons route—compounding for 30 years to generate the whatever hundred billion dollars in profit that they’ve done—I can do that in a different way, building enterprise value through a business. I can also run my own accounts, and that’s why we’re specifically focused on a large portion of the strategies in FX because it’s a $6 trillion-a-day market. There’s deep liquidity, and we have a very scalable model because we can continuously invest ourselves, and so can the other users. It’s likely not going to impact ours.

When it does, because at some point it can impact, because obviously nothing is infinitely scalable, we would pause any new clients coming into that system. We would make slight adjustments to the periods, the timeframes, the actual indicators that we’re using. We can formulate the overall same core strategy but make slight adjustments for it to perform and enter and exit at different levels, and then, once again, we’ve got more scale once we move to that model.

I could go on about this all day, but I hope that makes sense.

Matt Jimenez: No, that makes complete sense, and I’ll reiterate it to them. So, solution one: in a decade, you become worth, let’s say, $100 million. Solution two: you become worth $100 million in a few years. Which one sounds better to you? Plus, the second option makes a lot of other people wealthy alongside you. We’re in sync. I’m pretty sure anyone with a logical brain would understand which option to take here.

If you did go with option one, where the software is just for yourself, I would actually consider you probably quite selfish. With that being said, I think that’s all we got for you today. Thank you for hopping on here, Jeff Sekinger. We’re in a tight crunch, so I know we got to roll. You probably have a meeting right now. He was just calling me. You might as well take the meeting on the podcast to let these people know that you’re actually really working on the business. So, go ahead and take the meeting, and we’re signing off here.

Matt Jimenez: Peace.

Jeff Sekinger: See you.


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