“An emigrant from socialist Hungary created an unheard-of fortune in the USA” – everyone will immediately think that it is about the great and terrible George Soros. But no! Today we want to talk about his legendary compatriot, who “turned the game” in securities trading and became the founder of electronic trading as we know it today – Thomas Peterffy.

First, he re-educated himself as an IT technician in order not to learn English, and then introduced electronic trading using the predecessors of trading tablets that run on his software (this is in the early 80s!)

Conscience is an insignificant substitute for chewing gum

Tomas Peterffy was born in the middle of World War II, after which Hungary joined the Eastern Bloc. But even in the midst of socialist reality, he managed to find in himself the talent of a businessman! So, as a schoolboy, he bought scarce chewing gum from a friend who had returned from Austria and resold it to his classmates. The margin exceeded 500%, and the head of the school appealed to the communist conscience of the small profiteer, but, as Peterffy said years later, at the time he did not physically understand what was going on.

Years passed. In 1956, after the failure of the Hungarian Revolution, Thomas’ father emigrated to the United States. Having reached the age of 21, in 1965, Peterffy Jr. followed his example, abandoning his studies as an engineer and rushing across the ocean to meet the American dream. However, his father did not wait for Thomas with open arms and soon enough he found himself with a hundred dollars in his pocket face to face with the rapidly changing world of the 60s.

The matter was complicated by the fact that he could not connect two words in English. However, after a series of wanderings, Thomas got a job as a draftsman at a New York company designing highways. The country needed new highways, and at some point engineering calculations became unthinkable without computers. Thus, an Italian machine known as Olivetti No. 1 was established in Peterffy’s office. There was only one catch: in order for the devil’s machine to be useful, some mysterious programs were needed, which none of Thomas’s colleagues knew how to write, and did not burn with the desire to learn how to do it.

The Hungarian volunteer became an ideal candidate for experiments on retraining to become a programmer. Try to imagine today a specialist who would master a complex IT specialty with the motivation that it would relieve him of the need to learn English. But such were the realities of America in the 60s, and such was Thomas Peterffy – the man who later revolutionized the stock markets.

The birth of the magic algorithm and the first computers on Wall Street

It wasn’t long before Thomas left designing autobahns and devoted himself to developing software for Wall Street. Having honed his skills, sooner or later Peterffy used all his savings to buy a seat on the New York Stock Exchange and began trading as an individual options market maker.

If you’ve watched old movies about financiers of those times, then you can imagine halls full of brokers shouting something against the background of chalkboards with quotations and ticker machines. Thomas Peterffy entered the game at the turn of the century and immediately thought about how to use the power of transistors to automate business processes. According to Thomas, during the trading day he wrote the code directly in his head, and at night he rolled it on an available iron. For about nine months, the Hungarian developed his own algorithm for determining the value of an option, similar to the well-known Black-Scholes model – and he was not mistaken. Betting on this model, Peterffy caused a stir among traders, which in the early 80s allowed him to popularize the idea of ​​computerization of trading floors and become the father of electronic trading.

An additional impetus to computerization was the human factor. After registering his own firm, modestly named TP&Co (Thomas Peterffy and Company), Thomas discovered that none of the four employees he had hired to track the market advantage in trading stock options could do the job according to the algorithms he invented.

To conquer the world of securities, you need to process data at a level inaccessible to the human brain. The engineers of his new firm Timber Hill Inc. took up the design of computers that corresponded to Peterffy’s ambitions. R. As a result, the forerunners of tablets for trading appeared in the world, which can be seen in the hands of modern stock traders. By 1983, Thomas lobbied for the use of these mobile devices by all brokers working with the programs he wrote. The result was stunning.

If in the old days, revaluation of options was carried out several times a day and was recorded in analog tables or at most was displayed on electronic boards, then Peterffy tablets allowed comparing the value of the option with the stock price in real time, which allowed the Hungarian employees to easily furnish any competitors. It was the first sensation made by computers in the stock market – and the contours of the digital future quickly began to rise behind it.

“Work must be fed” or mass digitization of stock platforms

The main challenge facing Peterffy at the time was how to centralize pricing and risk management for portfolios with equity derivatives when they were located in different states. By 1985, the engineers of Timber Hill Inc. solved this task, creating a system that was immediately adopted by the New York, Chicago and Philadelphia stock exchanges. And when the profitability of traders using this Thomas development was 430% in 1986, no one could doubt that a revolution had taken place in the stock exchanges.

Although by the end of the decade the computerization of stock exchanges was already in full swing, curious situations were not without. So, although NASDAQ (National Association of Securities Dealers Automated Quotation) allowed the use of computers, traders were required to enter data into them manually. For Peterffy, who had at his disposal the equipment that automatically trades according to the algorithms of Timber Hill Inc., it looked anachronistic and at some point he secretly connected his computer to the NASDAQ terminal.

The number of transactions and their profitability instantly skyrocketed. There is a joke that the exchange reacted sharply to the absence of an operator, and Thomas instructed his engineers to assemble a machine that would quickly type all the necessary commands on the keyboard with rubber fingers. Formally, this was against the rules of the exchange, and NASDAQ representatives could only throw up their hands.

Peterffy’s next step was to create a single network that allows traders to monitor each other’s positions in real time. For this purpose, Timber Hill Inc. in just a few years implemented an unprecedented program of its scale to create a system for transferring data from Peterffy terminals to brokers’ machines. Transaction speeds skyrocketed, and early adopters struck gold.

Following the “Big Apple”, the trading platforms of the Old World fell at Thomas’s feet: not even a few years had passed when his computer systems began to be mounted on the trading platforms of London, Zurich and Berlin.

This expansion, which took about 11 years, brought Peterffy more than $200 million. And he not only became gilded, but also entered the history of securities trading. In the 90s, most of the world appreciated the advantages of machine algorithms and switched to computerized trading.

Autumn of the patriarch

1993 was the starting point for the transition of Thomas Peterffy from the ranks of millionaires to billionaires. The brokerage firm he founded this year has earned its creator unheard of money by selling innovative trading tools to traders. At one point, Goldman Sachs (one of the largest investment banks in the world) wanted to buy the company, but Thomas was not interested in the deal. Instead, in 2007, he himself held an IPO, raising at least $1 billion.

As it often happens, once the patriarch stopped keeping up with the progress he had brought to life. Thus, when the world of financial markets was flooded with high-frequency trading, which allows transactions with securities to be carried out in fractions of a second, Peterffy’s revenues began to fall sharply, and the position deteriorated.

Thomas managed to maintain the net profit of his company, which amounts to hundreds of millions of dollars a year, but his personal attitude towards new technologies has become much more conservative. Yes, you can find an interview on the Web where he draws parallels between today’s trade speed race and the arms race of the Cold War era, not for the first time questioning whether it brings any benefit to society.

This year, Thomas Peterffy will celebrate the eightieth anniversary of his estate in Palm Beach, Florida. Although the father of digital trading has long ceased to write software himself, he still owns 75% of the shares of the company he founded, and his net worth is estimated by Forbes at $25.3 billion, making him the richest Hungarian on the planet.

Far from the worst sunset for someone born to the sounds of bombing.