I often get asked what it was like on the trading floor. Anyone that was on the floor knows it is not an easy question to answer. Here is a photo of me in 1988 trading in the Eurodollars. The button above my CR badge says “Pigeon” on it. It was given to me by the guy with his mouth open behind me (DDK) and the guy to my lower left who is balding with his mouth closed carding up a trade (JBS). We used to go to breakfast every day (along with ICU and BURT) and “play the game”. Others would join us from time to time and we made them play. One time we went to Las Vegas and the restaurant bills got really steep. The stakes were a bit higher than breakfast. Looks like I had lost the most games the previous month. JBS has the button in his Little Rock office now.
What was it like walking down a street in Manhattan? The floor was something like that. You saw people from all walks of life, all political bents, all colors, and all sorts of ability. You were crammed in daily into a pit and you had to get along. Some traders positioned themselves, some spread, some scalped, and others scummed what they could as bag men.
My friend Brian Lund writes a great blog. Today, he sent some charts. Here is one.
I was pondering all the recent market volatility and thought about charts. We used to look at charts. I didn’t know anyone on the floor that didn’t at least glance at them. Even if you thought charts were worthless, you at least took a passing interest in them purely for competitive purposes. Knowing where break points were on charts could give you a great advantage in the heat of the moment.
When I thought about trading markets today, I thought, given the recent volatility, is it a good time to get in to a position or not? Or, is it best to be a trader and just try and trade flow? Super tough question.
I don’t actively trade at all these days. But, it never really leaves you. You always kept one eye on the market no matter what you were doing so you still do it. But, I started looking at that chart Brian sent in his email to subscribers.
If I was on the floor trading, I’d only need one candle in that whole chart. Just one decent size candle. Have enough on, and let it go your way. Whip and drive ‘em and get out.
See those candles all on the left-hand side of the chart? That’s chop city and you’d just burn through commissions. It’s scratch time.
As you precede to the right, you notice a bit of a rally, then a break.
Floor traders would have made perhaps a hundred trades apiece inside that break. Buysell!buysellbuysellsellsellsold!buysellbuysellbuysell!
Imagine yourself trading through all that with your own checking account. The trades you are making have enough risk that you will be losing or acquiring $1000-$10,000 at a crack. Every time you open your mouth.
Things are moving fast. Blink, and you miss a trade. Take a piss, and you miss a trade. Laugh at a joke or have a casual conversation you get too engrossed in and you miss a trade.
Sometimes, things happen out of the blue. It’s quiet. An order filler comes into the pit and there is a sudden commotion. Sort of like being in a crowded department store and one salesperson gives away Gucci bags for free. But, there are only 100 of them and there are 1000 of you. Some of 1000 want more than one bag.
You are physically standing. There is nowhere to sit and trade. There are at least 6 people rubbing up against you the entire time you are doing it. They smell. They are shouting. Spittle hits your hands and face. So does beads of sweat. Your own body is hot. Sweat is running down your head and face. Your clothes are danky and damp. Occasionally, some human near you will emit a noxious odor that could only come from someplace not of this world. There are ten conversations going on at once.
Information is piped into the pit on a board that you have to read. It’s quiet, and just goes up line by line. There is a ticker with all kinds of products on it and it moves super fast and quietly. Other boards with products are around you, with prices flickering as fast as the price moves in your pit. Of course, the Market Gods consistently price in the combinations, permutations, expectations and probabilities of all this information generating movement and a single price in a single market….for an instant.
You see these people every single working day. 220 days a year. In January, you start at $0. You have no salary. You eat what you kill. Each of you is trying to make money, otherwise, your family doesn’t pay the rent or mortgage, doesn’t eat. You are lucky to have health insurance. You are a sole proprietor.
Your entire life is at the whim of something you cannot control, the market. If you piss off order fillers, they don’t trade with you. People in the pit constantly wait like a fox watches a hen house and pounces if you make a mistake. Mistakes cost money.
Your emotions coarse through the inside of you. You try to keep them in check. You try to remain logical. Except, you are human.
How do you "play the game"? One person picks a number between 1-1000. They write it down on a piece of paper and that number is only known to them. They are the Number Picker, and run the game. Person to their right or left starts by saying a number between 1-1000. The person that knows the number, writes that number down and announces to the group, "higher" or "lower". You keep going around until someone picks the number written on the piece of paper. So, the next person has to pick a number between the last number said and 1 or 1000, or points in between. You go around until the person next to the Number Picker says a number. If that person doesn't say the exact number, the Number Picker has to say, "higher" or "lower and pick one below or above the exact number closer to the number. So, let's say the number is 500. the range of numbers to pick from is 800-250. The last person in the circle says, "300". The Number Picker would say, "Higher, 301". Now the range of numbers to pick from is between 301 and 800 and it moves to the next person. The Number Picker has the same probability of getting hit on the number as anyone else, but they have less control since they always have to say one higher or lower. The only number they actually pick is the actual game number. You don't want to pick the number-if you do, you lose (and in our case PAY)
I never cared what anyone else made while I was trading.
I only cared about getting every contract that was bid or offered when I turned the market. That was really all the information I needed to make a trade. I never wanted to get hit by paper to enter a trade. That was akin to being a hood ornament. If paper hit me or Marc Federighi, it was going their way.
Your depiction of how people made money is precise. I despised, nay, loathed the carp that were fed off of volatility created when market makers turned the market. No , I'm not jaded by it. It was part of the game. I knew if I had to offer - offer to get flat or reversed, those same hack brokers who fed their beer or frat buddies the 50 lot that should have gone to the one who turned the market , would eventually make its way to me. You couldn't worry about them. You could be pissed when the carps buddy gives up his or her house on the 50 lot, but to dwell on it would be suicidal.
All that being said, I loved every second of it. No one who wasn't part of it understands anything you wrote about it. It was visceral. Palpable. Sight. Sound. You could feel the fear of a broker who was handling an order he was incapable of filling. It's not like Vegas. We were in control of the situation in front of us. If you weren't, you would not last. You'd have huge winners and even more huge losers.
Nice blog.
Chris Lang.
CHL
2nd month euros 1990-2008