Tales From the Pits

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Traditionally open outcry markets are places where traders gather and strike bargains in extremely hectic conditions. Actually, these days many trading exchanges have already been replaced by electronic venues in cyberspace where billions of dollars of transactions are struck within milliseconds without one dot of human intervention. Although many exchanges along with their colorful characters still exist, the face of trading has changed over the past decade or so. It’s very likely for the better, but many of us miss the camaraderie of the good old days when as a tuned-in trader you could tell from your desk by the noise over a squawk-box that something was happening on the exchange floor.

I recently visited some other members of our network in Chicago, the home of the world’s futures markets whose ownership structure remains resistant to replacing its open outcry structure. During my visit I was invited to the debut screening of a film two-years in the making that followed the demise of exchange floor activity over the years, and with it the demise of some great characters.

“Floored” is a nostalgic look back at the life and lifestyle of those who both flourished or failed on the Chicago Board of Trade. It follows former floor traders who made a fortune trading for an investment house or brokerage or the ultimate dare-devil stunt, trading for themselves for a living.

This excellent documentary-style film highlights the extreme highs and the desperate lows of those who dared to trade for a living whether in the local soybean or corn markets or the 30-year bond pit. Going back a decade of course there were interest rates to trade, not that there aren’t today, but the recession has seen the Federal Reserve put its monetary accelerator to the floor forcing rates to practically zero.

Some of the guys who made it big bought up local mansions, while those who failed suddenly found themselves living in a cash-drought having to take a $400 dollar-a-week job. The numbers on the floor peaked in 1997 when 10,000 traders showed up to work there. These days, with the advent of electronic trading the exchange attracts perhaps only around 1,000 traders.

I remember when I joined the markets back in the late ‘eighties with my business degree, I quickly learned that I knew nothing compared to those guys on the floor and in the dozens of brokerage offices around the City of London. Yet I was quick to adapt and learn from these guys who were savvier than anyone I’d attended university with. They had a nose for making money and by watching them I quickly learned how to make a market and turn a profit before the ink on one trading ticket was dry.

There is much more to markets than economics could ever teach anyone. As I found out pretty damn fast trading was more about reading human psychology and daring to buck the trend. More than anything it was about being braver and faster than the next guy in bidding up or selling down the market. It was about finding and at times even creating cracks in the market that would force a flurry of buying or selling pushing prices your favor as other investors had to close positions they couldn’t hold onto anymore. And you could make it happen because you were savvier than the rest of the crowd.

Trading for a living has been fun. But it also carries the inevitable weight of losses with it. For those of you who never faced a loss, one day, you will. I can guarantee you will. No one is too good to never make a wrong turn. As those of you who have lost money in these rapid-fire markets know it’s no fun.

I was good friends with many floor traders, many of them great and cheery characters, yet most of them would be more than willing to rip out your heart on the trading floor in an instant. They’d be the same guys catching a ride home with you despite the fact that wiped out your account earlier that day. For many of us, it’s not about the money: Rather it’s about being right about a position, a trend or an event. We like to take our chances against the gods as it were.

On a personal note, I recall the rather grave day my career changed. Out of the blue the central bank had lifted interest rates. One of the traders on another desk adjacent to me who shared the same floor broker to execute orders confirmed to me that his order to buy a large chunk of futures contracts was good after the event. I told our broker the order was firm as I looked over at my colleague.

The market was in freefall that day and what looked like a remote chance of being filled was fast becoming a reality. Soon after, the broker was screaming a fill on this order down my squawk box. I shouted to my colleague who just kept his head down. We just entered a fast-market when prices are moving too fast to rely on a quote being firm.

To cut a long story short, the guy reneged on the order, blaming the central bank for raising rates and the broker for not checking its status. My broker was holding a substantial position in good faith on this jerk’s account watching its value sink further and further as the seconds passed.

I was outraged. My colleague made me look like a cheat and a fool and he just weaseled out of the trade leaving my broker and very good friend having to explain to his boss what the hell happened. His boss did not understand so well and the guy was forced to leave his role and never emerged again. And all on account of this cretin, working for the same reputable name as me.

I swore from that day forward I’d never hide behind a big investment bank where some swaggering fool could crush someone else’s career in a heartbeat. I can’t stop big banks from operating in the manner they do, nor can I ever stop reckless individuals take advantage of other people. And so my gig these days is to trade my own capital and to educate other readers how and more importantly when to do it.

I hope I can be your eyes and ears too.

John Bull
The Secret Order of Jurojin

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