No, I am not kidding. If you have ever been hit in the eye with the sharp edge of a trading card you will know what I am talking about. These "Sellers" cards are literally cascading down into the exchange reporters when trading is busy. The exchange simply can't risk a lawsuit for someone's eyesight being compromised.
Thanks for the explanation, but it still seems a bit unclear. What do pit traders pay in commissions?..along with all their other monthly expenses (which are?..) A trader at home could scalp easier than a pit trader because all they have to do is hit a single button on their keyboard, and BAM!, they're in. I know I'm probably wrong but it looks like there is a long and tedius process for a trade in the pits. How do they not incur substantial slippage if they only try and get 1 tick? and just curious..what do most people start out with in trade capital in the pits..either now, or back in the day? cm
You can usually see what I am describing when CNBC shows footage of some of the pits at the NYMEX. Each trading ring is built on risers, with the each additional level increasing in height. The floor brokers are obviously up on the top step so that they can see their phone clerks and receiver orders. The exchange personnel that I am speaking of are obviously down at the bottom (center) of the trading ring.
I need to be brief, but basically the commissions for a pit trader are rock-bottom. For example, a "scratch" (buys and sales at the same price ) would be something like a dime per contract. When I started out back in 1984 my capital requirement was $20,000 But it is important to note that you need to be "guaranteed" by a member clearing firm in order to apply for a lease, or membership. The clearing firm is key. The biggest expense is usually the cost of a membership, or whatever the going rate is for leasing one. The seat/lease prices "trade" as well and are not fixed. Only the total amount of memberships are fixed. I'm not sure where the current lease is on the NYMEX, but I do recall that back when seats were $500,000 (1996 ) the lease was about $2600 per month . In 1988 the seats were around $125,000. Two years ago the NYMEX Class A Membership sold for around $5 million. Another expense would be paying a "trade-checker" clerk to check all of your trades. What they get paid obviously depends on what kind of volume you do. They usually charge a few hundred dollars per month.
The pits are dying on the vine... no one that I know of would tell anyone to go try pit trading. The options pits are still very active due to the difficulty in getting electronic platforms to perform complicated strategies simultaneously, but soon the options will be electronic as well. The cbot and merc pits hd 1,000 of guys but now there are mere handfuls. You can even eat down in the pits which was a huge violation back in the day. The rules are lax becaseu the exchanges need to entice a few guys to stay down there. Even NYMEx.. now that CL is on Globex.. is starting to lose pit traders. Electronic trading has hurt the pit traders and helped level the playing field for retail traders or non-professionals. Fill speed and order book help a lot. Before electronic trading the volume was only the volum eof the number of trades and not contracts! so a 1 volume could be a 1 lot or it could have been 500! I for one am very glad that has changed. There are many stories of guys who used to trade int eh pits whop went and tried it electronically and have failed miserably... there is very little edge compared to the pit. Also.. the guys in the pits didn't have time to hold charts and look at screens all day. They had an edge by watching what was going on in the pit and truly being at the heart of the transactions.. sort of like being the router between your home trading platform and the exchange.. they had an edge that they could exploit and they did. Lastly, once you start trading decent size.. you only need a small edge to make a considerable amount of money.. look at the Casinos .. when a casino is beaten by a professional card coutner.black jack player etc.. this pro's edge is very very small.. however.. once you make a ton of plays or bet huge this small edge adds up to huge dollars.. Laslty, let me say this.. trading in the pit was not easy.. there were still 1,000's who tried it and lost huge sums of money trading in the pit.. just like now on the computer The following book recomendation will give you a lot of insight into the pits in Chicago. www.amazon.com/God-Pits-Confessions...bs_sr_1?ie=UTF8&s=books&qid=1205344268&sr=8-1 God in the pits. Mark ritchey
The manager of my old prop shop was an ex-SP pit trader. He was able to make the transition to the screen and did pretty well. I think he eventually left the biz. Another two pit traders came to our office...one was an SP guy, and the other said he traded Chrysler options at the CBOE in the 1980s ??? They both sat beside me. The latter was a degenerate gambler who blew out his $25,000 account in about 3-4 months. The SP was a great guy, but didn't really seem to know what he was doing with stocks/screens. After about 3 months he said, "Fuck this, I'm going back to the pit to make some money." That's where his edge was.