Hydro, I understand what you mean. But my point is, they're not crappy traders!!! The successful locals had to work hard to get where they are. Successful screen traders also have to work hard. Just don't call pit traders crappy traders. And if the edge in the pit is soooo big. Then why don't all the locals make money? There are a lot of losers in there too! -SL
95% of all those venturing into screen trading fail so if only 90% of the floor traders making the transition fail that would make floor traders smarter than most . . . overall. Logic is a wonderful sideline. Great trading guys!
I know many traders who went from floor to screen back in the 80s when a modem was the size of a microwave oven, and a TRS-80 was the highest tech way of getting quotes. There are many ways to have an "edge" in the pit, and these don't necessarily go away when you go electronic.
My mentor Richard Dennis left the floor in the very early 80s way before most because his edge did not rely on being on the floor. There were plenty of position traders on the floor and probably still are in the few active pits that are left. If you reach any size at all, scalping ceases to be such an easy option. - Curtis
As someone that traded stock-indexes for 10 years on the floor ( along with one year on the COMEX ) I would tend to say that the above is a fairly accurate statement. However, the NYMEX is all about spread trading. Thus, while you do have a few locals that trade "outrights" it pales in comparison to the 95% of the locals at the NYMEX that spread the markets . . . In my opinion, of all the futures exchanges in the U.S. the breadth and volume of the NYMEX says that it is the PLACE TO BE if you wish to work on the floor. Unfortunately, the barriers to entry ( leasing a membership ) are huge these days. You have to start out as a phone clerk, and then go from there. Best of Luck to You.
Here's some snippets of past posts where I've described what it was like: Let me start out by saying that in financial futures i.e. markets that have absolute levels of arbitrage to underlying cash markets, there's rarely or never a case of locals "running stops." Pure myth. In Pork Bellies circa 1975 or Sugar circa 2006, yes. In Bonds, S&P's or currencies, impossible. If we knew there were sell stops underneath we'd never be able to offer below fair value to the Long Bond (30 year cash) without arbs (Primary Dealers) lifting us. The pit was usually loaded up the wrong way into stops. As a local you could "scratch" your trades often. If I bought 50 at 6 I'd sell them back at 6 if the bid started to actively trade. Sometimes though, and the bigger your size the more often this happened, you'd lose the bid. Now you own 6's and it's 5 bid. You hesitate and someone blows out the 5's. Then the broker who sold you the 6's try's to help you out by selling you some 4's on a new order. So now you're long 50@6 and 50@4 with a 4b 5a market. So you try to sell 5's for the scratch. It looks good. Some 5's are trading but with 500 people willing to sell the 5's you don't get filled. Now you're fuming. You're thinking that one of the brokers who paid someone else 5 is "an asshole" because he never trades with you. Now you're screaming "sell a hundred at 5" and Baldwin, realizing that you and your ilk are stuck long sells the fours and sell stops are triggered on the subsequent 3 print. Brokers are now offering 2's and in turn setting off a flurry of new stops. Now you're out 10k in a couple of minutes which is a couple of days work. Should you just get out or try to get even? The broker who loaded you up at 6 and 4 now has stops to sell you at 00. Many times you'll buy 100 of those and now be long a total of 200. The market stabilizes and you sell 2's, 3's, and 4's on the way up and make 50 or 100 ticks on the whole incident. However other times the market falls apart and you lose a month of wages in the ensuing hour. ____________________________________________________ The size locals traded was principally a function of physical location in the pit. Floor brokers (order fillers) don't need to look far when making a trade, thus proximity to customer paper was paramount to trading size. Guys who were four steps down saw very little "edge." However as the day progressed and locals "up top" made their money and went home, guys in the middle would get an opportunity to move up and trade "garbage time." Locals on the top step would take at least 100 at a crack. I'd say their were 30 of those sized guys (myself included) in the Bonds. Most of us would take 200. A dozen or so would take 500 to a 1000 and perhaps "sit" on 2000. Most guys on the second step (50 or so) would take at least 10 and there were several 100-200 lot traders on that step. Any step lower was tough to trade bigger than 5's. Spreaders and second option guys were way down in the middle and many spreaders would trade 1000-5000. ---------------------------------------------------------------------------------- As a rule of thumb I'd say many locals only averaged a dollar or two per contract traded over the course of a year! Take Baldwin for example. Let's say in a given year he'd make 8 million. He'd trade 10,000-20,000 a side each day. That's perhaps three million contracts per year. Member rates on the floor were around a dime after the obligatory 30k a year commission cutoff. So yea 4 ticks is HUGE. Because of commissions and fifo, it's very difficult to even have a positive expectancy on the screen, let alone average 4 ticks per day. Obviously though, if one has a method that allows shallow drawdowns then making just a few ticks per day on average while trading size can make one quite wealthy. The pit was way too crowded to see what Baldwin was doing. Also much trade was quietly done so it was much like poker. You were always trying to guess which way guy's were loaded up.
Excellent post pa(b)stpime.....See everyone always thinks theres someone else getting something thier not...like the floor traders getting an 'edge', its because they read magazines with ads that say 'learn the floor traders secrets' or 'stop letting the pits rape your orders'...But I guess people buy that stuff because they think somebody knows more than them....Which I guess in some cases they might
I don't call them that unless they truly are. Strangely enough (*sarcasm intended), most of them are crappy traders when it comes to the screen. I did not think the guy who I told about was a crappy trader, but I think the whole lack of the edge of the pit got to him. It was just too hard to plug it out behind the screen, a lot more work for a lot less money. Real trading vs privilieged trading. Pit traders are privilieged. Any strategy you can execute on the screen, can be done much much better in the pit. Most of the pit strategies do not work on the screen. That's the "barrier to entry" and "esoteric edge" concepts. Obviously some people simply do not have the character & ability to trade in any situation or environment. And it's not like it's fair competition to get on the floor, so your talent pool is diminished. Let's be realistic, if they only chose from profitable screen traders as new entrants to the pit, the success rate would be very high. Also, how about the many games that are played among the members. Newcomers get fleeced, cliques are formed, certain guys get targeted. I've heard some very fun stories about the commodity guys. You guys had a great racket but it's pretty much gone. Yeah it's a crappy feeling but there is a lot more people on the other side of the fence that are rightfully happy cause they never had a chance, never would have gotten a chance, yet probably would have been able to perform just as good, if not better than you.