This really isn't so true anymore. The turnover in the pits is much higher now then it use to be. Too many young guys trying to make a fortune too fast and blow out. If you come in everyday and stand in that pit all day you will get order flow. You just have to put your time in like any other job. Same goes for daytrading. If you just show up at the bell and leave early everyday don't expect other guys around you to help you but if you come in early every day and stay late every day then someone will see you are trying and will be more likely to help you out. As far as switching pits, guys do it all the time although I don't recommend it, you need to concentrade and focus in one pit not jump around.
I sensed that politics could affect a local's pnl due to the nature of open outcry although I know that some pits are more fair than others. I also sense that the edge still exist in the pits for 2 reasons. 1. The seat values. THe NYBOT leases around $700-$1,000 for the past 12 years. The NYMEX leases around $4k-$15K the past 10 years also. So there has to be a reason people still pay for them.i.e. edge, transparency."feel" 2. I personally know locals who have been there for 12 years. That is a long time to be in a pit.That tells me that even in quiet times, there is $ to be made maybe not a lot but enough to sustain locals until the boom times show up.One thing about commodities is by it cyclical nature, it tends to get busy every couple of years. Thanks again for your insights !
Pit trading is 10 times easier than screen trading, having done both for years. Trading venues other than the NYSE will surge for the next few years now that the world is coming to know the garbage that goes on at the NYSE with specialists. I expect the tip of the iceberg has been revealed which will cause $ to flow where the playing field is perceived as level. Could never figure out why traders went to the NYSE anyhow. I tried it when I first started and found it unbelievable how prices were violated and orders abused. If that was done at the exchanges in the pits, you'd be expelled.
This is very interesting to me, having never pit traded. What would say is your biggest advantage; being able to witness the order flow, or maybe being able to see what some of the "very large" players are doing? Which pits are you trading in? SP
In the pit, trades are not time prioritized. Thus a floor trader (local) joins the bid or offer and "leans" on the customer orders that are resting at those prices. Through relationships with filling brokers, when market orders are entered, the local tries to buy the bid and sell the offer. The most egregious impact this practice has on both customers and other locals is when the market "turns". For example, lets say for the sake of argument that SP trades in .25 like ES does. Of course it actually trades in .10 but lets suspend reality. Lets say the pit is 25 bid at 50, 200 by 10. You as a customer need to buy 50 contracts. Your broker lifts the 10 lot offered and now bids .50 for your 40 remaining. Other buyers move up and join the .50 bid, leaning on your order. Now an order to sell 20 lots enters the pit. You are not at all guaranteed of getting a piece of that 20 lot even though you were the first .50 bid. A scalper may get those 20 lots and lean on your 40 lots, hoping that you or someone else pays .75 before another seller emerges. On the screen the scalper has no like opportunity. If this order was attempted on Globex as soon as you "made the market" on your .50 bid you would be cued in first and any .50's that trade would be yours until the balance of your bid is satisfied. Not so in open outcry. Another common situation. Lets say that 5 different brokers in different corners of the pit are offering 10 contracts each at .00 Your broker gets an order on your behalf to pay even for 50 contracts. As soon as your broker starts lifting the second or third 10 lot for sale, a smart local who senses that your order is still not satisfied, will quickly lift any other broker still offering evens. Thus you may only get 30 contracts even though in reality there were 50 offered when your order was beginning to be executed. Rules at the CBOT and CME differ. At the CBOT there is less "stealing of markets" because the broker may bid even for 50 and no one can buy the evens until your order is filled. There is no formal "rule" on this, it is called "pit etiquette", but it's somewhat enforced, accept back when bonds were at their peak and over 600 people stood in the pit. Back then "stealing markets" was the ticket to riches. At the Merc however, you may not bid into the offer. You may only trade individually with those who are offered. Thus your broker must say to each 10 lot offer "buy em", "buy em", "buy em", well after about three of those buy ems ain't gonna be any left. Now your broker must turn the market bid on your balance and once again a happy local is leaning on thr remainder of your order.
Pabst. Nice article on the open outcry. The scenarios you pointed out clearly shows a primary reason why e contracts are taking off vs. pit. However, that also illustrates from the point of view of a trader thinking of starting a trading business and has the choice of trading in the pit or screen why scalping is easier in the pit vs. the screen. There are lots of bid/offer to lean on-more forgiving than strict time/price queue. As a floor trader, overhead is higher- seat lease, clerk fees, plus incidentals such as costs getting to/from the exchange. A bigger issue facing new traders would be the timing. If a new trader with limited capital gets into a pit just as it quiets down, the expenses associated with being in the pit could force the trader out. I bet you new oil guys are kinda nervous coz oil is quieting down and the leases are still in the 12K range./mo ! In a screen based business, expenses are generally lower and variable. Biggest expense could be the execution platform. In addition, the trader can move to another contract easier. Thanks again !
Always found pit trading pretty easy to get a feel for what was going on or about to. Noise level, desk activity, everything you heard or felt really. Kind of a time and sales window all around you. Could not have cared less about who was doing what, saw too many big houses and big players disappear.
Thanks, Pabst, TG, that's very interesting. Appreciate your insights. It's funny, for an outsider watching, during a faster market, it always looks so chaotic... It would seem to be that much more stressful, than screen trading. I don't think there's any way in hell, I could possibly do that! They'd be wheeling me out of the building in the first hour. SP
Just to toss out a bit more info, CBOT seats other than AM & FULL are significantly cheaper to buy or lease. if you are an option trader, COM seats at the CBOT lease for only about $200/month, IDEM seats the same or a little more. You are allowed to trade the underlying for hedge purposes with a COM seat as well as the options themselves. (You still have to meet all membership requirements, of course.) Jessie