As a former Chicago floor trader I can tell all of you that the big money is made by recklessly adding to losing positions. Floor traders have NO margin requirements, and risk monitoring by clearing firms during the session is sketchy at best. I can think of dozens of locals who made a few million in a few years and then went broke. On most any big trend day up or down you'll hear of of guys getting "carted away." Without being a gossip there are even a couple of "nationally known" traders here in Chicago who are in dire straights.
No I meant made as well as of course lost. A typical day for a bond "scalper" is to buy 10's, 07's and 05's, and then scale out on "normal" rotation up ticks. If the market trades around value back and forth this inherently undisciplined style yields mega profits. But what happens is that guys who pat themselves on the back for "not panicking" and make 20k on a choppy day will eventually lose 500k in a sudden big move. Part of the "problem" is that if a local makes a buy from a broker and the market then breaks, that same broker out of "etiquette" will sell more to that local on the subsequent down ticks. If the market bounces those cheap buys are great edges. Sometimes though as we all know an "edge" is the sword of death.
Thats the book Tom,Its not an easy read tho. Amibroker is deveploping software program that i've been led to believe is soon to include market profile charting. www.amibroker.com
<i>The Secrets of Floor trader's </i> I suspect the biggest "secret" of the floor traders is that they don't know anything the rest of us don't. Sure, they do know where the paper is coming from, and when one side of the pit is sellers and a big order comes in that makes the other side go buyers, thats a small edge that they take advantage of (being able to take advantage of that edge is why a membership at the CBOT runs $400,000). Most guys are starting to leave the floor though anyway as there are better opportunities off the floor. The secret to all trading is hard work and discipline and capitalization. All successful traders, on the floor and off, know that, somehow thats not so sexy that it sells well though. Brandon
floor traders have knowledge and to a lot of stupid people work is a secret they wont tell themselves about - floortraders have the most up to date information - that is VERY valuable and is one of the best edges you can have - make sure you have and edge if you are trading off floor
Another "secret" of the floor is commission "cutoffs". Typically at 25-30k a year. With many traders in the volumous interest rate contracts trading up to a million sides a year, their "edge" is making a half a mil trading on turnover that would cost off the floor traders 1 mil to process.
Stevet;If you mean the SPEED to act upon information I agree, but as far as basic important "news", any one with a Reuters feed can compete with the floor in terms of fundamental knowledge. It's the commercial players i.e. funds that "know" what institutional flows are lurking under the markets surface. In the electronic trading environment the time lag between the floors knowledge of events and the publics ability to trade off of those events has been dramatically curtailed. Compare entering a trade via a phone call and then a runner bringing your order to the pit with a "mouse click". Still it's easier and faster when "Greenspans on the tape" to stand in the pit and yell sold on bearish news then queue up an order on IB, but don't believe for a second, particularly in stock index futures or interest rate futures that the floor has any special or mythical information edge on you. If anything the opposite is often true.
Pabst The floor traders have a massive edge because they are there - any data on a feed is out of date when you receive it - whether it comes from Reuters or anyone else - and that is categorical - and that is why most off floor traders lose - they are working with old news and the ones who do understand that - and have learned techniques to overcome this - are the ones who make money
There is -at least- another book on this subject: "Value-based power trading"by Donald L.Jones, Probus Publishing Company. I found it to be more tractable than the former one, though this is certainly a matter of personal taste. Jones presents a complete method to use the Market Profile in trading. I do not use that method as i do not trade the CME/CBOT markets. regards Bernd Kuerbs