Floor Trading Insight

[massjunk123]

How do floor traders (Nybot & Nymex, etc.) trade vs. people who trade online? And roughly how many contracts do they trade in a day? I’ve always wondered if they use the same TA as we all do or is it based on momentum and volume. I ask this because several days ago I was reading the New York Times with an article about the CEO of Interactive Brokers and one part that caught my attention was when he talked about his time trading on the floor of the AMEX and only doing 20-30 trades a day and being bored. Another article in a magazine talked about a Natural Gas trader who does 5% of the daily volume in the pit. I’ve been very curious about how floor traders trade and thought I would ask to see if anyone could help me understand. Any insight is appreciated!

 

[Pabst]

The majority of floor traders view themselves as market makers and "scalp" for small fluctuations. I was a local in the Bond pit and I would have preferred in many ways to only trade when I thought opportunities were optimal. There's a hitch though. Floor Brokers those who are responsible for filling customer orders, demand that a tight bid/offer be displayed at all times to facilitate the filling of orders. Brokers don't like getting bitched at by customers about fill quality (at least in Chicago) and ABSOLUTELY don't want to risk losing their lucrative "decks" i.e. order flow to competing brokers. Thus locals who stand around brokers are in massive competition with each other to offer the tightest, biggest markets. Floor traders will often take trades that are sure losers just so they can be favored later on new trades.

It's really simple. If as a local I buy the bid from a sell order I immediately sell at the same price if the bid starts to trade out and I try to sell the offer if the bid stays firm. Obviously the trouble is when my position size and the position size of the pit population in aggregate far out numbers the amount bid "on paper." That's when if one guy hit's the bid it becomes a game of musical chairs where many locals are going to be stuck.

Quote from massjunk123:

How do floor traders (Nybot & Nymex, etc.) trade vs. people who trade online? And roughly how many contracts do they trade in a day? I’ve always wondered if they use the same TA as we all do or is it based on momentum and volume. I ask this because several days ago I was reading the New York Times with an article about the CEO of Interactive Brokers and one part that caught my attention was when he talked about his time trading on the floor of the AMEX and only doing 20-30 trades a day and being bored. Another article in a magazine talked about a Natural Gas trader who does 5% of the daily volume in the pit. I’ve been very curious about how floor traders trade and thought I would ask to see if anyone could help me understand. Any insight is appreciated!