How do people trade in the pits?

I'm going to try and answer a few of your questions here.

When you're a trader and you make a trade (for example the S&P 500), you announce your bid/offer (example: 4 at 3.40, would imply sell 4 contracts 1333.40 or whatever its trading it around now). Then, when someone says buy them or you negotiate the trade out with someone (very quickly), and you mark down the info on a trading card with their clearing firm and badge. These are all processed during and at the end of the day to match the trades.

Rarely does this end in arbitration, as usually if there is a price discrepancy they'll check the audit trail (you have to announce your trade to the quote person in the pit) and confirm the trades. Often, they will just split the price difference (like say you said you bought them at 1333.40 and I said I sold at 1334.40, we would just agree on 1333.90 and be done).

Not every trader has a runner to confirm and match the trades, but clearing firms usually employ runners to confirm trades for their customers that route directly to the pit.

Floor traders pay the absolute lowest commission. I pay $0.20 per side to the exchange for the S&P trades (my clearing firm charges $0.21 each extra) and $0.11 each for my active market, Lean Hogs. One tick on the big S&P will net me $24.18, which is nice if you can manage it 100s of times a day.

CME is moving over to the CBOT building (they already have begun doing so) and the CME floor is being converted to office space.

Also, if I'm not mistaken, the capital requirement is around $100,000 unless you can strike a deal with your clearing firm.

There are many opportunities still present in the pits, however 95% of people don't make it because they're too crazy or just can't stand when a trade goes 5 ticks against them. People can make over $50k in a day (believe me I've seen it) and also lose their entire account. My son just started trading with me in the hogs, and he was down $18,000 the first day, sending his account into a debit amount.
 
Quote from futuresRX:

I'm going to try and answer a few of your questions here.

When you're a trader and you make a trade (for example the S&P 500), you announce your bid/offer (example: 4 at 3.40, would imply sell 4 contracts 1333.40 or whatever its trading it around now). Then, when someone says buy them or you negotiate the trade out with someone (very quickly), and you mark down the info on a trading card with their clearing firm and badge. These are all processed during and at the end of the day to match the trades.

Rarely does this end in arbitration, as usually if there is a price discrepancy they'll check the audit trail (you have to announce your trade to the quote person in the pit) and confirm the trades. Often, they will just split the price difference (like say you said you bought them at 1333.40 and I said I sold at 1334.40, we would just agree on 1333.90 and be done).

Not every trader has a runner to confirm and match the trades, but clearing firms usually employ runners to confirm trades for their customers that route directly to the pit.

Floor traders pay the absolute lowest commission. I pay $0.20 per side to the exchange for the S&P trades (my clearing firm charges $0.21 each extra) and $0.11 each for my active market, Lean Hogs. One tick on the big S&P will net me $24.18, which is nice if you can manage it 100s of times a day.

CME is moving over to the CBOT building (they already have begun doing so) and the CME floor is being converted to office space.

Also, if I'm not mistaken, the capital requirement is around $100,000 unless you can strike a deal with your clearing firm.

There are many opportunities still present in the pits, however 95% of people don't make it because they're too crazy or just can't stand when a trade goes 5 ticks against them. People can make over $50k in a day (believe me I've seen it) and also lose their entire account. My son just started trading with me in the hogs, and he was down $18,000 the first day, sending his account into a debit amount.
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Thanks, great info.

BTW, did Daddy bail out Jr. on his 2nd day???
 
ok, i am now going to try and answer peoples questions as i am currently working at the CBOT and most of these answers have been wrong or a little askew.

The firm i work for (three floor traders 5,10 and 30 yr pits) and two electronic traders up in our office are backed by investors and have had close to million dollar days depending on our theta bill and broker fees. (the two electronic traders buy through brokers in all three pits as well due to pit geography, meaning our pit guys physically cannot make a trade in the back of these pits)

In the first year we cleared close to 5 million in P&L with about half being payed out to our investor in their cut, 30% and our fees. The other half is disbursement over the course of the year, and bonuses. With salary at 120k a year and bonuses, traders clear upwards of half million per year.

Clerks are paid upwards of 35k with bonuses twice of year upwards of 15k twice a year, plus benefits. This applies to clerks that are going to be future traders in the pits, ones hired out of college and take classes and mock trade and are constantly put on the spot to answer questions about what is trading, why we did or didn't trade it and so forth.

About the trading transaction: all seven of us, 5 traders 2 clerks are on a bridge connection headset (conference call) and relay info about what is trading, what kind of edge and who is buying (locals vs. paper) and what pit it is trading in (we trade swaps and volatility so it is important to know what is going on.) When one of our traders has a trade we hedge immediatly, electronically. Ex.) trader-"buy me 40" filler-"buying 40 bonds" trader "i sold 100 40 delta calls .8 under (value) and that trade is inputed that second by the floor clerk and must be in fast so we can adjust skew and so forth and also to let our other traders know what is trading in the other pits so we don't buy a 40 delta c all in the 10 year .8 over which would be a scratch pretty much.

Landis82 was wrong about the 30 minute interval in which trade checking happens. There is also a trade list checked at the end of the day and the next morning to make sure our position is the same as our clearing firm has our position. Also, the good clerks are handed blank cards from their traders to fill out themselves to make sure they are paying attention and learning the spreads. (although it might be illegal but no one inforces the rules right not)

Our traders use electronic handhelds as well and trading is very much active in the financials at the CBOT.

I think someone mentioned about pit politics and not getting on trades and matters of that sort. Yeah the new guys always carp (cut) a market to get on trades that they would normally be passed over, the locals will hate them but the brokers like them and there is a fine line you need to walk in order adhere to both sides in a pit. A good new guy won't carp a market but build good relations with the locals and paper (brokers) Also clerks that are on the track to become traders build good relations with brokers during their clerking time; this means checking trades quickly and accurately or if need be, giving them time to add up their quantities and not bugging them too much.

As far as a new trader taking brokers out for dinner and drinks to get trades, that is b.s. all you need to do to get on trades is make quick and accurate markets when the brokers ask for them and you will be reconized.

Sorry for the long post, this is my first one but i have been on the site for a bit under a different name but have not been inclined to respond to any but this one. After reading 11 pages of floor trading i had to try and set things on a better course.

Thanks
 
Quote from gammalong:

ok, i am now going to try and answer peoples questions as i am currently working at the CBOT and most of these answers have been wrong or a little askew.

The firm i work for (three floor traders 5,10 and 30 yr pits) and two electronic traders up in our office are backed by investors and have had close to million dollar days depending on our theta bill and broker fees. (the two electronic traders buy through brokers in all three pits as well due to pit geography, meaning our pit guys physically cannot make a trade in the back of these pits)

In the first year we cleared close to 5 million in P&L with about half being payed out to our investor in their cut, 30% and our fees. The other half is disbursement over the course of the year, and bonuses. With salary at 120k a year and bonuses, traders clear upwards of half million per year.

Clerks are paid upwards of 35k with bonuses twice of year upwards of 15k twice a year, plus benefits. This applies to clerks that are going to be future traders in the pits, ones hired out of college and take classes and mock trade and are constantly put on the spot to answer questions about what is trading, why we did or didn't trade it and so forth.

About the trading transaction: all seven of us, 5 traders 2 clerks are on a bridge connection headset (conference call) and relay info about what is trading, what kind of edge and who is buying (locals vs. paper) and what pit it is trading in (we trade swaps and volatility so it is important to know what is going on.) When one of our traders has a trade we hedge immediatly, electronically. Ex.) trader-"buy me 40" filler-"buying 40 bonds" trader "i sold 100 40 delta calls .8 under (value) and that trade is inputed that second by the floor clerk and must be in fast so we can adjust skew and so forth and also to let our other traders know what is trading in the other pits so we don't buy a 40 delta c all in the 10 year .8 over which would be a scratch pretty much.

Landis82 was wrong about the 30 minute interval in which trade checking happens. There is also a trade list checked at the end of the day and the next morning to make sure our position is the same as our clearing firm has our position. Also, the good clerks are handed blank cards from their traders to fill out themselves to make sure they are paying attention and learning the spreads. (although it might be illegal but no one inforces the rules right not)

Our traders use electronic handhelds as well and trading is very much active in the financials at the CBOT.

I think someone mentioned about pit politics and not getting on trades and matters of that sort. Yeah the new guys always carp (cut) a market to get on trades that they would normally be passed over, the locals will hate them but the brokers like them and there is a fine line you need to walk in order adhere to both sides in a pit. A good new guy won't carp a market but build good relations with the locals and paper (brokers) Also clerks that are on the track to become traders build good relations with brokers during their clerking time; this means checking trades quickly and accurately or if need be, giving them time to add up their quantities and not bugging them too much.

As far as a new trader taking brokers out for dinner and drinks to get trades, that is b.s. all you need to do to get on trades is make quick and accurate markets when the brokers ask for them and you will be reconized.

Sorry for the long post, this is my first one but i have been on the site for a bit under a different name but have not been inclined to respond to any but this one. After reading 11 pages of floor trading i had to try and set things on a better course.

Thanks
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NIce post, well said. I would just add that there is a ton of soft money deals in the order flow game and there is a heck of a lot more out of pit dealing that goes on between MM's and floor brokers to insure the mm gets a piece of the action when the FB wacks up a trade. The point you make about quality markets is a big part of the equation. If you can fill a lot of paper very quickly for a FB he'll always come back to you when he has the fat stuff.
 
Axe, for some reason i went to post and it said my account did not have access to post because i never activated my account to post and i just figured that i would never be able to find that email in my yahoo account that is littered with spam.
 
Quote from gammalong:

Axe, for some reason i went to post and it said my account did not have access to post because i never activated my account to post and i just figured that i would never be able to find that email in my yahoo account that is littered with spam.
More...

LOL. Been there.
 
Quote from gammalong:

ok, i am now going to try and answer peoples questions as i am currently working at the CBOT and most of these answers have been wrong or a little askew.

The firm i work for (three floor traders 5,10 and 30 yr pits) and two electronic traders up in our office are backed by investors and have had close to million dollar days depending on our theta bill and broker fees. (the two electronic traders buy through brokers in all three pits as well due to pit geography, meaning our pit guys physically cannot make a trade in the back of these pits)

In the first year we cleared close to 5 million in P&L with about half being payed out to our investor in their cut, 30% and our fees. The other half is disbursement over the course of the year, and bonuses. With salary at 120k a year and bonuses, traders clear upwards of half million per year.

Clerks are paid upwards of 35k with bonuses twice of year upwards of 15k twice a year, plus benefits. This applies to clerks that are going to be future traders in the pits, ones hired out of college and take classes and mock trade and are constantly put on the spot to answer questions about what is trading, why we did or didn't trade it and so forth.

About the trading transaction: all seven of us, 5 traders 2 clerks are on a bridge connection headset (conference call) and relay info about what is trading, what kind of edge and who is buying (locals vs. paper) and what pit it is trading in (we trade swaps and volatility so it is important to know what is going on.) When one of our traders has a trade we hedge immediatly, electronically. Ex.) trader-"buy me 40" filler-"buying 40 bonds" trader "i sold 100 40 delta calls .8 under (value) and that trade is inputed that second by the floor clerk and must be in fast so we can adjust skew and so forth and also to let our other traders know what is trading in the other pits so we don't buy a 40 delta c all in the 10 year .8 over which would be a scratch pretty much.

Landis82 was wrong about the 30 minute interval in which trade checking happens. There is also a trade list checked at the end of the day and the next morning to make sure our position is the same as our clearing firm has our position. Also, the good clerks are handed blank cards from their traders to fill out themselves to make sure they are paying attention and learning the spreads. (although it might be illegal but no one inforces the rules right not)

Our traders use electronic handhelds as well and trading is very much active in the financials at the CBOT.

I think someone mentioned about pit politics and not getting on trades and matters of that sort. Yeah the new guys always carp (cut) a market to get on trades that they would normally be passed over, the locals will hate them but the brokers like them and there is a fine line you need to walk in order adhere to both sides in a pit. A good new guy won't carp a market but build good relations with the locals and paper (brokers) Also clerks that are on the track to become traders build good relations with brokers during their clerking time; this means checking trades quickly and accurately or if need be, giving them time to add up their quantities and not bugging them too much.

As far as a new trader taking brokers out for dinner and drinks to get trades, that is b.s. all you need to do to get on trades is make quick and accurate markets when the brokers ask for them and you will be reconized.

Sorry for the long post, this is my first one but i have been on the site for a bit under a different name but have not been inclined to respond to any but this one. After reading 11 pages of floor trading i had to try and set things on a better course.

Thanks
More...

Nice post, and kudos to everyone who contributed to this thread. It's one of the more MEANINGFUL threads on ET these days. :D

It's been awhile since I traded on the floor in NYC as an independent "local". I left officially in the Summer of 1993 shortly after the "first" terrorist attack in March which occurred during a light snowfall. I was in the cafeteria for a late lunch at the time and remember hearing a huge KA-BOOM! in the plaza between the two Twin Towers.

The Commodities Exhange was in #4 WTC which was only a 9 story building adjacent to the #2 WTC tower. My Dad called me on the floor and said that CNN had thought that a subway train had jumped the track or something coming into one of the stations downstairs that was near the shopping plaza at ground level. We kept trading, but I noticed that the air conditioning/ventilation system had shut down and that the temperature on the trading floor had risen to over 80 degrees! Something like 90 minutes had gone by and several of the pits were still trading . . . I remember looking over at the Gold ring on the COMEX and noticed that everyone had left, even though there was still an hour left in the trading session.

The next thing I know everyone was crowding around the huge coat check area trying to get their leather jackets ( it was 30 degrees outside and a weekend was approaching ). A security guy was yelling on a bull-horn to evacuate the building. Beads of sweat were streaming down his face and he was literally hyperventalating as he screamed into the bull-horn. To make a long story short, none of us left. We waitied for the auxillary lights to come on so that we could get our jackets off the mechanized coat racks! :)

I remember walking down 8 flights in the stairwell and then popped out right to the street to see tons of emergency vehicles, fire hoses, and first responders . . . yet, it was completely DEAD CALM. No sirens, no nothing. Almost surreal.

One small note regarding the trade checking:

I am well aware that the "checking" goes on for most of the day, including checking clearing runs well before the opening of the following day. What I meant to say was that my trade "checker" would pick my trading cards up after every 30 minute "bracket" of time for checking down on the 7th floor below the exchange.

The trading cards were in sequence and had serial numbers on them along with several copies, one of which I had to turn into a "Surveillance Department" box at the end of every 1/2 hour period. Believe it or not, the cards were not sequenced during the "Crash of '87" and guys were actually stepping out of the pit and "re-writing" their cards with floor brokers so as to take "advantage" of the chaos, filling customers with the highest buys as humanly possible during the 1/2 hour bracket!

I recall looking over at a veteran trader during the week of the "Crash" who was standing just outside the ring and "re-writing" his cards . . . . I said, "Are you freaking kidding me?" as his glance met mine. I knew EXACTLY what he was doing and he calmly looked at me and said, "Hey, you gotta take all that you can . . . cause we may never get this chance again." - - - It was crazy.

I was an independent "local" back then and did not work for anyone else but myself. As a result, my trade checker got $100 per week from me + a small year end bonus. ( it was one of the better values in the business I would say ). Occasionally, I would pay her more if I was executing some orders ( aka: "paper" ) for some buddies of mine that were sales/traders on the Bear Stearns equity derivatives desk.
The managing director of the desk lived a couple of floors above me in an apartment complex in Battery Park City. He was labeled as the next big genius on the Street and there was even a WSJ article on him on the front page one day . . . We were friends until I found out that he was banging a gal that I had been "dating" who also happened to live in the same building.

Too many stories to tell . . . too little time. :D

Again, one of the better threads on ET lately.
Kudos to all!
 
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