hahahaha
Why can't many professional floor traders make money in electronic trading markets?
- Thread starter helpme_please
- Start date
Ok.
Let's say the ES is 2500.00 bid and 2500.25 ask. 500 contracts on the bid and the ask.
GS wants to buy 1000 contracts for their client Money McMoneybags and fast. If the GS floorbroker buys the 500 at 2500.25 and sits on the bid at 2500.25 for another 500. Everyone sees what he is he doing, and guys will come in bidding 2500.50. The ask will be raised to 2500.75 or 2501.00 even. And the floorbroker wont get filled on the 500 remaining.
So instead he goes to floortrader Hairy Forearm (The one that buys him the most booze on Friday
And he will ask him a price for 1000 contracts. Mr Hairy Forearm will quote him 2500.50 for the 1000.SOLD. Flootrader Forearms will turn to 2 of his buddies and buy 250 contract from each at 2500.50 They are both happy with the good fill and see it like they were done a favor by Hairy. Hairy will buy the 500 reamining at 2500.25 for a profit of $6250.
Let's say the ES is 2500.00 bid and 2500.25 ask. 500 contracts on the bid and the ask.
GS wants to buy 1000 contracts for their client Money McMoneybags and fast. If the GS floorbroker buys the 500 at 2500.25 and sits on the bid at 2500.25 for another 500. Everyone sees what he is he doing, and guys will come in bidding 2500.50. The ask will be raised to 2500.75 or 2501.00 even. And the floorbroker wont get filled on the 500 remaining.
So instead he goes to floortrader Hairy Forearm (The one that buys him the most booze on Friday
And he will ask him a price for 1000 contracts. Mr Hairy Forearm will quote him 2500.50 for the 1000.SOLD. Flootrader Forearms will turn to 2 of his buddies and buy 250 contract from each at 2500.50 They are both happy with the good fill and see it like they were done a favor by Hairy. Hairy will buy the 500 reamining at 2500.25 for a profit of $6250.@truetype already mentioned this but price/time priority did not exist in the pits. Those guys in the pits had the ability to "scratch" trades almost at will. You can't do that electronically with ease.
To prove how easy it was for them to scratch (exit at the same entry price) there were some clearing firms and prop groups that also gave training to new floor traders. I think Alpha and SMW were the main ones in Chicago. Anyways, the first task for a new trader was to scratch 20 to 40 trades a day for the first few weeks. The goal was not to make money, the goal was just to learn to enter and exit trades on the floor. They had traders in the Bond pit doing that and they would send those with a lower bankroll to the MidAM.
This way of training was only possible with floor trading. Imagine trying to do that on a screen, most people will end up losing the spread at a minimum. The ability to enter and exit on the Bid was a huge advantage since a buddy or another local could always get you out.
There are no "buddies" on the screen.
To prove how easy it was for them to scratch (exit at the same entry price) there were some clearing firms and prop groups that also gave training to new floor traders. I think Alpha and SMW were the main ones in Chicago. Anyways, the first task for a new trader was to scratch 20 to 40 trades a day for the first few weeks. The goal was not to make money, the goal was just to learn to enter and exit trades on the floor. They had traders in the Bond pit doing that and they would send those with a lower bankroll to the MidAM.
This way of training was only possible with floor trading. Imagine trying to do that on a screen, most people will end up losing the spread at a minimum. The ability to enter and exit on the Bid was a huge advantage since a buddy or another local could always get you out.
There are no "buddies" on the screen.
Or "bagmen"...
http://www.cftc.gov/ogc/oporders97/ogcfetch.htm
The best description of Fetchenhier's wrongful conduct is found in the Seventh Circuit's opinion in Ashman, 979 F.2d at 469. That opinion states that Fetchenhier was a local trader who functioned as a "bagman." Ashman, 979 F.2d at 476. Two brokers orchestrated a series of trades to create profits in Fetchenhier's account. Ashman, 979 F.2d at 485. The Seventh Circuit stated that "Nowak [a broker] directed Ostrom [an FBI undercover agent acting as a trader] to pass $4,000 that Ostrom was holding for him back to Nowak in two sets of prearranged trades. Nowak recruited Fetchenhier to trade between them so that it would not, in Nowak's words, 'look terrible'--that is, 'look like a prearranged trade'." Ashman, 979 F.2d at 486. Nowak testified that he selected certain prices that generated profits for Fetchenhier because Nowak owed him money for having accepted losses. Ashman, 979 F.2d at 481. Fetchenhier accepted losses from Nowak and was repaid from customer orders. Ashman, 979 F.2d at 492. The defendants, including Fetchenhier, "agreed to commit a pattern of racketeering activity." Ashman, 979 F.2d at 491-492. Based on the evidence, it is clear that Fetchenhier's violations were serious.
"There are no "buddies" on the screen."
I think there are. You just can't see them .
I think there are. You just can't see them .
Bloomberg and Reuters IM might help you find "buddies". There were a group of "buddies" at a bank who fixed LIBOR rates for years.
I totally agree with you!
This reminds me of how atmospheric electricity works to generate electricity. Like 99.9% of people will say it can't happen, but guess what.....LOL
Well, the screen buddies in a dom can't really do much for you because of the time/price rules of electronic trading. If you buy after I buy or sell after I go short then you are helping in some sense but that is about it.
In a pit you can choose who you buy and sell from. You can refuse orders. On a screen you can't control who is on the other side of a trade. You are stuck in a que that the exchange controls.
As retail traders there isn't much we can do for each other inside a dom. We could be the greatest friends in the world but if we are both trading a small amount of contracts in the e-mini S&Ps for example then we can't really help each other even if we coordinate our efforts.
Now if we are both trading large amounts then we could coordinate our efforts and actually be "buddies" on the same level as the guys once were in the pits by knocking a product around.
For illiquid stocks or futures it is possible to take a buddy out of trade if no one is infront of you in a que. I actually remember seeing a trade facilitated from right here on elitetrader. A guy was in some illiquid options and wanted to sell. Not even a market maker was on the bid. There was no bid, there were no buyers. Someone offered to buy them because of that post and put out a limit order. The trader hit that bid and the deal was done. A true buddy on the screen.
Aside from that I can't think of a way that you could help me or that I could help you if we are both trading a couple of lots in say the emini S&Ps? I guess we could both spoof size up or down the ladder in a coordinated effort but that is about it. From an execution and order filling stand point in a liquid product not much can be done for a small lot retail trader. If it can then I am all ears.