Wednesday, November 17, 2010

Arthur Cutten and the beginning of position limits

Prior to the crash of 1929, there were few if any speculators who swung a larger line at the CBOT than Arthur Cutten.  Like many young men from the Midwest, Cutten made his way to Chicago and apprenticed at the CBOT under a broker before striking out on his own to become a self capitalized trader at the exchange.  Within a couple decades, Cutten would amass large enough trading positions to become well known and an influential market force to the point that the U.S. Government took action to reduce the influence of such large traders.  In 1936 the U.S. legislature passed the Commodities Exchange Act which instilled speculative position limits in the futures markets and those remain today. 

As a smaller trader who tries to stay hedged and not to get in over his head, I've always looked upon exceptionally large traders with wonderment.  Psychologically the largest traders have a risk appetite which is tough to explain as they continue to do things bigger and bigger, rarely leaving at the top.  Cutten lost a substantial part of his fortune in the crash of 1929 but was able to live a comfortable life until his death in 1936.
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