Friday, December 14, 2012

Nice collection of LIFFE photos


Some former LIFFE traders put together a nice collection of photos from the LIFFE trading floor from what looks like the mid to late 1990s.  Click on the link here for the slideshow.

Wednesday, December 12, 2012

Tokyo Rice Pit


click to enlarge photo

Above is a rare photo from 1936 of the rice pit in Tokyo.  The original caption on the photo notes that trading in rice "overshadowed their stock exchange in the volume of business transacted."

Wish there was more I could add on it especially of how the primary rice market shifted from Osaka, where standardized futures began trading in the 1600s, to Tokyo.

Friday, November 30, 2012

Scarlet & Letters

Digging through some old emails today (and missing a trade I needed in the process), there were a couple interesting origins that are worth passing along.  Both were submitted by legit trading floor veterans who both had 20-30+ years experience mostly in the NY pits.  A lot of people wonder about where the year colors originated from and also how futures months got coded in letters, well here's their explainations:

"In NY (COMEX) their were only 5 hours in the trading day (5 one hour brackets) (A, B, C, D & E). The first available letter for month code is F."

"Red Sales were so called because the 13th month and forward were written  on the black board with red chalk - hence current color coding years in Chicago long-term fixed income.  The Coffee and Sugar Exchange used yellow chalk and they called these  trades yellow, e.g., Yellow September."

If anyone wants to dispute these explanations I'd love to hear about it.  However, one frustrating thing is that I've had people dispute things I know with absolute certainty that are true based upon what I saw and used myself so if anyone is going to dispute things then make sure your memory is correct.  Any and all criticism is welcomed though, info 'at' tradingpithistory.com

Thursday, November 29, 2012

Secret Financial Life of Food






A great book I just finished reading is The Secret Financial Life of Food by Kara Newman which presents a broad overview of trading food based commodities in a fun, quick and approachable read.  The book is broken down in chapters based upon the history of trading certain products such as soybeans, cattle, corn, etc.... but there are also some chapters based upon non pit-traded commodities such as spices.  Most of us are guilty of not putting any thought into how these markets were developed and the book gives a good retrospective on how the markets originated, grew and sometimes failed. 

The research she put into her work is really amazing but doesn't beat the reader over the head with unnecessary facts.  This book filled in a lot of knowledge gaps for myself and one of the interesting things was to learn a little history on the American Liquor Exchange as seen below.  (click to enlarge photos)





I definitely recommend picking up the book which is already available even though the official publishing date is next week, here's the amazon link.  It's a reasonably quick read which can be knocked out on a flight or two easily.

Monday, November 26, 2012

House numbers

Another thing that was pulled from the Wayyyyyyyyyyyyback Machine was a listing of house numbers for CME clearing firms in 1999 along with the 98-99 CBOT's FCM directory which provided listings but not house numbers.  Both are pretty dear to me because it was off these two lists that I got contact info from all the firms and proceeded to write, fax and call every firm listed to get a job on the floor....and it worked obviously. 

The other funny thing about these lists is that in the earlier days of Globex, it used to show who the counterparty was in each trade and that provided some extremely valuable info.  If for instance a smart local was on the other side then there was something I was probably missing or doing wrong, if a big institutional firm like Goldman was buying then it was it was wise to scratch, reverse or get hedged, whereas if I saw Commerzbank  as a counterparty then it wasn't much to get worried about, etc....  This info was done away with probably around 2004 as too many people were doing the same thing, in particular a famed but now defunct prop firm which was rumored to have a computer program analyze it's counterparties.

Anyways, here's the listing of over a hundred firms and it'll probably bring a smile to those who were on the floor in recollecting either someone who worked for the firm, who executed their orders in the pit, a big trade a house put on, etc... and I'm sure that this list will settle bar bets of to two old traders forgetting what house was which number.


112 AB Financial, L.L.C.
430 ABN AMRO Inc.
103 Enskilda Futures, Ltd.
258 Sage Division
369 Sage SF Division
905 ADM Investor Services, Inc.
225 AGE Commodity Clearing Corp
333 AIG Clearing Corporation
743 Aubrey G. Lanston & Co., Inc.
312 BA Futures, Inc
708 Barclay's Capital, Inc.
045 Bear, Stearns Securities Corp
111 BNP Securities (U.S.A.) Inc
462 BT Futures Corp
445 Cantor Fitzgerald & Co
090 Cargill Investor Services, Inc
093 Custom Clearing
505 Carr Futures Inc
270 Chase Futures & Options, Inc
138 Citicorp Futures Corporation
175 Commerz Futures Corporation
475 Credit Lyonnais Rouse (USA) Limited
250 Credit Suisse First Boston Corp
784 Cresvale International (US) LLC
071 Daiwa Securities America Inc
092 Deutsche Bank Futures, Inc
300 DKB Financial Futures Corp
152 Dorman Trading LLC
929 DND Trading
287 E. D. & F. Man International Inc
099 ISD Division of E.D. & F. Man
102 Enskilda Futures, Ltd
315 FCT Group, L.L.C.
135 CTI
714 FIMAT USA Inc
263 First Chicago Futures, Inc
709 First Options of Chicago, Inc
327 D&G Division of First Options of Chicago, Inc
005 FOC Execution Services
019 FOC E-mini
865 LBS Limited Partnership
750 Paramount Financial Corporation/ 
007 CCM Execution 
815 Shatkin LIT Division
625 TNT 
555 USA Trading, Inc
008 Wescott Group
104 Fuji Futures Inc
990 Gelber Group, Inc
525 GNI Incorporated
415 Greenwich Capital Markets, Inc
350 GSA Clearing L.P. (Goldman Sachs)
323 HSBC Securities, Inc
009 Hull Trading Company L.L.C.
825 ING (U.S.) Securities, Futures & Options Inc
023 Lion Trading - A Division of ING
500 Iowa Grain Company
660 J.P. Morgan Futures Inc
280 Kottke Associates LLC
380 Griffin Trading Company
835 Lehman Brothers, Inc
070 LFG, L.L.C.
310 GAP
245 Hammer Trading
642 H.G. Trading
072 LGU Division of LFG, L.L.C
872 Pro Trading
830 LFG E-MINI
532 Lind-Waldock & Company
747 Locals-Lind
560 Merrill Lynch Futures Inc
600 Morgan Stanley & Co. Incorporated
700 NationsBanc-CRT Services, Inc
180 Nomura Securities International, Inc
690 O'Connor & Co. L.L.C.
213 D.T. Trading
785 McDonnell Division
710 PaineWebber Incorporated
236 Paribas Corporation
020 Prudential Securities Incorporated
084 Rand Financial Services Inc
086 RBC Dominion Securities Corporation
805 RB&H Financial Services, L.P.
100 Olympus
806 RBH E-mini
275 Refco, Inc
758 Republic New York Securities Corporation
685 R. J. O'Brien & Associates Inc
684 TJM Division of R. J. O'Brien
800 Rosenthal Collins Group, L.P.
003 SPIKE
188 Sakura Dellsher, Inc
735 Salomon Smith Barney Inc
303 Sanwa Futures, L.L.C.
826 Saul Stone and Company
888 Stone Traders
840 SMW Trading Company, Inc
549 Timber Hill L.L.C.
896 Tokyo-Mitsubishi Futures (USA) Inc
915 Tradelink L.L.C.
010 TransMarket Group L.L.C.
125 Aardvark
187 Warburg Dillon Read Futures, Inc

Sunday, November 25, 2012

Wayyyyyback machine

Looking on archive.org of the earliest exchange webpages, it's pretty amazing that these pages were considered cutting edge and simultaneously the technology of the era was good enough for electronic trading.  Click on the photos to enlarge and I linked the old page in the caption, a lot of the links w/in the weblink don't work because they weren't archived but some do.

cbot.com from Oct 31, 1996

cme.com from Dec 11, 1997
simex.com from Dec 28, 1996
liffe.com from Dec 20, 1996
bmf.com.br from Oct 20, 1996
sfe.com from Dec 3, 1998
hkfe.com from Dec 21, 1996
matif.fr from Oct 22, 1996
kcbt.com from Nov 8, 1996
nyce.com from May 15, 1997

Monday, November 12, 2012

NY Curb Exchange

In doing some book research on the AMEX hand signals, I was searching on the precursor of the exchange which was unofficially known as the Curb Exchange and came across this impressive 15 second video of how handsignals were used prior to the exchange moving indoors in 1921.  Although I knew a bit of background on how the 'exchange' functioned it still surprised me to see people standing on ledges or leaning outside windows as in the clip while trading.



Thursday, November 8, 2012

I know what you're thinking


click photo to enlarge

I know what you're thinking when you look at that photo....you'd really like to own that quote board from the CBOT in back of the beautiful woman in the lingerie ad.  Well luckily it appears that exact same quote board from the CBOT is on the auction block as part of MF Global's asset disposal and you've got about a week to bid for it.  Dig deep cause MF still owes me 20% of my acct and the $2600 current bid for the board won't dent much of the $1.6 billion clients such as I are still owed.

There are a couple instances I can recall at the CME of getting into an elevator at the exchange w/a beauty like that except she had the coat buttoned up and was holding a ghetto blaster style boom box in her hand to put on a show at some brokers office. 

*sorry for lack of posts lately as I'm finally knocking out the hand signal book, for reals this time as it'll be done by year end*

Friday, October 19, 2012

Last day for ICE pits in NY

photocredit: listal.com

This afternoon will market the final closing bell for pit trading on what's left of the ICE pits in NY.  To be honest, I already thought they shut down in the summer but that's apparently not the case.  Although the remaining options pits will close, the ICE pits cohabitated with NYMEX on the same trading floor which will continue to remain open for an indefinite period. 

Here's a couple videos back from the 80s or 90s when both the Cotton Exchange and Coffee, Sugar and Cocoa Exchange were very active in their old home at the World Trade Center.





There are a total of seven videos that the user uploaded above but only these two were able to be embedded, so the full suite can be accessed by clicking here.

Wednesday, October 17, 2012

KCBT "Through the Years"


photo credit: kansascity.com

The announcement of the KCBT being acquired by the CME today certainly will draw a quicker close to the trading floor in Kansas City rather than if it remained a member owned organization.  Although the pit is expected to remain open for atleast six more months, the acquisition makes the decision to close it easier because that floor population was the most close knit of any I've experienced.  When I was at the KCBT last week, it was clear that the floor made more sense to close with how slow things were but deciding on an ultimatum could've taken a while to finalize. 

The KC Star newspaper posted a photo gallery of KCBT "Through the Years" and it brings back a lot of memories since I began there as a clerk after seeing the floor and immediately knowing thats what I wanted to do in life.

The link to the gallery is here.

Tuesday, October 16, 2012

Outtrades


One of the major inefficiencies of open outcry trading is the potential for trades not matching correctly which is known as an outtrade.  Even with all the layers of safeguards, it's inevitable that in such a chaotic environment some trades would be written with the wrong price or quantity, be directed towards the wrong trader, the card would be lost, confusion over who bought or sold, trades would be mistyped by the back office or the handwriting was simply illegible.  As long as both counter parties recognized the trade at the correct price, then it was just a clerical issue but if there was a discrepancy on price/quantity, buy/sell or even if a trade actually occurred then it could involve disasterous consequences.

The first safeguard is for both counterparties in a transaction to confirm it if they have time verbally or via hand signals while in the pit before handing off their cards and carbon duplicates to a clerk who serves as a trade checker.  Both trade checkers eventually find each other and confirm the transaction before time stamping and handing the cards off to the clearing firm to get the trades typed into the computer system.  At the end of the trading day a preliminary run of the data entry is available to get checked by a trader or delegated to a clerk which is the final chance to catch a mistake before it hits the trading statement and becomes an outtrade to be dealt with before the market opens the next day.

Early each morning, outttrade sheets are left in an alphabitized stack outside the trading floor showing each clearing firm's and trader's outtrades which they have to resolve.  To take advantage of being the first alphabetized listing (or in the old days when it was distributed to receive first delivery), one trading firm was named Aardvark because it's the first word in the dictionary.

The outtrade sheets would show price discrepancies, wrong clearing firm numbers, mismatch on buying/selling, trades which are coming into a trader which weren't picked up and trades going into another trader that they didn't pick up yet either.  Most of the adjustments were just clerical as the previous safeguards kept from any unknown trades but in the past I've heard of errors which weren't discovered until this stage at a great cost.   Generally if there were any honest errors a 50/50 split for upside/downside would be offered but I never had any issues as a trader or clerk so don't know how much that occurred. 

As part of the official way to handle outtrades, a class from the exchange had to be attended to have it all be explained but in hindsight I can't recall one thing taught in it.  After attending the class, the badge above was issued to note that a person was OTQ (Out Trade Qualified) but it was just a formality.  Dealing w/outtrade clerks as part of early morning duties when I was clerking was always pretty simple as all the outtrade clerks were always competent and they knew what the situation was 99% of the time.  Little more was said beside "you're good," "not yours," or "go my way" which like all aspects of the trading pit was centered on brevity.

Each exchange had it's own idiosyncrasies in comparison to my experience at the CME, for example the traders/brokers at NYMEX fling their cards into the center pit reporter for the exchange to enter and "outtrades" are referred to as "cutouts" at KCBT, etc....

Sunday, October 14, 2012

Amsterdam Exchange, Farewell to the Floor movie


photo credit wikipedia.org

The Amsterdam Stock Exchange closed it's open outcry trading floor for equity options in December 2002 and in the months leading up to the closure, a documentary tracked three independent marketmakers.  The film (via amsterdamtrader.com) doesn't have English subtitles as it was made for a Dutch audience although the floor operated w/English as the official language in the pits which you can hear throughout the film.

It's not possible to embed the 40 minute video but you can link it here.

I never walked on the trading floor itself but stumbled upon it early in 2002 during travels in Amsterdam.  While walking on the backside of the exchange, I saw in a window trading jackets hanging on a coat rack and investigated further by walking to the front when I realized there was still a trading floor there.  Taking a tour on immediate notice wasn't possible so the closest I came to the floor was going into a bar for a beer which was literally just off and connected to the trading floor.  Perhaps the bar is shown in the closing minutes of the film, it looks very similar, and one distinct memory was that it had a closed circuit tv feed of the trading floor hanging above the bar and upon seeing some action on the tv and hearing a little roar, a trader put his beer down to walk back into the pit.

So not only did the exchange have a bar on the same floor (in Chicago you had to at least go down a few floors) but it was located only a few blocks from the red light district and within a block were various 'coffee shops' which sold high grade smoke.  Gotta hand it to the Dutch, they're really disciplined and it's little wonder why the various prop firms which originated at the Amsterdam Exchange dominate a lot of trading worldwide now.  I could only imagine how quick a setup would've killed off the population of any other trading floor. 

Thursday, October 11, 2012

Invert, always invert

Earlier in the week I went back to the KCBT to hang w/friends and take a look at the trading floor and well....it's tough to say how much longer it and the only other futures trading floors in Chicago and NY will be around.  A quick look at the stats show that only about 1% of futures volumes are executed in the pits at these exchanges although options still have about half their volumes done on the floor. 

Since the trading pits continually get quieter to near silence, I have to invoke Carl Gustav Jacob Jacobi's adage to "invert, always invert" and think back to a time when there wasn't enough physical space in the trading pits, specifically at the CBOT.  Various articles from the Chicago Tribune are pieced together below to get the proper lookback at that time. 

The push to find new space for the financial contracts at the CBOT began in the early 90s although relief didn't come until 1997 when the new 'bond room' opened.  Many options were considered at the time including a cohabitation for some contracts at the relatively spacious new CME floor, constructing a new space in the CBOE building, or even moving the financials into the CME's former home on W. Jackson before eventually settling on what eventually happened which was building a new facility in back of the CBOT.

The decision to build the bond room was highly contested and dominated the exchange elections in 1992, particularly on the ability to afford what came at an eventual $175 million cost.  After CBOT members rejected previous building plans, a referendum on whether to proceed in early 1994 was hotly contested by some veteran members, some of whom were later convinced, although there were many high profile endorsers who won out.  Approval was authorized in late 1994 by a referendum of 669-176 and ground was broken in early 1995.  During the time of negotiations, volume continued to climb to new records and seat prices followed accordingly to all time highs

The 60,000 sq ft trading floor was built on time and opened on February 18, 1997 with a capacity of 8,000 people and 60 ft ceilings which could accommodate a jumbo jet easily.  Fittingly the new floor was opened with the singing of the national anthem by Wayne Messmer who also did the same at the Blackhawks old barn.


Sunday, September 9, 2012

My First Trade


Hola, amigos. I know it's been a long time since I rapped at ya...but dull markets make it dull to post stuff here as well.  Now that trading is starting to move again some ideas are starting to pop back into my head randomly.

A couple days ago while crossing the street it came to mind about how it was pretty much exactly a decade ago since I got on a seat at the CME and had my first trade in the pit.  Asking others about their first trade is something I haven't done but will have to start because everyone probably has a great story to go with it, here's mine:

Before going into the eurodollar pit I had the advantage of clerking for some well established guys who were great traders and also great people with a flawless reputation.  Being around the floor on the usual apprenticeship really helped as Joe Leininger wrote in Lessons From The Pit because it usually meant other traders were generally neutral to you rather than being against you as a complete unknown.  For people who came in straight off the street without knowing anyone as Charlie D. did, it must've been a much harder way to start.

Another great advantage was trading off the floor to start because it helped w/knowing where spreads were already trading and added some risk management on handling my own P/L.  Because I went into the pit later in the year, it was also good fortune to have a P/L cushion built through the year rather than walking in on my first day with a net liq value of 0 and not being in a position to spend on 'tuition.'

When someone gets on a badge, there's a lot of congratulations from everyone on receiving the opportunity to give it a shot because most everyone else came up the same way through the system.  In retrospect there was probably equally skepticism because of the high attrition rate and also a little veiled animosity since there's now one more mouth to bite out of the pie by competing for trades.  Initially people are more worried about the new guy making a mistake and hanging them on an outtrade or just getting in the way rather than being a threat to their income.

My first day on a badge I remember doing nothing and watching for the morning but then when things slowed down an Irishman named Dickey who traded for a prop firm decided he was going to get me going.  Dickey asked what my market was in a certain month and slowly I replied, "uh....7 bid at 8 fifty up" and he bought 10 from me at 8.  Alright I was on the board finally and reported the trade to the pit reporter before carding it up.  About fifteen minutes later Dickey asked what my market was again in the same month and I replied the same because nothing was going on and he sold me 10 at 7 giving me a complete round turn and a small ($250) profit to start off in the pit. 

What's a little funny about those trades is that when both trades printed, the desk brokers were going nuts asking why their orders didn't sell any 8s or buy any 7s when they traded and the pit brokers had to explain that it was only a 10 lot each time local to local.  Another funny thing that comes to mind is that I remember looking at what my lease cost and wondered how the hell I was going to cover that, my monthly draw from the trading acct for income, computer expenses and also split whatever profits w/the guys who backed me.  Times have changed because my seat lease back then was 3500/month for the CME divison and for that same amount a seat can be leased in all four divisions CME, IMM, IOM and GEM for a cheaper price together.

Months later when I shifted to a completely different spot in the pit where I stayed for a couple years before heading off the floor really made me realize how easy I had it by starting where I did.  Immediately upon walking into the spot, a few other guys in the area started to make jokes at my expense and generally make me feel unwelcome until they realized who was backing me and then became neutral towards me.  In a hostile environment, neutral is as good as it gets!

Monday, August 6, 2012

SIMEX 1989 footage

Back in the Lion City for a bit and feeling a little guilty for letting this blog stagnate, here's some vintage footage of the SIMEX pits back in 1989.


Thursday, June 28, 2012

Completed maintenance

Big news is that the hand signal gallery on tradingpithistory.com is completely uniform as we just finished uploading photos from the most recent shoot a month ago.  Eventual plan is to use those photos for an upcoming book which constantly remains a work in progress and might not ever get finished at the current rate of progress.

Although the photos are up, I haven't proofread it all again to make sure everything is perfect but if anything looks out of line, holler via email: info 'at' tradingpithistory.com

Other thing was moving the shopping cart's backend to Stripe which is a lot easier to use.

Since both were a long time coming, we got all the guys from the project together to celebrate and here's some video:

Wednesday, June 27, 2012

CME captured in Gigapan



There have been numerous photos from the exchange visitors gallery but this one I really liked because it was caputured using Gigapan software which allows very sharp, detailed zoom.  The above photo was taken at 12:03pm on August 27, 2008 and needless to say almost four years later the floor is much emptier now. 

For the link of the above photo in gigapan format to zoom in and play around with, click here.  It really is amazing the detail because the wall boards easily can be read, even some computer screens are clear and it also captures the majority of what floor trading consists of which is traders/brokers waiting around for something to happen. 

Tuesday, June 26, 2012

Opening gong



In the late 19th and early 20th century, trading at the CBOT was opened and closed by a Chinese gong being sounded.  The above photo is from 1938 and the gentlemen shown were CBOT members for 50 of the 90 years it had existed up until then!  The embedded youtube clip below gives the sound effect for anyone needing a refresher.



Tuesday, June 12, 2012

Vacated US commodites exchanges


photo credit sfappeal

Just as many speculators have entered and exited the market, history is filled with numerous commodities exchanges which served as designated contract markets to trade futures in the US. 

The CFTC website has a listing of closed exchanges which is worth a quick perusal:

Vacated Designated Contract Markets

It's pretty easy to understand why an exchange in an isolated city like the Duluth Board of Trade would lose liquidity to the Minneapolis Grain Exchange and both to the CBOT but each exchange has it's own story.  My simplest explanation on why the Chicago exchanges dominated the industry is that it had the largest population of well capitalized traders who grew liquidity by risking their own fortunes. 

Banned in the U.S.A.


photo credit wikipedia

Although Chicago is named after an onion, it's been illegal to trade onion futures since 1958 when Congress outlawed onion futures after a couple speculators cornered the market.  The Onion Futures Act was passed a few years after the manipulation of contracts in late 1958 and to this day onions are the only physical commodity in which futures trading is prohibited on in the US.  At the time of the ban, onion futures represented 20% of exchange volume at the CME and the loss of such a flagship contract helped drive the continued innovation which the exchange pursues to this current day.

To get a sense of the manipulation, prices moved from $2.75 a 50-lb bag in August 1955 down to only 10 cents by March 1956.  However as seen from the chart below that was published in the FT, onion prices continued to have boom-bust volatility even after the Onion Futures Act was enacted.  The second chart illustrates the price of wheat traded in Berlin to show similar volatility when the German government banned wheat futures trading in 1897.

Click to enlarge

Onion price volatility remains but because of the regional and price decentralization, it's tough to get a quick gauge on the historical market.  This Dealbook article from 2010 does note that,

"Today onions are the only commodity for which futures trading is banned. Not coincidentally, onion prices remain extremely volatile: they doubled in 2008, and then fell by 25 percent in 2009."

As far as the final word on government's overstepping regulation, I'll leave it to the 2 Live Crew's song Banned in the USA.



(Offtopic, but is it odd that compared to today's ignorant rappers I find the 2 Live Crew to be a relative paragon of intelligence)

Thursday, June 7, 2012

Book hubris



A couple weeks ago I was in the exchange's library and was looking for books that I previously haven't seen or read and found a few remotely interesting ones to order.  One such book was West of Wall Street which was written by a S&P trader and published in 1988.  My interest in reading it was figuring that there might be some funny/interesting 'war stories' of the pit although most of the book was 'how-to' techniques which didn't interest me.   What did turn me off about the book was all the declarative statements mostly on making X or occasionally losing X, but heavily oriented towards making X and when anyone talks like that it's always a huge red flag for me indicating a bad aura.  

Anyways, I searched about the author since he mentioned in the book he was managing money while in the pit and it turns out he received the largest fine in exchange history (which is double in 2012 vs. 1989 dollars) and also was banned from the exchange the year following publishing.  That is some seriously bad juju and obviously he was relying on different and illegal techniques rather than what he wrote about.

I've seen similar falls from grace other times w/traders who publish works w/an ulterior motive on not just simply expressing or sharing knowledge but to accumulate investors or clients.  There is a stark difference in chattiness about performance between independent locals and money managers which is best expressed in the following chart, w/managers generally clamming up about losses to not look bad and independents straightforward about it because they don't have a concern about outside opinion.  On the flipside, independent locals will guard against hubris by speaking little when experiencing upside vs. managers who wish to parade returns. 


(Is blogging about hubris, hubristic?  I don't know and don't think so, hope not as well!)

Thursday, May 31, 2012

Lucky or Good?

This is a bit off topic but somewhat related as I was doing some bigger picture thinking about the US employment report tomorrow, how the employment rates have fluctuated over my lifetime and skill vs. luck in both life and the markets.

My general overview is that most people are lucky fools, particularly those in the financial markets and especially those in the US financial markets the past decades.  The whole luck vs. skill debate was marvelously presented in Taleb's Fooled by Randomness and recently I was thinking about what aspects in my life/career were rooted in fortune rather than skill.  Quite often I do think of the luck and good fortune to have been born a first generation American, grown up in Kansas where it's easy to make then learn from mistakes, be mentored by great traders with strong ethics and meeting my wife in an unlikely way on a flight to North Korea, all which I can easily attribute to unquantifiable luck. 

One quantifiable piece of luck was the unemployment rate when I came out of high school and decided against college (before it was fashionable which people are actually encouraging now) to do what I really wanted and work in the trading pits.  I pulled some charts to illustrate off the St. Louis Fed's research website which is an amazing resource for any economic data.


Click to enlarge

The first chart is the unemployment rate from 1968 to the present day as that is the extent of their data set.  As you can see, the lowest unemployment rate in a generation after the late 60s was the very late 90s and I can recall that my first day at the KCBT was July 1, 1998 so while not the bottom, it was close. 

Click to enlarge

The second chart is the unemployment rate during my lifetime and the important thing to note is that leaving high school and getting my first 'real' job coincided w/roughly 4% unemployment rate.  It's often noted that the first job is very important to start moving up the career ladder and is imperative to get on as high a rung as possible so graduating into a tremendous job market was amazing fortune. 

Click to enlarge

The third chart shows the unemployment rate from 1998 to late 2001, generally as close to full employment as economists agree can be had.   I left working for an options local at the KCBT in November 1999 to work on an order desk at the CME/CBOT and the unemployment rate was 3.9%.  It wasn't well accepted by a lot of coworkers that the managing director hired a 19 year old on the desk but it's clear in retrospect how tight the labor market was.  After about nine months working for that institutional desk I got on with a small trading group of locals in October 2000 and the unemployment rate was 3.8%, just 0.1% off the generational low achieved earlier in the year.  

No doubt it was tremendous luck to get to the right place at the right time and I'll happily admit it.  Not squandering any luck that comes one's way and making the most of it is also just as important.  

With the LA Kings back in the Stanley Cup Final, the thought of luck brings to mind the song they played when 'Lucky' Luc Robatille's number was retired a few years ago, "Lucky Man." 




Tuesday, May 29, 2012

"Trader Confessions"

Have to admit I LOL'd at this.  Decades from now, kids will look on the internet to learn what the trading pits were like and this will come up for them.

Monday, May 28, 2012

LIFFE video from the '80s

Thanks to an Englishman in Singapore for passing along this LIFFE video from the '80s which has a lot of vintage trading pit footage and shows the exchange before volumes really took off.  The video can be a little dry but does a good explanation of the purpose and function of the futures markets.

As a sidenote, some LIFFE alumni are organizing a reunion in London referred to as the Jacketsball




Tuesday, May 22, 2012

Board of Trade Scalpers

Seeing that one of the guys who helped make tradingpithistory.com possible plays in a very cool vintage baseball league based upon 1886 rules along with vintage equipment, uniforms and terminology I remembered some old CBOT related baseball stuff to put up here.

Click to enlarge

The above photo is a 1907 newspaper article which describes a game that will be played for charity between the CBOT vs Minneapolis Grain Exchange and it appears that the exchange had a ball team many years before.  A recent SEC comment letter (which is worth reading as well regarding post-flash crash implications) makes reference to the Board of Trade Scalpers and a game in 1870:

On a cloudy autumn afternoon in 1870, the Chicago White Stockings, a team that would evolve into the present day hapless Chicago Cubs, played an exhibition baseball game against a hastily assembled gang of amateurs calling itself the Board of Trade Scalpers. It was a rout. In nine innings of play at Dexter Park, next door to Chicago's new stockyards, the White Stockings crushed the Scalpers by a score of 30 to 2, likely the only time scalpers on the Chicago futures exchanges were so convincingly restrained.

Click to enlarge

The above photo from the Library of Congress shows a 1907 Cubs game and if you click to enlarge, the section in back of home plate is named and reserved for the Board of Trade Rooters which was a fan club for the team.  One thing that hasn't changed in over 100 years is that the traders are junkies for good seats at sporting events and occupy a good portion of the supply. 

Friday, May 18, 2012

Trader monthly toptick



Although it wasn't the top tick in terms of volumes or profits, the launch of Trader Monthly magazine in 2004 debuted at the height of sentiment in the trading community as US trading pits were making the transition to electronic trading.  The magazine, which was founded/funded by an ex-LIFFE pit trader, reflected industry swagger by featuring expensive watches, real estate, meals, boats, etc... and initially featured a male trader on each cover looked upon dreamily by a beautiful woman.  Encouragingly the publication's motto was "See it, Make It, Spend It."

From a liquidity standpoint most US traders were still flush at the time from their years of profits in the trading pits, proceeds from exchange demutualizations, and the first of what was a significant rise in trading volumes.  In Europe all the floors had closed by then and new trading arcades continued to emerge rapidly to supplement the many successful ones which were already in existence.  The US trading arcades were just beginning to hit their strides around 2004 and it was reminiscent of the dotcom boom in that almost anyone could get a trainee spot in one.  Additionally, well established pit traders were also investing heavily for their own electronic trading operations off the floor.

The 2004 markets were incredibly inefficient compared to current trading as algorithmic strategies weren't significantly rooted in the futures market yet. Geopolitical concerns including war, terrorism fears, and the rise of China's heavy resource consumption fueled volatility which prompted an increase of hedgers to utilize futures to lay off risk.  The US financials in particular had the rapidly emerging real estate bubble drive uninterrupted growth until the markets turned lower in 2007/08 and all this combined for big, juicy trading flows for Trader Monthly's audience. 

Even though the trading related articles were a bit shallow and the magazine seemed to celebrate material douchbaggery (sorry foreign readers, google translate won't get that translation right), I have to admit that reading every issue of Trader Monthly was a guilty pleasure for me.  Initially the focus was was on pit traders and proprietary trading arcades but the magazine took a similar path as Intermarket Magazine did two decades earlier by moving to a more institutional focus as the big money was advertising to bulge bracket and hedge fund employees.

As a sidenote, I had an interesting conversation w/someone who related how Trader Monthly tried to get advertising from a top tier luxury company and the company wouldn't even take free advertising because it wasn't an established publication and they couldn't risk their reputation by being in such a magazine.  Most of the advertisers were second tier luxury companies and it's a good lesson on how top tier reputations stay intact.

When the markets collapsed so the did the magazine and eventually shuttered in early 2009.  Afterwards the co-founding editor, Randall Lane, wrote an excellent book entitled The Zeros which I highly recommend to get an honest sense of how the magazine operated and of what a exuberant yet tragic era it was for the financial industry.  What amazed me about The Zeros is the tight budget Trader Monthly operated on and  it's flirtations with missing payroll but the most entertaining part of the book is the joint venture they struck w/narcissistic baseball player Lenny Dykstra to create a similar magazine for pro athletes.

I actually kept every issue of the magazine but threw them all away when I moved condos in 2008.  If anyone still has the entire collection, I'd be a low bid just to break them out many years from now for some laughs at the era that was.

Thursday, May 17, 2012

New blog marketpov.com


photo credit Craig Damrauer

One thing that's been on my mind for quite a while is to share a collection of severe market moves, generally in futures, which serve as a reminder of how extreme various markets can move.  I continually look upon the market w/awe just as Mother Nature occasionally reminds us of her power through a massive show of force.  Generally these highlights will be liquidity squeezes but also scandals, geopolitical events, black swans, participant blowups, etc... and I'll post very clean charts.

The name of the new blog is http://www.marketpov.com/ and it's simply the market's point of view based on (p)rice, (o)pen interest and (v)olume which the charts will illustrate.  Pretty snappy, eh?  Actually came up w/that without even thinking hard. 

At the moment there are probably twenty markets off the top of my head I wanted to showcase and little by little I'll roll them out.  The vast majority of these moves I didn't trade and admit to not knowing the complete story but any insight is welcomed in the comments on there to get a better picture of the story. 

I'll still keep posting here as well but just wanted to create a new outlet of market history.  What certainly won't be on either blog is a discussion of current market moves, how to make money trading, etc... and both blogs are intended to be pretty much for historical reference....along w/the purpose of amusing myself and learning what I can as well.

Thursday, May 10, 2012

Voice from the Tomb


photo credit wikipedia (Cyrus the Great's tomb in Iran which I visited a while back)


When I first got to the KCBT floor, there was often a mention in a humorous way about a legend called the Voice from the Tomb.  Although I wonder about it's validity of origins and have yet to see a proper vetting of long term results, it's worth mentioning as really the only floor trading legend of it's kind.  (Although KC guys might still believe in the 12:20 rally)

The story is based upon a successful CBOT grain trader who died and left instructions in his will on when to buy and sell grains for his wife and kids.  Different versions exist that he donated his money to charity and the only inheritance his dependents got were these buy/sell dates or what I feel is more likely that he just wanted to keep a winning strategy going after he died.  The dates are basically a seasonal pattern which used to be a lot more popular in the commodities markets but aren't as key a strategy anymore. 

FWIW, here are the widely known dates which the Voice is based upon and I found it pretty funny that a grain guy at the KCBT even had them printed on the back of his business card.

January 10 - Sell March wheat
February 22 – Buy May wheat
May 10 - Sell July wheat
July 1 - Buy September wheat
September 10 – Sell December wheat
November 28 – Buy March wheat

March 1 - Buy May corn
May 10 - Sell July corn
June 25 - Buy September corn
August 10 - Sell December corn

Open Outcry documentary

Another great film, probably my favorite overall regarding trading floor documentaries, is Open Outcry which was filmed at the CME in late 1999 and early 2000.  I mentioned it years ago on the blog but noticed that the studio put up the trailer within the past few months so thought to repost it.  Buying the DVD is the only way to watch it as far as I know because it's not streaming anywhere at the moment.

It's a favorite because it was filmed when I first got to the Merc and a clip shows a group of new clerks I was part of learning hand signals during filming on the second week of November 1999.  That aside, Open Outcry is also great for the wide, lingering shots so it's like you're standing on the trading floor while watching the movie.



Wednesday, May 9, 2012

The Pit - movie



Last night I watched The Pit which was filmed at the NYBOT and focused on the coffee pit from around 2006 to the closure in the floor in 2008.  The hour long movie isn't out on distribution beyond Netflix so streaming it off of that is the only way to see it beyond the occasional PBS or film festival screening.

Overall it was a great movie and showed a lot of angles of how the pit operated and also how difficult the impact of the trading floor closure was for a lot of participants, specifically the brokers.  The characters in the film were well picked and made it entertaining for viewers to understand the broad cross section of flamboyant personalities which were not just on the NYBOT but every trading floor.  However I was really surprised the film featured an openly gay floor trader because I've never heard of one anywhere else.  What I felt was missing was the high rolling local traders because knowing their personality, they're the types to keep quiet and wouldn't open up their lives like the film's characters did (although the gay guy seemed to be trading well).

I'm also glad that The Pit featured a few characters who drifted in and out of the floor after giving it a shot as in reality that was incredibly common..  A couple characters worked part time jobs at night while they were trading during the day and I've never seen that work out for a trader.  The great irony is that entry level traders/clerks looking to trade were usually paid to the bare minimum to survive and the 'payout' was getting a chance to trade down the line which, in Chicago terms, usually meant the backer would stomach a 50-100k drawdown in the process if necessary.  I remember when I spent a week at NYMEX that the clerk I 'worked' with was paid $2000/month which meant he had to live in a Jersey City ghetto and was incredibly stretched to even buy food.  Similarly to get on track to trade w/a small group of locals, my pay went from $3000/month as a phone clerk to $1800/month but luckily I was 20 at the time so it wasn't a problem.

A point which really came across in the film is how many people go into trading just to make money and only tolerate their discomfort in hopes of achieving that goal.  The pursuit of money turns people miserable and it's clear why a lot of characters didn't stay in the game when the money dried up.  It takes a love of the process, continually seeking knowledge, matching wits against the market and building a life as a sovereign individual to hand the ups and downs while those in it solely for the money leave to chase another dream if it's not immediately monetarily rewarding. 

Although I'm a fan of The Pit, my opinion is that Floored is a better overall movie but both do a great job capturing the trading pits on film.  Hopefully wider distribution comes for The Pit but for me it was worth signing back up to Netflix just to watch it until it comes on DVD as well. 

Monday, April 30, 2012

Joyce




Yesterday on a flight I was able to read Joyce, Queen of the Mountain and enjoyed the stories of a past era when she was mostly on the CBOT but also the CME.  Although the book is directed to primarily share a female's perspective of working in the trading pits, I have to admit to appreciating it more for the interactions and stories of the industry's legends which were sprinkled throughout.  Joyce is largely set in the 70s and 80s which was not only one hell of a volatile trading period but also known for hard living and wild partying so the book equally as interesting for stories outside the pits as it was regarding the trading floor.

My favorite quote of the book was from a Barry Lind citation in Time Magazine, "Commodity Trading makes you grow old fast but keeps you young forever."  Amen to that!  It brings to mind one of my favorite quotes from Fooled by Randomness, "no other lawful profession in our times could be as devoid of boredom as that of the trader. Furthermore, although he has not yet practiced the profession of high-sea piracy, he is now convinced that even the occupation of pirate would present more dull moments than that of the trader."

Specifically about hand signals, I was enlightened about how the CBOT 'filled' signal was developed from page 74 in Joyce:

"Back in the 1940s when an open out-cry trade was completed inside the pit, the transaction was considered a gentleman's agreement and the buyer and seller would shake hands upon completion.  As the pits became busier and more crowded, the trade procedure changed and upon completion you made physical contact by tapping the other trader's shoulder or body.  As the pits became more chaotic and crowded still, it became impossible for traders to walk through the wall of flesh and have this key physical contact to seal the deal.  Instead, a chopping hand signal was devised using the wrist motion of the handshake.  This replaced physically touching the other trader.  The chopping motion meant 'sold' and now you hear traders say the word 'Sold' accompanied by this chop of the hand.  Eventually, the hand chop movement alone became the signal from the broker to the trading desk that their order had been filled."


Tuesday, April 24, 2012

New signals shoot






Last weekend I was with my creative partners Tuan and Jack from Rabbitwerks at the awesome Blue Sky studio in SF to shoot new photos for all the handsignals....all 450+ if you can believe that!  It's going to take a while to get all the files up and cleaned from the raw files shown above but they'll be worth the wait for all the clarity to showcase all the trading pit hand signals. 

Can never start them too early

Yesterday I was in Chicago and dropped by the CME library which has a great collection of old industry books (along w/lots of crappy ones) and came across this one. 



Monday, April 23, 2012

Perestroika Futures



Almost exactly twenty years ago in 1992 and within a year of the collapse of the Soviet Union, Mikhail Gorbachev visited Chicago which included walking into the S&P pit, as pictured above, along with visiting the CBOT.  The following articles do a better explanation of his trip at the time but they neglect to mention, as the Sun Times did, that Gorbachev finished the day by going to the Hard Rock Cafe in River North so he could meet some typical people. (update, I just read that Gorbachev is back in Chicago today, total coincidence w/this post actually as the photo has been sitting on my desk for a while)

Gorbachev Visits Capitalist World`s Chicago Shrines (Tribune article)

Gorbachev Has Hectic, Backslapping Day at Chicago Exchanges (Reuters article)

Even though I spent a fair amount of time on the floor, with all the dignitaries and famous people the only 'celebrity' I ever saw was the actor who played Greg Brady

 (Hate to admit it but as an 11 yearold when the Iron Curtain fell, my only memory of the era is Jesus Jones' Right Here Right Now video)

Sunday, April 22, 2012

Le Pit

Some good vintage footage of the MATIF floor and even a cameo of an old Globex screen near the end.  (The dailmotion embed might take a while to load fyi)


Le PIT by bhaouari

Friday, April 20, 2012

Many ways to




In reflection of being on the trading floor, the biggest benefit was observing the diversity of strategies everyone used and the niches they settled into. Charlie D said that the best way to learn how to trade was simply be a good copycat and to start that's something I definitely did by watching a lot of traders and asking a lot of questions.

Gonna get a little sidetracked until getting back to the point of the story...

Before joining a small trading group I rotated on various order desks at an institutional brokerage for nine months in 1999 and spent a fair amount of time at their CBOT Dow desk which was run by a very aggressive broker who I think is still on the floor there.  The desk broker trained me on how to be a great desk clerk to the point of being able to handle three phones simultaneously (four is impossible) of two index arbs and a market maker at the AMEX.  Anticipating the index arbs was a simple but mind numbing exercise by watching the fast cash bid/ask of the index 'basket' to know what the arbs would be looking to do as the phone rang, i.e. the futures were trading at a slight discount to where the index components were bid in the stock market, taking into acct where fair value was calculated (which slightly varied by firm).  Little things like good anticipation on the desk clerk/broker was basically the difference on if the arbitrage was successful or not as other desks were hitting the market the same way at the same moment. 

Anyways back to the point...so there were a couple locals in front of our desk who were doing Dow/S&P arbitrage and it just completely blew my mind that such a thing was possible how they did it.  Basically they were trading the relative value of the futures against each other in terms of how under/over valued they were to the respective fair value.  At the time I think the ratio was something like 7 Dow to 2 or 3 S&Ps and they'd make a few trades each day just waiting for one index to get over/under valued relative to the fair value of the other.  Granted this was 1999/2000 so there was good volatility but just goes to illustrate one of the many ways to skin a cat I observed on the floor.  I can't imagine this continuing to be a viable strategy anymore which is why it's ok to blog about. 

One of the biggest market making firms had a lawsuit against some former employees which outlined a similar approach in the same pit and it all reiterates the first thing a trader told me when I got to Chicago, "the amateur looks for the greatest reward and the professional looks for the least amount of risk."

Friday, April 13, 2012

Trading scene from Ferris Bueller's Day Off

Springtime, good cigar weather, the options pit on strike.....it all makes me wanna skip the rest of the trading day and run around town like Ferris Bueller.  One scene from the movie which ties into the blog well is of Cameron doing the handsignals in the visitors gallery of the CME while they were skipping school.  The sense of freedom from skipping high school was so addictive that noone could've had left more than me and still graduated cause I maxed out on the school district's limit every year. 

Tuesday, April 10, 2012

Stanley Kubrick at CME in 1949



A handful of post-WW2 era trading photos at the CME by Stanley Kubrick in 1949, kinda cool.  Full set is at the article link:

Stanley Kubrick Shot These Intense Photos Of The Chicago Mercantile Exchange When He Was Just 21


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