Thursday, October 9, 2014

Small ball

It's been great to watch the Kansas City Royals get into the MLB playoffs and utilize the small ball strategy to win games via that methodical and incremental approach.  As I don't get back to KC more than once a year it seems, there remains a nostalgia whenever something good comes out of the region and of course it brings me back to my time at the KCBT where a small ball approach was used by many traders in those markets as well out of necessity. 

Being a smaller market, traders at the KCBT always had to develop good instincts because the opportunities weren't anywhere near as prevalent as the larger Chicago or New York exchanges.  As a result, KCBT traders had to adhere even more so to the poster which was taped on the end of a desk near the Value Line pit: RISK NOT THY WHOLE WAD.

Old timers at the KCBT used to say that the Value Line pit was rockin' until the crash of '87 caused a lot of desks such as Goldman to pack up shop.  I never believed them, as it was desolate when I got there in '98, but here is photo proof of that pit in 1983 that surely looks busy to me. 

The King of small ball trading actually overlapped a bit w/my time at the KCBT and I was shocked to learn how far he'd progressed from sitting around the quiet Value Line pit with a frustrated look on his face in a dark green O'Connor jacket.  I never spoke with him, but from observing it was clear that he always had the gears working in his mind about trading and wasn't the usual floor joker.  Dave Cummings went on to create early HFT prop shop Tradebot which according to Scott Patterson's excellent book Dark Pools, scaled quickly to trading over 10% of NASDAQ volume in 2002.  Furthermore, in the same book it notes he wrote GETCO's source code (!!!) and later went on to launch BATS which, besides being a Royals sponsor, handles over 10% of stock market volume in the US today.  In the late '90s, Timber Hill had a broker at the KCBT ("Meat") who held a computer box from which he'd quote Value Line markets and I wonder if that was a driving force behind what Cummings created.

Simultaneously, just down the hallway from the KCBT entrance was a equities propshop which a handful of former floor traders gravitated to.  Their Level 2 symbol was appropriately KCMO for those who traded back then and might recall it. 

Be it baseball or markets, KC is a place where small ball is a great path to success but the town certainly doesn't play small ball when it comes to bbq!
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