Tonight I saw a documentary called, “Floored”. It is about life in the trading pits of Chicago. But, actually, it’s about much more than that. I am far too close to the topics discussed in the movie to act like Roger Ebert and give the movie a thumbs up or down. If you get a chance to see it or buy the DVD, I certainly enjoyed it. Seeing it though made me realize what a special place the trading floor was. It is a myopic lens to view the world through, but wow, what a view.
When you talk to someone in the business, find out if they were a broker, a desk broker, or a local. Each has a different function in the marketplace. The local is the one that assumes most of the risk. That’s the guy that knows what real heat feels like. As the movie says, no steady paycheck, no 401(k), no health benefits, no net. One day you are shopping for a Cartier watch, the next day you are buying your sheets and towels at Walmart. If you really want to know the business, talk to a local.
If you talk to successful traders they will tell you that there is not a more fun way to make a living. Trading your own money. To put it into words that you might be able to understand, Joe Gibbons in Floored says, “I am trading my own hedge fund, with only my own money. My customers are my kids, my wife.” They have implicit trust that Dad isn’t going to screw up that day and lose everything. It is life on a razor’s edge and few can understand it. Fewer still have the nerve and stomach for it.
Another old trader adage in the film is that “making it is fun, keeping it is the game”. Good traders know how to get out of their losers. Traders that I know can tell you about their winners. But, they will say that the best trades they made are the ones that lost them the least amount of money. Kind of like when you see a train wreck coming and you narrowly avoid it. Your sense of relief and blood pressure swing is about the same.
Traders are the smartest and shrewdest people I know. They cut to the chase. Not a lot of bullshit. They are able to size up a situation pretty quickly and make a decision. If I were in a life or death situation, I’d pick a floor trader as a partner. They know how to survive. Pressure is trading your rent check or mortgage payment. They may not be able to articulate the niceties of Bayesian probability theory, but they can certainly give you a reason why when one thing happens how many you need to have on-and how much money you will make doing it. Pit traders while in the pit were generally honest too. It wasn’t just the exchange rules that made it that way. Peer pressure from others in the pit, and the fact that you weren’t going to see any order flow played the biggest role in it. While you were in the pit, your word was your bond. It was as good as gold. Screw over your fellow trader and you were mud.
Floor trading is going the way of the dinosaur. Computerized algorithmic trading has replaced the old floor trader. Nothing will change that. But, locals saw that coming, or should have. Open Outcry survives in the options pits on the futures exchange floors, but that’s about it. I would encourage you to visit the visitors gallery at the Chicago Board of Trade, or any other US exchange while you can. It won’t be there for very much longer and the only sound you will hear there someday will be the sound of your own breath.
Traders won’t be fossilized like dinosaurs. Some will adapt and keep trading. If there is anything that 2008 proved, is that computers are not infallible. Traders that adapted were able to make money. Once the transition is done, the adapted trader might even be able to make far more than they ever were able to make before. There will be a lot more volume, and a lot more things to trade.
One thing is for sure. If you thought a circus had a lot of characters, you never have been on a trading floor. Each exchange had its own colorful characters with incredibly funny stories and antics. There is not enough room on the internet to catalogue them all. If you press a floor trader, you can hear all kinds of stories about debauchery, drugs and alcohol. But press them a little harder, and you will hear stories about some of the most generous people on earth too. I have seen guys write checks to charity that would make you blink, and all you had to do was ask. People without high school diplomas matching wits with MBA’s from the top schools in the country. Each trader an island. Competing with each other, but really competing with the market. It was and still is a helluva way to try and make a living.