Most people have no idea what the trading floor was like. They may have visited and seen a bunch of guys pushing, shoving and screaming. For them it was like going to the zoo. The reality is it was a microcosm of the world. But, I want to dive a bit deeper into that world to illustrate something else that was going on there which is repeating constantly in other business worlds I interact with.
The floor consisted of three kinds of functions.
1. Market makers. Market makers could also be considered “content providers”. These are the creatives. There was a lot of risk taking and failure in this segment. Lots of volatility. Lots of highs and lows. It was also the place where the most money could be made-and lost.
In publishing, the writers are the market makers. In music, it’s the artists. The person in the industry that creates that seminal thing which moves everything forward is just like the market maker on the trading floor in a lot of respects.
2. Pit brokers. These are the people that facilitated everything. Think of them as aggregators. They took less risk than the market maker. They could make a lot of money, but it was capped at how much volume they could do since they were paid on a per contract basis. Sort of like being paid “per click”. Some brokers were better than others, just like on the Internet, some aggregators are better than others. Some brokers scaled, some didn’t and stayed like Mom and Pop businesses. Some brokers put their own trades on too. Of course, when they had a lot of order flow and traded for themselves, there was a huge conflict of interest to manage.
A venture capitalist is similar to a pit broker-and so are companies like Amazon. Web sights like Instapundit are similar too.
3. Desk brokers. Similar to pit brokers but not as active. They brought new content into the ecosystem. They transferred content out to other content providers so those content providers could create more content. They didn’t take nearly as much risk as pit brokers. They could make a lot of money, but unless they were able to set up their own firm they were beholden to a much larger firm.
The mentality and risk appetite of each segment is different. It leads to different choices and preferences. I see lots of business silos arrange themselves into those three segments in different ways. As the businesses evolve and technology invades, it’s always interesting to see which part of the silo is the most vulnerable.