Open Platform: A Floor Trader's Reflections on Data Then and Now--When the Market Had a Soul
John Sussex describes the disruptive impact of electronic trading platforms and digital market data on floor trading.
A walk onto the trading floor of the Chicago Board of Trade in 1981 changed my life. I'd never seen anything like it. I was 23 years old, and the avalanche of noise and color that hit me that day as I witnessed thousands of traders do battle in the pits is something that I'll never forget. The sheer size of some of the traders in the baying Chicago pits was a sight to behold. Some were former athletes who hadn't made the cut in their chosen sports. Instead, these guys were using their brawn to seize strategic positions on the floor so they got first look at prices being spewed into the market.
I cut my teeth as a trader on the floor of the London International Futures and Options Exchange (Liffe). This was a tough physical world. Being strong enough to withstand the tactics of intimidation was almost as important as being able to quickly make sense of what was happening in the market. We got our information on the floor from the price boards, a ticker tape newsfeed, and some Reuters screens dotted around the exchange. Word of mouth was also a vital data source as information was passed down from the trading booths to the floor.
The best source of information was the noise in the pits. I would get a sense that something was happening just by watching what was going on around me on the floor. I'd then watch the order flow coming in from the booths and sometimes get goosebumps from feeding off the buzz. As a pit trader, you were at the center of the market and could react very quickly to what was happening. Your quote was only good while your breath was warm. If you sensed an event was about to break, you stopped quoting. This meant you wouldn't have to call your broker to cancel any orders after a sudden market move. When news broke, you could pick off the paper. This is now being done by algorithmic trading systems. These machines also sweep up all the value trades that the floor traders used to make back in the old days.
When I wrote my book, Day One Trader (published by John Wiley & Sons, Inc. 2009), it brought back memories of how difficult it was for many to adjust to the transition from the trading pits to screen-based trading. Learning how to trade using a computer was too much of a challenge for some. When Liffe introduced the after-hours electronic APT system, one trader picked up his mouse and tried to talk to it when attempting to input the day's trades into the system for the first time. Liffe traders even ended up working on market stalls after the pits closed. For some, nature would replace the price boards. "If there are lots of seagulls around, that usually means that there is bad weather on the coast, so there isn't much cod, so you'll go long on cod," said one former Liffe trader who left the market to become a fishmonger in East London.
Today, the trading floor is still the place to be. But instead of the nexus in the market being a pit full of men shouting at each other, all the action takes place inside the cables underneath the floor. These cables link servers in datacenters to the matching engines of exchanges and trading platforms. The "electronification" of financial markets has made co-location and proximity hosting technology the key tools that enable participants to obtain access to data as quickly as possible. Traders now sit in front of their terminal with more market data at their fingertips than I could have imagined when I started my career as a trader in the early 1980s.
Still, the fundamental skills needed to be a great trader have stood the test of time. Knowing the value of every trade you make is as important today as it ever was. But today's generation needs to be far more tech-savvy. Nowhere is this more true than when it comes to being able to analyze the mushrooming volumes of market data pouring into the market every day.
The growth of trading in different financial instruments has meant traders need to spot correlations between markets. Traders are using data tools to spot patterns emerging across stocks, bonds, and foreign exchange markets. This wasn't possible in the 1980s when dealing in bonds and forex was mostly done over the phone, with brokers haggling over prices.
The last of the futures trading pits in Chicago will be gone by the end of this summer. In my lifetime, I've witnessed a remarkable evolution. I was a day-one trader on the Liffe floor before becoming an early pioneer in electronic trading. My firm, Sussex Futures, briefly became Europe's biggest independent brokerage. Sadly this didn't last. A rogue trader brought me to the brink of financial ruin. When I bounced back, I found myself working with some young traders who are now doing amazing things with algorithms that can absorb voluminous amounts of data far beyond the capacity of the human mind.
But nothing will compare to being able to pit your wits against somebody in the pit, and being able to look him in the eye and trust your intuition. The market has no soul anymore; now it is just numbers on a screen.
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