Breakout

Before HFTs and e-brokers, there was pit trading

Editor’s Note: The following is a guest post by Jonathan Hoenig, founding member of Capitalistpig Hedge Fund and director of the short film Pit Trading 101: A Film about Life before the Point and Click.

Imagine a job that required you to stand on your feet for seven straight hours, frantically screaming and yelling, while making bets worth $10,000, $50,000 or even $100,000. But this isn’t Las Vegas – it’s a trading pit.

At the peak of the mid-90’s market frenzy, over 10,000 traders worked on the floors of Chicago’s futures and options exchanges. Trillions of dollars were exchanged with a flick of a wrist or motion of the hand.

What looked like chaos was actually quite the opposite. "Open outcry" trading was a sort of secret language. "Quarter" was shorthand for twenty-five, which wasn't used because it sounded too much like fifty five. For that, traders used the term "double." This was the financial equivalent of the Carnegie Deli calling a pastrami sandwich a "pistol." Workplace shorthand that made the trading floor work.

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Jonathan Hoenig during his trading days

Aspiring traders often got their foot in the door through apprenticeships or connections; but others attended the University of Trading, a weekend course where they learned the basics. On February 6, 1996, a documentary film crew was given rare access to follow one of these classes, which I attended while still a college student.

Over the past 18 years, the pits have virtually disappeared, only a few hundred populate the two remaining trading floors in Chicago. The vast majority of trading is now done electronically and nobody becomes a pit trader anymore.

It's hard to imagine in our iPhone age, but there was a time when being a successful trader meant putting on a brightly colored jacket, grabbing a stack of doubled-sided cards and standing on custom-height shoes (for better visibility) in the pit for hours at a time.

But what surprised me most over the past 18 years is how many lessons learned in the pit transcend it even to this day.

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