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HIGH ENERGY ON THE CME FLOOR

dboy

For well over 100 years traders of the Chicago Board of Trade and the Chicago Mercantile Exchange have flocked to the floor to buy and sell commodities like corn, wheat and cattle. It was high-energy then and it’s still high-energy today.

While the energy levels are not quite the same as they were in the wheat pit back in the 1890s, many of the practices used back then are the same as we use today. Still, over the last 50 years they have evolved considerably from scribbling on pieces of paper and traders yelling and exchange employees on chalkboards. The faster computers became, the quicker the trades could be posted. Locals, members of the exchange trading their own accounts, remained robust until the introduction of electronic trading in 1996. For over 100 years traders bought and sold in the pit by using the “open outcry” method of trading. Whether the floor trading is in a futures pit or an option pit, the floor reader / local fulfills an important part of how buying and selling is done on the combined trading floor of the CME Group by using their own capital to trade the markets, providing a “bid-ask” and thus liquidity.

Open outcry futures trading:
Since the introduction of  electronic trading in 1996, open outcry futures trading has slowly disappeared, from New York to Chicago, from the crude futures pit to the bean futures pit. The once high and mighty eurodollar, where hundreds of locals once stood, now has less than 10 traders in the pit. On the opens and closes several traders show up in the bean pit, but not many actually stand in there all day. Over in the once busy currency pits, the crowds of traders of the late ’80s and ’90s are gone. All that is left are 10 or 20 currency option traders. It’s pretty much like that in all the futures pits but one, the S&P 500 futures pit.

Refusing to give up:
When you look around the floor, most of the market participants that you see in the pits are trading options. The old bond pit that used to hold over 600 locals, clerks and order fillers is now a hybrid pit that includes the 30 year bond and the 10, 5 and 2 year notes. Some days there are less than 10 traders in the pit. That not how it went over in the S&P pit, though, where sometimes as many as 80 traders show up to trade in the pit. The top step of the pit that used to be filled with order fillers is down to less than a handful.  Like many of the futures pits, the S&P sees some decent order flow on the opens and closes,  but there is also a somewhat steady flow of small orders that show up during the day. Of course they would like see more order flow, but most recognize that over time it will only get smaller and smaller.

Not your normal job:
It doesn't matter if you're on the floor of the CME Group or sitting in Dubai, trading for a living is not a normal job. You have to be precise, your timing has to be on and most of all you have to understand the contract you are trading. Many years ago it was just a few very smart people buying and selling. Many came to the game unprepared and paid the ultimate price, they lost all their money. They entered the game without a solid game plan and the necessary tools to make it.  However, that has changed over the last decade due to electronic trading. The Internet has leveled the playing field and many of today’s retail traders are just as informed as the big banks and hedge funds are. Bottom line, there are better sources of education to learn from that have helped the smaller traders avoid some of the pitfalls of the past. The modern trader has an arsenal of weapons to take on today’s markets that include futures and options educators like www.mrtopstep.com, news sources like television and online news programs, daily newspapers, charts, electronic programs that give buy and sell signals, statistics and charting packages. Years ago I would march to the floor like a zombie, I didn't care about chart points or news. All I wanted to do was get to the S&P pit. That is not how it works today. In order to make money in the futures markets today you HAVE to have a game plan coming into the day. Below is a list of things I now fully believe you have to have in order to succeed :

1) Patience
2) Discipline
3) Effective risk management (you can't trade without it)
4) Learning to get in and get out while staying cool

I and sure there are a lot more rules to follow but those are the four I most rely on now. As the Pit Bull has told me hundreds of times, you can't make the money without doing the work. As for the Quick Energy bottles, don't worry, one guy didn't drink them all … just most of them ... ha!

Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.

Our view: It’s worked all week and we suspect it will work again today -- sell the early rally and then look to buy weakness. Believe it or not, things are slowing again and the volumes are showing it. As always, keep an eye on the 10-handle rule and please use stops.

 

  • It’s 7:15 a.m. and the ESH is trading 1454.50, up 2.25 handles; crude is up 8 cents at 93.23, and the euro is down 26 pips at 1.3065.
  • In Asia, 7 out of 11 markets closed higher (Shanghai Comp. -0.03%, Hang Seng +0.48%).
  • In Europe, 9 out of 12 markets are trading modestly higher (CAC +0.01%, DAX +0.07%).
  • Today’s headline: "World stocks rise as Alcoa sees stronger demand"
  • Economic calendar: Today: Weekly mortgage applications, oil inventories, 10-yr note auction and earnings from Constellation Brands, PriceSmart. THURSDAY: Jobless claims, wholesale trade, natural gas inventories, Fed's George speaks, 30-yr bond auction, Fed's Bullard speaks, Fed's balance sheet, money supply, Fed's Kocherlakota speaks. FRIDAY: International trade, import and export prices, Fed's Plosser speaks, Treasury budget, Best Buy to report holiday sales and earnings from Wells Fargo
  • Total volume: 1.36 mil ESH and 18k SPH traded
  • Fair value: S&P +3.70, NASDAQ +5.50
  • MrTopStep Closing Print Video: https://www.mr-topstep.com/index.php/multimedia/video/latest/closing-print-1-8-2013

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