Joyce

Yesterday on a flight I was able to read Joyce, Queen of the Mountain and enjoyed the stories of a past era when she was mostly on the CBOT but also the CME.  Although the book is directed to primarily share a female's perspective of working in the trading pits, I have to admit to appreciating it more for the interactions and stories of the industry's legends which were sprinkled throughout.  Joyce is largely set in the 70s and 80s which was not only one hell of a volatile trading period but also known for hard living and wild partying so the book equally as interesting for stories outside the pits as it was regarding the trading floor.

My favorite quote of the book was from a Barry Lind citation in Time Magazine, "Commodity Trading makes you grow old fast but keeps you young forever."  Amen to that!  It brings to mind one of my favorite quotes from Fooled by Randomness, "no other lawful profession in our times could be as devoid of boredom as that of the trader. Furthermore, although he has not yet practiced the profession of high-sea piracy, he is now convinced that even the occupation of pirate would present more dull moments than that of the trader."

Specifically about hand signals, I was enlightened about how the CBOT 'filled' signal was developed from page 74 in Joyce:

"Back in the 1940s when an open out-cry trade was completed inside the pit, the transaction was considered a gentleman's agreement and the buyer and seller would shake hands upon completion.  As the pits became busier and more crowded, the trade procedure changed and upon completion you made physical contact by tapping the other trader's shoulder or body.  As the pits became more chaotic and crowded still, it became impossible for traders to walk through the wall of flesh and have this key physical contact to seal the deal.  Instead, a chopping hand signal was devised using the wrist motion of the handshake.  This replaced physically touching the other trader.  The chopping motion meant 'sold' and now you hear traders say the word 'Sold' accompanied by this chop of the hand.  Eventually, the hand chop movement alone became the signal from the broker to the trading desk that their order had been filled."

New signals shoot

Last weekend I was with my creative partners Tuan and Jack from Rabbitwerks at the awesome Blue Sky studio in SF to shoot new photos for all the handsignals....all 450+ if you can believe that!  It's going to take a while to get all the files up and cleaned from the raw files shown above but they'll be worth the wait for all the clarity to showcase all the trading pit hand signals. 

Can never start them too early

Yesterday I was in Chicago and dropped by the CME library which has a great collection of old industry books (along w/lots of crappy ones) and came across this one. 

Perestroika Futures

Almost exactly twenty years ago in 1992 and within a year of the collapse of the Soviet Union, Mikhail Gorbachev visited Chicago which included walking into the S&P pit, as pictured above, along with visiting the CBOT.  The following articles do a better explanation of his trip at the time but they neglect to mention, as the Sun Times did, that Gorbachev finished the day by going to the Hard Rock Cafe in River North so he could meet some typical people. (update, I just read that Gorbachev is back in Chicago today, total coincidence w/this post actually as the photo has been sitting on my desk for a while)

Gorbachev Visits Capitalist World`s Chicago Shrines (Tribune article)

Gorbachev Has Hectic, Backslapping Day at Chicago Exchanges (Reuters article)

Even though I spent a fair amount of time on the floor, with all the dignitaries and famous people the only 'celebrity' I ever saw was the actor who played Greg Brady. 

 (Hate to admit it but as an 11 yearold when the Iron Curtain fell, my only memory of the era is Jesus Jones' Right Here Right Now video)

Le Pit

Some good vintage footage of the MATIF floor and even a cameo of an old Globex screen near the end.  (The dailmotion embed might take a while to load fyi)


Le PIT by bhaouari

Many ways to

In reflection of being on the trading floor, the biggest benefit was observing the diversity of strategies everyone used and the niches they settled into. Charlie D said that the best way to learn how to trade was simply be a good copycat and to start that's something I definitely did by watching a lot of traders and asking a lot of questions.

Gonna get a little sidetracked until getting back to the point of the story...

Before joining a small trading group I rotated on various order desks at an institutional brokerage for nine months in 1999 and spent a fair amount of time at their CBOT Dow desk which was run by a very aggressive broker who I think is still on the floor there.  The desk broker trained me on how to be a great desk clerk to the point of being able to handle three phones simultaneously (four is impossible) of two index arbs and a market maker at the AMEX.  Anticipating the index arbs was a simple but mind numbing exercise by watching the fast cash bid/ask of the index 'basket' to know what the arbs would be looking to do as the phone rang, i.e. the futures were trading at a slight discount to where the index components were bid in the stock market, taking into acct where fair value was calculated (which slightly varied by firm).  Little things like good anticipation on the desk clerk/broker was basically the difference on if the arbitrage was successful or not as other desks were hitting the market the same way at the same moment. 

Anyways back to the point...so there were a couple locals in front of our desk who were doing Dow/S&P arbitrage and it just completely blew my mind that such a thing was possible how they did it.  Basically they were trading the relative value of the futures against each other in terms of how under/over valued they were to the respective fair value.  At the time I think the ratio was something like 7 Dow to 2 or 3 S&Ps and they'd make a few trades each day just waiting for one index to get over/under valued relative to the fair value of the other.  Granted this was 1999/2000 so there was good volatility but just goes to illustrate one of the many ways to skin a cat I observed on the floor.  I can't imagine this continuing to be a viable strategy anymore which is why it's ok to blog about. 

One of the biggest market making firms had a lawsuit against some former employees which outlined a similar approach in the same pit and it all reiterates the first thing a trader told me when I got to Chicago, "the amateur looks for the greatest reward and the professional looks for the least amount of risk."

Trading scene from Ferris Bueller's Day Off

Springtime, good cigar weather, the options pit on strike.....it all makes me wanna skip the rest of the trading day and run around town like Ferris Bueller.  One scene from the movie which ties into the blog well is of Cameron doing the handsignals in the visitors gallery of the CME while they were skipping school.  The sense of freedom from skipping high school was so addictive that noone could've had left more than me and still graduated cause I maxed out on the school district's limit every year. 

Stanley Kubrick at CME in 1949

A handful of post-WW2 era trading photos at the CME by Stanley Kubrick in 1949, kinda cool.  Full set is at the article link:

Stanley Kubrick Shot These Intense Photos Of The Chicago Mercantile Exchange When He Was Just 21

CBOT historical locations

Last week walking through the CBOT for the first time in a while, I saw this plaque in the lobby which listed all the locations where the CBOT was located in the past and put them on a Google Map shown below.  As you can see the exchange had to move quite a bit in it's early days and most of the locations were on South Water Street (modern day Wacker Dr.) which bordered the river as that was where the grain trade was centered.  The blue line follows from the first to present day location but with thirteen different locations it might be hard to follow.  A bigger version can be accessed via this link.


View CBOT locations from 1848 - Present in a larger map

Open Outcry Broker explained

Even though I'm still pretty busy, figured I'd throw up a couple posts.  Someone posted this xtranormal vid a while back explaining what an open outcry broker, the vid is kinda harsh I have to admit but deserved on some points.