Completed maintenance

Big news is that the hand signal gallery on tradingpithistory.com is completely uniform as we just finished uploading photos from the most recent shoot a month ago.  Eventual plan is to use those photos for an upcoming book which constantly remains a work in progress and might not ever get finished at the current rate of progress.

Although the photos are up, I haven't proofread it all again to make sure everything is perfect but if anything looks out of line, holler via email: info 'at' tradingpithistory.com

Other thing was moving the shopping cart's backend to Stripe which is a lot easier to use.

Since both were a long time coming, we got all the guys from the project together to celebrate and here's some video:

CME captured in Gigapan

There have been numerous photos from the exchange visitors gallery but this one I really liked because it was caputured using Gigapan software which allows very sharp, detailed zoom.  The above photo was taken at 12:03pm on August 27, 2008 and needless to say almost four years later the floor is much emptier now. 

For the link of the above photo in gigapan format to zoom in and play around with, click here.  It really is amazing the detail because the wall boards easily can be read, even some computer screens are clear and it also captures the majority of what floor trading consists of which is traders/brokers waiting around for something to happen. 

Opening gong

In the late 19th and early 20th century, trading at the CBOT was opened and closed by a Chinese gong being sounded.  The above photo is from 1938 and the gentlemen shown were CBOT members for 50 of the 90 years it had existed up until then!  The embedded youtube clip below gives the sound effect for anyone needing a refresher.

Vacated US commodites exchanges

photo credit sfappeal

Just as many speculators have entered and exited the market, history is filled with numerous commodities exchanges which served as designated contract markets to trade futures in the US. 

The CFTC website has a listing of closed exchanges which is worth a quick perusal:

Vacated Designated Contract Markets

It's pretty easy to understand why an exchange in an isolated city like the Duluth Board of Trade would lose liquidity to the Minneapolis Grain Exchange and both to the CBOT but each exchange has it's own story.  My simplest explanation on why the Chicago exchanges dominated the industry is that it had the largest population of well capitalized traders who grew liquidity by risking their own fortunes. 

Banned in the U.S.A.

photo credit wikipedia

Although Chicago is named after an onion, it's been illegal to trade onion futures since 1958 when Congress outlawed onion futures after a couple speculators cornered the market.  The Onion Futures Act was passed a few years after the manipulation of contracts in late 1958 and to this day onions are the only physical commodity in which futures trading is prohibited on in the US.  At the time of the ban, onion futures represented 20% of exchange volume at the CME and the loss of such a flagship contract helped drive the continued innovation which the exchange pursues to this current day.

To get a sense of the manipulation, prices moved from $2.75 a 50-lb bag in August 1955 down to only 10 cents by March 1956.  However as seen from the chart below that was published in the FT, onion prices continued to have boom-bust volatility even after the Onion Futures Act was enacted.  The second chart illustrates the price of wheat traded in Berlin to show similar volatility when the German government banned wheat futures trading in 1897.

photo credit Ft.com

Click to enlarge

Onion price volatility remains but because of the regional and price decentralization, it's tough to get a quick gauge on the historical market.  This Dealbook article from 2010 does note that,

"Today onions are the only commodity for which futures trading is banned. Not coincidentally, onion prices remain extremely volatile: they doubled in 2008, and then fell by 25 percent in 2009."

As far as the final word on government's overstepping regulation, I'll leave it to the 2 Live Crew's song Banned in the USA.



(Offtopic, but is it odd that compared to today's ignorant rappers I find the 2 Live Crew to be a relative paragon of intelligence)

Book hubris

A couple weeks ago I was in the exchange's library and was looking for books that I previously haven't seen or read and found a few remotely interesting ones to order.  One such book was West of Wall Street which was written by a S&P trader and published in 1988.  My interest in reading it was figuring that there might be some funny/interesting 'war stories' of the pit although most of the book was 'how-to' techniques which didn't interest me.   What did turn me off about the book was all the declarative statements mostly on making X or occasionally losing X, but heavily oriented towards making X and when anyone talks like that it's always a huge red flag for me indicating a bad aura.  

Anyways, I searched about the author since he mentioned in the book he was managing money while in the pit and it turns out he received the largest fine in exchange history (which is double in 2012 vs. 1989 dollars) and also was banned from the exchange the year following publishing.  That is some seriously bad juju and obviously he was relying on different and illegal techniques rather than what he wrote about.

I've seen similar falls from grace other times w/traders who publish works w/an ulterior motive on not just simply expressing or sharing knowledge but to accumulate investors or clients.  There is a stark difference in chattiness about performance between independent locals and money managers which is best expressed in the following chart, w/managers generally clamming up about losses to not look bad and independents straightforward about it because they don't have a concern about outside opinion.  On the flipside, independent locals will guard against hubris by speaking little when experiencing upside vs. managers who wish to parade returns. 

(Is blogging about hubris, hubristic?  I don't know and don't think so, hope not as well!)