Futures  |  NOV 2005

Applying Pit-Trading Techniques To Electronic Trading by Clem Chambers

Stocks & Commodities V. 23:11 (16-19): Applying Pit-Trading Techniques To Electronic Trading by Clem Chambers Just like every other established futures market, the London International Financial Futures Exchange (LIFFE) used to have a pit where colorfully jacketed traders stood and bellowed their orders back and forth. But in recent years, pit trading has made way for electronic trading and the old floor traders have either retired, gone to the US to work the pits there, or made the transition to screen trading. Those who hoped to make it trading electronically have found it hard to get by; screen trading is a different game altogether. Now, most — perhaps all — have disappeared from the LIFFE market completely. THE MARKET MAKERS If you were to ask pit traders how they make money, it is unlikely you would get a satisfactory answer. I put this down to the fact that most are self-taught; they understand the job intuitively rather than technically — years of practice in an incredibly frenetic environment, not a textbook, have taught them their trade. After talking to them, you can often be left with the feeling they don’t know how they make money. Alternately, you will be regaled by stories of hunches or pulling off massive trades, and a never-ending flow of war stories that sound good but don’t leave you with much of an idea of how their gut turns into profit. Trading futures on screen should be like trading on the floor, but it isn’t. The good news, however, is that comparing and contrasting the two opens up new ways to trade.

by Clem Chambers