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The Death Of The Floor Trader

The near deafening thud of the hundreds of time stamp machines rolling over in unison every minute…

The high pitch ring of order phone’s buzzing incessantly like locusts…

Colored-jacketed clerks and brokers jostled and jeered in very limited physical space…

That was just a smidge of the sensory overload on the trading floor in Chicago decades ago.

Today I want to give you an inside look into the lucrative world of the floor trader.

And, as you may have guessed, the days of the floor trader are coming to an abrupt end. Truly, we’re witnessing the death of the floor trader.

However, this isn’t the death of the millions of dollars that can be gained and lost on a daily, weekly and monthly basis. Instead, the ever-changing market is bringing a new opportunity directly to your doorstep…

The Millionaire Epicenter Evolving

In the mid-90’s, the Chicago Board of Trade had more millionaires (when a million was a lot of money) per square foot than any place on earth.

But they weren’t just giving away cash in the pits, of course.

Nine out of ten locals who traded money for themselves blew up as the ultimate test of capitalism. Demand was high for big-dollar memberships for the right to fight, elbow to elbow, with the best traders in the world.

I was there with them. Personally elbowing for space in the Treasury Bond pits. That was back in the heyday of the pits, when bonds actually paid substantial interest.

Where I stood was hard fought territory. And for most traders it determined success or failure. Floor real estate was always…location, location, location.

But here’s something that most folks overlook when they think about the big markets and the floor traders in Chicago and New York…

You see, the guys on the floor were not good traders, per se.

Nerves of steel and amazing skills to sense price direction through the sounds and sights of the order flow, separated a few of the greats that could be called true traders.  The rest had success because of floor dynamics.

But when you look under the hood, most floor traders made money the same way…

They profited from being able to buy at the “bid price” and sell at the “ask price.”  Floor trading for locals back then was all about making money on the “tick.” In other words, traders could earn the spread between the bid and the ask, calculated in ticks.

Elbow to elbow in the pit, if you could buy low and sell high, you’d personally collect the difference. And, in the sea of colored jackets, proximity to an order filler from a big bank or brokerage house meant sizable paychecks.

Making that “tick” hundreds and hundreds of times each day, could really add up, too.

For example the minimum movement in my high-flying Treasury Bonds futures was $31.25. The math on a 100 lot is $3125.  A 1,000 contracts? Well, that’s $31,250 to be earned, just for standing in the right spot.

The pits of Chicago we’re filled with money.

But Times, They Are A’ Changin…

For hundreds of years the order route was the same…

You called your broker with a buy or sell, the broker called a desk on the floor, a phone clerk wrote the request on a ticket, a runner “ran” the trade to the trading pit where a broker would execute the trade, an endorsed filled order card was grabbed by another runner and brought back to the desk, a phone call was made to your broker and they in turn called you with your confirmation.

This was a very labor intensive – but extremely efficient — execution method for trillions of dollars in transactions.

But, today, technology has changed everything.

The trading floor of lore, and the “floor trader” is dead.

Travel agents, bank tellers, most brick-and-mortar stores, etc., have ALL been displaced by computers. And the same goes for the trading floor.

The floor guys had a skill that is not transferable to the “click click” world of online trading. Tens of thousands of sweaty, belligerent, almost all alpha males battled daily in a zero sum game… winners or losers…

Going…Going…Almost Gone…

Electronic markets have done away with the order filler and the corresponding locals in the pit to make things work. A man doesn’t stand on that step in the pit to trade anymore. Instead he presses buttons on a laptop — electrons fly and buy.

But here’s the GREAT part of this disruptive technology for everyday investors…

The disappearance of the floor means nobody has an advantage anymore.

Big traders and small, short and tall all have equal access to opportunity. (I was disparagingly told I was hired because of my 6 foot 3 height to be seen on the floor, not my intelligence – but I beg to differ.)

And in today’s digital marketplace, that means one thing — the potential to profit has never been greater… This is hands-down the best time in the history of markets for the “little guy.”

You simply need TWO things…

First, you need to know what to trade (your favorite big ideas)…

A floor trader was limited to one market. The boys club had hard rules.  A corn guy could only take advantage of whatever opportunities or not that they had in that particular pit. Gold was its own game and so on…

Now? Anybody and everybody can trade in any market anywhere anytime. Money never sleeps… It moves around the globe at lightning fast speed to meet the need of greed.

Second, besides knowing what to trade, more importantly you need to know what vehicle to trade it with

With today’s digital world and near-endless trading strategies, the importance of picking the right type of trade – stocks, bonds, options, currencies, and more – can make a HUGE difference in profit. Do you want to make $31.25 or $31,250? Do you want to call an Uber on your way home or chauffer your Tesla?

Trading 2.0

24-hour markets with buyers and sellers looking to enter and exit as prices move up and down means a risk control plan can be executed efficiently. This is a trader’s paradise.

And, because of the abundance of market participants, spreads between where you can buy and sell have been reduced to pennies. The edge cost is near zero and commission costs are minimal at a great discount to what used to be $100 per trade.

“Plan your trade and trade your plan” is the simple mantra that can lead to big paydays. And now, everyone has the chance to join the elite money club of past floor traders and big money market players…

Tens of thousands of jobs are gone…but millions of investors have the technology and tools to profit like never before.

The death of the floor trader means new life for the little guys…


Alan Knuckman

Alan Knuckman
Editor, Weekly Wealth Alert

Facebook: @TheDailyEdgeUSA

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