Gameboy traders look to the future
By Aline van Duyn
Financial Times; Dec 30, 2002
Like many parents, Peter Green worries that his young son spends too much time playing video games. But his concerns are tempered by the knowledge that zapping aliens provides excellent training for becoming a futures trader.
A screen-based futures trader, that is.
Since the Liffe exchange's futures trading pits closed in London in 1999, a new generation of professional traders buying and selling for their own account in the futures and options market has emerged. Most are young and computer-savvy. At Liffe's peak there were about 800 such traders, called locals. Now, it is estimated there are at least 1,600, all trading through screens.
Mr Green, who started trading bond futures in the Liffe pits, is chief operating officer at the Kyte Group, one of the few trading firms that successfully made the switch from floor to screen.
Kyte now caters for 200 traders, double the size it was when trading was floor-based. Some of its traders have experience of the floor. But many of today's traders have never been active on the floor.
"The gameboy generation is very good at trading on the screen," says Mr Green. "They are used to staring at screens, noticing patterns and reacting very quickly - all skills you need to day-trade futures electronically."
Many independent traders resisted the move to electronic trading, claiming that there would be no more room for locals once screens replaced trading pits.
Similar arguments are now made in Chicago, where independent traders have a lot more clout than they did at Liffe (now Euronext.liffe after last year's takeover by the Euronext exchange).
The traders fighting for the survival of the pits in Chicago are right to be worried, however. Successful screen-based traders are not necessarily those who excelled on the floor.
"The screens are much more of a level playing field, and some of the best traders we had after the pits closed were those that didn't get an opportunity to ever try out their trading in the pits," says Magnus Greaves, a former Liffe trader who now runs London-based Macfutures.
"Some of the worst were the pit-traders. There are screen-reading skills, just like there are pit-reading skills. They are just not the same," he said.
Professional screen-based futures traders tend to be more technical, and many make money through "scalping" the market.
This involves trading whenever prices move, even slightly, and traders can do hundreds of individual transactions per day, usually ending up with no positions at the end of the session.
Mr Greaves, who was determined to become a futures traders from the age of 15, is passionate about training new traders. He moved to London from Canada when he was 19, and started hanging around the Liffe trading floor.
Like hundreds of other clerks and runners, who carried pieces of paper around the floor and performed countless other tasks to allow traders to trade, he was in the pits to try to make it as a trader.
He says that the biggest loss after the pits' closure in London is the pool of clerks and runners, working their way up and begging traders to let them have a go.
"All these jobs are gone. Now, if you want to be a futures trader, there is no obvious place to go and try and your luck."
Macfutures has its own training scheme, and with five hundred applicants for every job, trading is clearly still a popular choice. Fifty traders have been trained so far, and 200 are expected by next year.
Although both companies have small offices in the suburbs of London and in places such as Gibraltar and Dublin, most traders are still based in their main London offices.
Traders need technical support and access to the fastest possible technology. They also like the company of other traders.
"Some traders who tried to work from home found they missed coming into the office, and having others traders to talk to," said Mr Green.
Trading companies also need to ensure they have sophisticated risk management - many of the firms that tried screen trading failed because risks were not properly managed.
Although there are aspects of the floor that traders in London still miss - the noise and excitement mainly - this is compensated by the money made from trading and the potential for growth in electronic markets.
"The wealth is more visible in the pits, you can see people arriving in flashy new cars when they have made a lot of money," says Mr Greaves.
"You never really know who has made money on the screens, unless you happen to work with them, but money is definitely being made, and when you trade for your own account, it's all for you." |
