Traders struggle amid `fog of war'
Market responds to combat reports
Younger brokers getting frazzled
DORIS FRANKEL
REUTERS NEWS AGENCY
CHICAGO—A 27-year-old Chicago Board of Trade equity futures trader approached John Zawaski earlier this week in despair at how Iraq war news was whipsawing the financial markets.
"(He) was pretty much crying on my shoulder saying `this is impossible.' He was asking me what do you do in something like this?" said Zawaski, chairman of the Dow Jones stock index futures pit and a 15-year veteran of the markets.
Zawaski's advice to the youngster: "As soon as you have a winning trade on, you better cover it and take the money and run."
The war in Iraq has brought a rush of news from the front in part because journalists are "embedded" with the troops and are sending immediate dispatches using the latest technology.
But this has not necessarily lifted the "fog of war" and the markets have been whipped back and forth.
Consider these war reports: The war will be short. The market rallies. The war will be long. Stocks fall. There is an uprising in Basra against Iraqi President Saddam Hussein. Stocks rally. Something happened in Basra, but we are not sure exactly what. Market backs off.
Evaluating all this information and acting on it in markets can overwhelm some traders, especially the youngest who have never traded through a war before.
Traditionally, traders in Chicago's boisterous financial futures and options pits tend to be young, some starting in entry level jobs with trading firms immediately after high school. They must be quick witted, have a strong voice to shout bids and offers and be able to stand on their feet for hours on end.
"The average age of an options and futures trader is quite young. I would think that most of them are under 35 years of age," said Lee Korins, professor of finance of University of Northern Colorado.
Veterans of trading through one or more wars such as Zawaski have a calmer approach and some said they have seen this kind of knee-jerk reaction before.
"People are reacting more to rumours and emotion than fundamentals. The same thing happened in (the first Gulf war in) 1991," said Leo Melamed, Chicago Mercantile Exchange chairman emeritus, who has traded financial products for more than 30 years.
Born in Poland, Melamed and his parents fled the Nazis in 1939 after the outbreak of World War II, beginning a long journey that would take them to the United States in 1941.
"Most serious traders don't want to be affected by nonsensical rumours which will affect the up and down (movement) at times. So a lot of traders simply withdraw to wait until the (economic) fundamentals take hold," he said.
At the Chicago Stock Exchange, 64-year-old Tilden Engleman, who has been trading stocks for 36 years, has been keeping one eye on the TV monitor and another on market data.
"The problem with having the TV images in your living room is that every time there is a blockade, roadblock or a hurdle that we have to climb in order to get somewhere, the market has a knee-jerk reaction," said Engleman, president of Engleman Securities, which is owned by ETrade Group Inc.
Harold Lavender, a 56-year-old seasoned broker in the 10-year Treasury bond pit at the Chicago Board of Trade, said this has been the most difficult trading market he has seen in 27 years due to uncertainties of the war and global economies.
"You have to trade really carefully and be really nimble. You have to position to move in and out very quickly because every piece of news, positive or negative, seems to have a tremendous impact on the market short term," he said.
"What experience teaches in these kinds of situations is that the market will go through price aberrations in either direction and as the outcome becomes clear will tend to return to more normal volatility."
Anyone trading stock and options should have an understanding of investor sentiment and volatility, said Mitch Kurtz, 48, senior vice-president of financial planning and brokerage firm Advest Inc.
"A new trader tends to be more emotionally involved as opposed to a disciplined outlook that an experienced trader sees," Kurtz added. |
