Veteran trader now uses screens instead of his voice
November 20, 2003
BY DAVID ROEDER Business Reporter Advertisement
Ray Cahnman is determined, focused and, he'll admit, slightly crazed.
"This is very addictive stuff,'' he said as he stared into the mesmerizing colors of computer screens arranged before him, their flashing displays and streaming data making his workspace look like a cockpit. He has eight flat-panel screens and wants seven more.
"This is cool. Did you hear that?'' he said. His machines talk to him. "Filled,'' says a disembodied announcer, and there's a sound of applause.
Another trade, probably another profit, another step in the evolution of financial services in Chicago.
Cahnman, 58, is a member of the Chicago Board of Trade, but he doesn't visit the trading pits these days. Instead of donning a gaudy trading jacket, he can stay in jeans and a T-shirt at his quarters in the CBOT high-rise, where rows of computers and TVs tell him all he needs to know about the day's markets.
In the U.S. Treasury futures market that he concentrates on, not much escapes his attention. If his eyes aren't on the screen when a price moves, a sound effect will be his tipster. E-mails from market analysts are constantly in front of him. Another trader, intent on his own bank of monitors, might shout an observation.
But it's not like the pit, where you can see the other guy sweat, and the din is constant. Cahnman will swear the new way is much better.
And that's saying something, coming from a guy who mastered the pits for more than 20 years. "I was well known on the floor, and I was highly profitable. But my last two years using the screens have been the best I've ever had in the business,'' he said.
As the trading action on Chicago's futures markets moves from the floor to electronic networks, many wonder if Chicago's large contingent of floor traders can adapt. A crop of electronic trading "arcades'' has sprung up in the city, and some will sign on traders for their computer skills, not their years yelling themselves hoarse in the "open outcry'' system.
The Chicago Mercantile Exchange is sufficiently worried about the issue to launch its own training effort to help its members forsake hand signals for keystrokes and mouse clicks. But a common opinion at the Chicago markets is that floor traders are just too set in their ways to change.
Cahnman believes that's bunk. His example isn't just his own, but the firm of which he's chairman, Transmarket Group Ltd. It's an arcade that, like the others, has generated substantial volume at the Merc and the Board of Trade. "And you know, sometimes I don't think the Board of Trade has any idea about us,'' he said.
The Board of Trade maintains two trading floors, but most of its business now moves over its electronic system. Cahnman figures about 80 percent of the electronic volume is attributable to "locals,'' independent traders like him now working off the floor.
Under the Transmarket umbrella are about 120 traders, some on salary, others dividing their proceeds with the company. Some have floor experience, and while some use the offices at the Board of Trade, others work from bureaus in London and New York, or from their own homes.
The transition to screen trading isn't easy, Cahnman said. "You go from trading from 1,000-lots on the floor to trading maybe 10-, 20, 30-lots. Does a guy have the ego to do that? Probably not, at least at the beginning,'' he said. Traders making the switch now "have got to be humble. You've got to understand you're late to the game,'' Cahnman said.
How many of his ex-floor traders have washed out? None, he said, although some haven't reached the success they're used to. They'll learn, Cahnman said, but it may take a couple years.
The chief adjustment is exchanging some advantages for others. When Cahnman was a big-volume local, he could sidle up to brokers and get the first crack at orders, for while the pits use an open-auction format, it doesn't operate by equal opportunity. If bids and offers match, business gets done according to who trades the most, who's standing where, who's yelling the loudest.
None of that matters on the screen. Cahnman's order competes with others, regardless of size. The computer doesn't care about his reputation.
But technology sends more information his way and lets him move money between markets. He can spread futures on the 30-year bond against the two-year note. He can buy futures and sell the cash market. He can move money from market to market, whether it's the Board of Trade, Merc, the BrokerTec network and Eurex, a Frankfurt exchange that plans on competing head-on with the Board of Trade in U.S. Treasury contracts starting next year.
"I can trade multiple markets. How could I keep track of all this when I'm standing in a pit? It would be impossible,'' he said. On a given day, he said he might engage in 2,000 to 3,000 "round turns'' in the futures market, buying something and selling something else.
That's less than what he managed on the floor, but he can make electronic trades count for more. "No one's pressing me to do anything'' on the computers, he said.
Cahnman said he realized his days in the pits were numbered in 1997, when the Board of Trade opened a new, much larger floor. Standing in what seemed like an arena, he could no longer read the prices flashed on the boards along the walls. He also knew that when it came to technology, the software for trading would only get better.
He said the advantages now tilt strongly toward electronics, and he expects the floor's days are numbered. All-electronic Eurex, he said, is taking on the Board of Trade because it is "a sitting duck'' on costs.
"Eurex has $25 million in operating costs. The CBOT has 10 times that,'' said Cahnman, a former Board of Trade director. "The economics are totally against them. It's too expensive to run two platforms [the pits and a computer network], especially when one is obsolete,'' he said.
Being a Chicago partisan, he hopes the CBOT meets the Eurex challenge. But he suspects the exchange will have to lay aside political concerns about keeping the floors alive.
In the meantime, his computer calls. He lavishes attention on the monitors almost all of his work hours, and even has a terminal at his bedside, with his wife having learned to sleep through midnight reallocation of assets.
It might strike some as a depressing way to make money, but it fires Cahnman's competitive instincts. "I find this fascinating. Mentally, I feel like I'm 25 years old.''
Another round of applause. "This is a golden age,'' he said. |
