12-12-2011 08:31 PM
On Monday, we learned that the CME Group will begin to settle the farm markets electronically vs. in the pits.
Is this the final "nail in the coffin" for the grain floor? What is your opinion on this? I would love to see folks weigh in on this. Perhaps we could get our resident floor trader Scott Shellady to offer up what he has heard on the floor today.
12-12-2011 08:42 PM
As someone that uses this futures market, do you care if you get a floor settlement or an electronic price? I understand the two prices are very close. However, do you see this affecting your opinion of how the markets will operate in the future, with less human interaction?
12-12-2011 09:09 PM
Human interaction is not always a virtue for the small trader in a volume driven business. I have been with trade companies that had a hard time filling and others that could get me fills late. Human interaction always has the "who you know" and "buddy buddy" elements.
Problem is we may not have seen all the problems of electronic trading yet. And can the CME or anyone else police the system??
12-12-2011 09:21 PM
In the late 80's I was in the corn pit and I saw things that were not right. For example, orders filled after the 1:15 p.m. bell. Traders formed alliances and would not trade with other traders. Or broker's would fill customer orders with their friends and relatives. Was that a free market? Hec, NO.
I know I have been out of the pit for a very long time and things have progressed, I hope from handwritten trading cards to trader's electronic pads. My feelings are that everyone should be on the same playing field. Electronic is the way to go.
12-12-2011 09:39 PM
thanks for floor perspective.
Human interaction is very flawed. I wasted several $ and lots of time trying to find the right brokerage connections for hedging. The kind of advice and care I wanted was with those who did not want to deal with smaller accounts.
Size and volume buy quality service in human interaction.....Will that change with electronic trade?? In your opinion.
12-13-2011 05:43 AM
The big traders will always get top quality service with all the FLUFF (Handholding, Reports, lunches & Dinners, Telephone calls on new information...etc.) from their Brokerage firms or FCMs. But in the end, moving everything to an electronic platform minimizes the preferential treatment from someone who trades one lots and someone who trades 1,000 lots.
On the flip side, how easy is it for the Big Traders to bring the market up and down with a push of a button. Especially, if they planned out the day to bring the market up or down at a predefined time
Before in the corn pit, we all saw when a big order came in, just by the reaction of the floor broker. How things have changed.
With the electronic platform the markets move faster, super fast.
12-13-2011 05:59 AM
E trading has benefits, as well as negatives.
For example, we know that some of the larger firms have supercomputers located very close to the exchange computers so that they can front run orders in nano-seconds. I can't even understand it, but e trading means the faster your computer, the more you can take from others risk free. The exchanges let them trade for free basically (hardly a level playing field for the real user.)
We also know that e systems have massive flaws when it comes to volatility. Palouser wisely points out the added costs this brings.
It may not have occurred yet, but it is pretty easy to sabotage an all e system. If kids can hack the pentagon it should be easy to hack a trading system with its open architecture.
The CME just completed a massive fraud on its user base during the MF Global debacle. Their role as an exchange was to insure you against counter-party risk. They just decided not too...to the detriment of millions of customers. Pathetic.
Basis has become almost unpredictable...meaning the futures are not converging properly and therefore the whole justification for hedging is less valid.
There is ALLOT wrong with the current system. This is like putting out the fire in the outhouse while you let the house burn down.
12-13-2011 01:36 PM
Normally, I always use the electronic market. However, I don't think we'll ever be able to get away from the pit trading. Once upon a time I thought we would, but that was before thinking about spreads and such. I don't know that a computer will ever to be able to fully put limit spread orders in place. I think a human broker on the floor will have to do this. I guess I don't really care which market is used for the settle. It would appear to me that the one with the most volume should be used for the settle which normally is the electronic platform.
Here's a question for you guys on the floor: how many jobs have been lost in the pits since the electronic platform first arrived?