Stock Broker days

My background and work experience is in computers. I worked for IBM World Trade in Budapest, Hungary. My entry to trading and learning about the markets started out in 1986. I was living in Seattle at the time and worked at Microsoft, as a contract programmer. One day, soaking in the hot tub at my health club - it dawned on me. I will leave computers and become a stockbroker! I knew nothing about finance and the markets. Buying and selling and risking your own, or client, funds seemed like an intriguing vocation.

I took a class, got sponsored from a local firm and passed my series 7. I must say, the world of finance and economics grew on me, and I felt better and better about my new career. I did not realize yet that brokers are salesmen - nothing more, nothing less. They are 'fed' firm recommendations and quotas. They must generate commission dollars or they won't eat next month. I was a broker for 2 years, worked for Washington Mutual, and was in business during the 1987 crash.

Futures Broker

Well, the crash in 1987 pretty much killed my business as a stockbroker. No one had any funds to invest, or they were simply shell shocked after the crash. Some clients were bottom pickers, and later they were handsomely rewarded, as the market quickly came back. Lacking commission dollars, or perhaps realizing that to succeed as a stock-broker I must be a very persuasive person with loose ethics and a quick tongue - I started to look elsewhere. I bought a book from a commodities trader turned author. I can't recall the title. He was a disciple of trend following, made a few bucks in sugar, and retired to Europe. His name was Stanley Kroll. All I remember from his book is that that he was onto something. He was not a scalper or day-trader. "To make money, one must be patient" he wrote.

Too bad for me I did not immediately follow his footsteps. I managed to get a job as a futures broker with Refco, in Seattle. I gained a few clients and traded their funds during a huge soybean drought. That summer (1988) was pretty nice to me, and I was exclusively trading beans for my clients. Since I had discretion on some of their trades, we did OK. Futures move too quickly to spend time to call and cajole anyone onto a position - by the time it's done, the position and the idea lost its meaning and value. My style of trading was quick moves, swing trade the beans for days, and take profits early. The market was rather choppy, despite the drought. Since we had no serious inflation, we never had a chance to see beans over $8-8.50 dollars per bushel for any extended period. For days, we had limit up days and then a few limit down to follow. I was trading on adrenaline and the seat of my pants. I was hooked.

Refco later decided to close the Seattle office and sell the clients to some introducing broker. I decided to move on. Losing my trading virginity, I was quickly forgetting my days as a boring stockbroker and had futures in my dreamy eyes. We thought honesty to be the best advice at Refco, took small accounts but were trained that for anyone have a serious shot at futures on the retail side, they must have risk funds of $50,000+.

CBOT

IBM in Austin, TX hired me as a computer software contractor. I felt this work would allow me to trade on my own, on the side.

When I finished work in Austin (1991), I moved to Chicago, a Mecca to a fledging futures trader like me. After some legwork and another contract at Siemens/Nixdorf, I finally realized my dream to become a member of both the Mid-America Commodities Exchange and later the Chicago Board of Trade. I started out as a scalper. This carried the least amount of risk, but required the most work. There is no need to know a great deal on fundamentals or even market technical factors, as a scalper trades on instinct and proper tape reading. Some make use of point and figure charts or some market data available for members to gauge overbought and oversold conditions..

After some legwork and another contract at Siemens/Nixdorf, I finally got my dream and become a member of both the Mid-America Commodities Exchange, and later the Chicago Board of Trade.

Life as a local

Locals depend on the floor broker like a babe on her mother's bosom. They seldom trade among each other and prefer a hedger or retail trade to take the other side of. They try to quickly off-load the trade with a few ticks of profit. Do that 20-100 times a trading session, and you make a very decent living. No rocket science, either. After couple of years, I realized that trading in the pits at the CBOT required a type-A personality that I lacked. Due to my computer and math background I started to develop automated trading systems for some friends and associates. The contacts and friendships I made in Chicago will last a lifetime. It was a major step in my education and self-discovery as a trader.

Day-trading the New Casino for the Masses

Technology has propelled trading and markets to a new level in the late 1990's. I decided to move to New York City and trade the NYFE (from upstairs). I moved to Hoboken, New Jersey. Rented an apartment in a hi-rise building overlooking downtown Manhattan and set about finding out how to progress onward. As it turned out being a local in the New York futures pits is more expensive than in Chicago. Also, the first failed attempt to blow up the World Trade Center, home of the New York Futures Exchange, must have had something to do with my decision NOT to become a local in New York. By this time, I have realized that trading as a scalper is decidedly not the best way to make money in any market.

I slowly began to realize what attracted me to my coach Stanley Kroll's book in the first place. It was the honesty and inherent truth spoken. This is what differentiates gamblers from professionals. Most scalpers later become position traders or perish. I learned that in Chicago.

Soon after my decision to become an upstairs trader, I got a call from ETG. They just started a day-trading firm in Manhattan and invited me to join them. After some reluctance (their fees were $1,500 per month), I decided to give it a try. My first instinct was not to trade with such a horrendous overhead. Bob Kanter, president of ETG, convinced me to joint them anyway.

This business with ETG was before decimalization and the upsurge of NASDAQ. Kanter knew the specialist system (being an ex-Amex specialist helped), and he trained his traders to be short-term scalpers. We were able to use the firm's capital and trade on the computer, just like pros. We had tremendous fun. This was before day-trading and SOES bandits got a bad name. We were mini-specialists. The firm taught us to specialize in a few select stocks and only trade those. Learn the specialist system and how they think. On average, most specialists are not great traders, because they don't have to be. They have the book.

Around this time I started top realize my folly as a trader. I over-traded. I craved the action and the small profits I took. On week-ends I had trading withdrawal. My over-trading was noticeable in the volume I traded and commissions I generated for the firm. I however never scored big. Small bits here and there, but mostly I scalped hard and then many washed trades for which I still had to pay commissions. Looking back now, the large desk-fee I paid would have been enough to stop anyone from trading at ETG.

Escaping New York

With current technology, trading should be conducted in a paradise, on some beach somewhere, not in New York City. Don't get me wrong, I love NYC in a way - her museums, culture, resilient people - for whom I always had grudging admiration as the smartest in the country. I got a contract job at Robertson Stevens in San Francisco, to help build their new proprietary trading platform. It was a great job, and it opened my eyes to many exhilarating new concepts. I never knew the institutional side of the business. Never been on a real upstairs trading floor.

Meanwhile, I had learned the concepts of Turtle Trading. Never gave up on one day becoming a successful trader, but knew I needed to do things differently. During my California days, I worked non-stop. Since I was doing contract work off and on with trading companies in SF, I could not trade full time and never day-traded much. Having a job forced me to look at the markets with a longer time frame.

I began to swing trade and learned the secret of risk reward ratio. Of course, most people know about that, but it is hard to measure and quantify a reward. Most people can quantify a risk in relation to their risk capital. But when does one get out of a profitable trade? Luckily, we had a meaningful trend in those days, and the trend was up. I was very lucky, trading the largest technology bubble in history. I could pretty much ride it up and ride it down. It was a real trend for a fledging trend-follower. The turtles were right. Rich Dennis was right and Jessie Livermore was right.