This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader
I get questions often about what it is like to work on a trading floor of a busy firm. The most popular question is:
“What is a trading floor like on a day when a big market swing occurs?”
The answer is that it depends on the market mood and why it is moving so quickly. For starters, the market has to actually move a particular distance. A trading floor is usually at its most boring when the market open up or a down a lot and just hovers at a particular level all day. When the market is actually moving a number of points, the office environment can become very exciting on its own. Most market moves between 150 and 250 points create a very loud trading office. Sometimes the volume rises because people are making money, sometimes because they are losing money, and sometime just out of an abundance of activity to follow and to trade off of. When the market moves that much, most traders feel a bit of energy and this can lead to louder voices, more chatter and more phones will also be ringing. A move of 250 to 350 has the same level of activity but usually louder voices and more trader-to-trader interaction as traders try to get multiple opinions on what is occurring. A market move over 250 points is usually from a big news item and traders want to try to catch as many news up dates and analysis as they can. Often traders need to rely on those around them for input when there is a lot going on. Most good, well-run, trading floors really show what they can do in this environment and often will stand out from the other trading floors where few people get along or work together well.
An office environment when the market that is up 400 or 500 points can often sound the same as one that is up about 300 points. On the downside however, that is rarely the case. Once a market begins to be down 400 points or more, the office actually gets quieter and quieter. There is still activity but the volume goes way down. During the crisis in 2008, I remember a down day of around 800 points and you could have heard a pin drop in the office. When a market falls to that extent, it is not a sector that is falling or a company with problems, it is a systematic problem causing a form of uncertainty in the capital markets overall. A drop of over 700 points at that time caused a trader to not think about the solvency of the company they want to short, but the solvency of the company they work for.