I have often read on this forum about successful floor traders who have great difficulties transitioning to become successful screen traders. I am puzzled. Some of these floor traders boast about consistent and enviable profits year in year out for more than a decade. Yet, they have problems transitioning to screen trading. Surely, with their years of successful trading, they should not have any problems with psychology and risk management. They should also have proven trading strategies given their past success. Why can't they succeed in screen trading? What is their edge on the floor that they have lost on the screen?

I am retail trader. So, what is obvious to people in the industry is not obvious to me.

hlpm 

Why can't they succeed in screen trading? What is their edge on the floor that they have lost on the screen?

Different games which require different skillsets.

This may help illustrate the point.

Never worked on the floor so this is only one possible trade example based on what I have picked up from reading around.

A lot of successful floor traders were just front running size. The same people traded in the pits every day so the pit traders recognised each other and knew which people placed orders for the large institutions. If they knew that when a certain person came in they tended to trade large with a run of orders then they could front run the order by just turning round and hitting a competitor with their own order before the large size started being placed (pits were loud and chaotic, that competitor might have not yet seen the 'size' getting ready to order). They could then trade the momentum and exit there own position once the large orders were finished being placed. It wouldn't be hard to work out whether the order was likely to be buying or selling based on the context of what was happening at the time and if wrong the nimble floor trader could probably scratch the trade.

Also in the pit there was no order book queue like you have with screen trading where your order joins the at the back of the queue in the book, you just offered what you had to sell for instance and somebody could take it off you straight away if they wanted it without you in effect having to wait for other orders in front of you to be filled first.

So for this front running example you could see when the large orders were about to come in (I understand in the pit trying to spoof by pretending you were about to place a trade so people were ready to trade against you, then deliberately not doing so was considered bad manners and not tolerated if somebody got a reputation for doing that), and you could also get your own orders filled very quickly without queuing.

there are many reasons that the floor to screen transition is difficult for many skilled people.

First, understand that floor traders were market makers that used to benefit from order flow. Consider that for may years the spread was quite wide. Wide spreads facilitated arbitrage. So the first point I'd make is that there was easy edge in the spread and that was provided all day long via order flow. Spreads narrowed on stocks and on options in a period where new exchanges and venues were popping up. The game changed dramatically and faster than many guys could transition.

Second, I'd ask...what is trading? How do you want to define that endeavor. The answer to that would guide the discussion...and there are many reasons. Today everyone is a directional speculator.

I'll be out for a week or two, but I think this could be an interesting thread. I hope it catches on.

Dan

I agree with @matthew28 and @wldman and the link @xplorer provided.

Obviously there were many really good floor traders, but in my experience many floor traders were profitable because of the advantages being in the pit gave them and not necessarily because they would good traders. So it's easy to see how they failed as soon as they lost those advantages. Similar advantages did/do exist in electronic markets (ie HFT) but it involves a completely different skill set (finance, math and programming). Finally I personally think some/a lot of what went on in the futures pits would have been classified as theft if it happened on the high street.

SMCJB 

Obviously there were many really good floor traders, but in my experience many floor traders were profitable because of the advantages being in the pit gave them and not necessarily because they would good traders. So it's easy to see how they failed as soon as they lost those advantages. Similar advantages did/do exist in electronic markets (ie HFT) but it involves a completely different skill set (finance, math and programming). Finally I personally think some/a lot of what went on in the futures pits would have been classified as theft if it happened on the high street.

I get the impression that the "theft" or edge that the floor traders had is front-running on the big institutional orders.

I'm sure there was some 'front running' going on, but doubt it was as common as everybody alledges. Leaning on a big order and getting a nod and wink from another broker are very different things.

On-floor vs Off-floor wasn't an uneven playing field, it was literally two different markets with different rules. The information advantage was significant, but it was also abused. If an off-market order came in, it would get filled immediately, nobody off the floor would even see it. But if somebody on the floor made a mistake, the trade would get broken and you would have no input. Floor traders also always got last look on everything. Every order that was executed immediately became a free option for the floor traders. They could work and trade whatever they wanted against it, knowing that if somebody else came in to take the other side, they would just take it in front of them. This would happen to me daily. A broker would call me and say something like "Dec, Red Dec 106 bid for 100", to which I might respond "I'll sell those" only to be told "When we went to sell them, the locals sold them in front of us.". There was also a lot of free money back then, with floor traders performing the function of a modern day matching engine. Jan/Feb 10/11, Feb/Mar 10/11 and Jan/Mar 22/24. Offer 23s in the Jan/Mar, get filled, buy the Jan/Feb and Feb/Mar at 11 each, pocket a tick.

@wldman I executed orders through the NYMEX and IPE floors from late '91 until their demise. To this day I have several very good friends that used to my brokers on the floors. Some are now OTC brokers and some upstairs traders. In the 10+ years I was working with the floors I got lots of excellent fills, and excellent service from the people I worked with. So it wasn't all bad. But every week, almost daily, something happened where I didn't get the fill I should have done, which cost me, or my firm money. Maybe in some of those cases I'm being unfair and maybe nobody was to blame, but in many of the cases I believe locals were the direct cause of my 'misfortune'.

I get it. I would listen to what crowd the noise was in, and look across the floor to see who was on what phone and how they were acting. Often when I'd look at our markets I could anticipate what might be coming and clear our book. Sometimes the DPM would tick our vol and sometimes the wouldn't as they had a position or a view that came from somewhere else.

Most of the forum does not understand what that means, so in the context of front running I have to just let it go.

The failure here IMO though is to seize on an opportunity to try to get better by asking questions, not throwing shade on people or a topic that almost nobody here understands.

Your comments are correct and consistent. Someone was implying that floor traders lost their edge (theft) because they could not front run. That is bullshit from someone that has no idea. Past that it further underscores why some guys don't bother to post anymore....there is nothing to gain from the discourse.