REAL WORLD
The Life Of The Floor Traders
Step Up To Trade
At The NYMEXby Victoria Woolley
How do you get to be a floor trader at the New York Mercantile Exchange? Like Broadway, it's practice, practice, practice.
Ever wonder what the training process is for new options traders, how their personal trading strategies evolve, and what the differences are between the various broker-traders at the New York Mercantile Exchange (NYMEX), the world's largest commodity futures exchange?
I spoke with some traders from the NYMEX last summer. We talked about the different types of broker-traders, what "trader boot camp" is, and what systems and formulas they use.
THE TYPES
At the NYMEX, there are three types of broker-traders. The first is a broker who's employed by a company to execute customer orders. Since he or she does not hedge her own trades or need to strategize, he has little potential for the wildly fluctuating earnings earned by many traders. However, brokers have more financial security, as they are equipped with a set salary plus commission.
The second type is a loosely associated local, a professional who trades with his own money for his own account. That's not all there is to the job, but it's a commonly used term described at the NYMEX on-site museum. Michael Frenda is a local who has been trading for five years and shares office space and clerks with other locals in the same way that doctors or lawyers "hang a shingle" together, he explains. He negotiates the terms of his future percentage at the beginning of each year with his backer, who is willing to undertake a certain level of risk based on Frenda's performance over the previous year.
The third type is known as a market maker. Vincent Lanci, president and owner of Berard Capital Management, employs and trains a number of those. The difference between locals and market makers is that the latter are better capitalized and financed, which enables them to trade larger. Lanci trains novice employees who want to become market makers and teaches them his personal trading methodology. "The most common and important thing for [novices] to learn about is volatility," he explains. "And there are other more offbeat risks we teach them how to use. Basically, we train them, put them in the ring, wind them up, and let them run on their own."
...Continued in the February 2002 issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the February 2002 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2002, Technical Analysis, Inc.
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