Walking through the streets of London EC3 you may notice a growing presence of 30 somethings. Not pinstriped brokers or chino clad merchant bankers frequenting the coffee houses on dress down day, but designer jeaned young men sporting trainers and five o’clock shadows. ‘Builders’ I can here you muttering – no, they are a growing breed of trading professionals known as arcade traders.
So why have we not heard of them before? The answer is quite simple. These traders are low profile, silent but aggressive and masters in the provision of liquidity. Every day, they enter the square mile before all others and leave quietly as the markets close. But their background could not have been more different. Many cut their teeth in the 80’s and 90’s as pit traders on London’s open outcry futures and commodity exchanges.
As technology transformed their coloured jacket, chaotic workplace into electronic serenity, many of these high-profile traders gently melted into obscurity.
Hence trading on computers finally took over in the late 1990s. With this astonishing transition, these open outcry traders have had to adjust to electronic trading, which is a far cry from the aggressive hustle and bustle of the futures pit; unsurprisingly many have failed and have quietly slid back to their home counties to take up less stressful pursuits.
Those surviving arcade traders are true professionals; both silent and aggressive, they are specialists in their field. Although unknown, they are an essential ingredient in today’s financial markets.
Whether it be banks wanting to unwind large positions or private investors requiring a consistent two way price, it is these arcade professionals who predominantly supply the market. They are undoubtedly ‘the liquidity providers’ and without liquidity, an efficient market fails to exist.
The arcade trader is either a self financed individual, often with years of experience, or a graduate fresh from college with no bad habits. The latter, who initially may be financed by the arcade, can be moulded, taught a strategy and told to execute it like a machine. Some arcades have rows of graduates executing different strategies for trading the markets, some succeeding, many failing. In this Darwinian world, only the fittest, most disciplined survive.
Trading arcades are not a free ticket for those wanting to trade. All prospects are sent through rigorous training and initiation tests. For example, all new recruits may be asked to play various video games to test their ability to react to certain commands and to test their awareness of what is happening on their screens. These two qualities, awareness and ability to react are two of the foundation skills of any successful trader.
So in what environment do these silent traders operate? Well, today’s arcades are state of the art dealing floors, with the best in dealing software and information systems, catering for what can be hundreds of self-financed trading professionals. Orders can leave a trader’s computer, get submitted to a futures exchange in Chicago, executed and confirmation returned, all within a quarter of a second! This speed of execution is essential when these professionals are sometimes executing hundreds of trades a day.
The silent traders will trade anything that moves from equities to commodities to currencies to bonds. Many traders specialise by just trading one instrument, day in day out for years on end, allowing them to ‘get to know’ the instrument so well that it becomes one of the family. They know how it behaves, they understand its moods – ultimately they live it!
Succeeding in a trading arcade is all about having the edge; some traders consult sports psychologists, who are able to teach them the discipline required to be a world champion athlete, some may learn the art of Zen. Whatever works for one trader, may not work for another. What is required in all successful traders is a strategy and the discipline to follow it – easier said than done, I can promise you.
So what is the future of the trading arcade? I believe the trading arcade is the future. Although broadly undiscovered, these dens of liquidity bridge the gap between private individuals and investment banks; without them markets would fail and in some cases cease to exist. Trading arcades are emerging everywhere to cater for the hungry trader wanting to trade his own capital within the professional infrastructure normally associated with institutional dealing floors.
And not just in the UK…. with more and more of these professional traders emigrating to sunnier climes, where the best in trading technology is readily available, coupled with a more palatable tax regime !
Simon Brown,
Managing Director
ProSpreads
www.prospreads.com
