When you are trading on a Level III Terminal, you can see the full order book and market makers. If you were trying to fill an order, you had to be cognizant of the big boys, who could push prices around easy. When GSCO or MLCO were bidding size, if you were a buyer, it meant you were going to pay up, and if you had stock for sale you got the hell out of the way. You had a price range on most orders and squeezing an extra teeny (1/16teenth of a cent) was a good thing.

Back in the days when I was sitting on a trading desk, I was amused by days such as these. Volumes were much lower than the rest of the year, institutional activity was light, and anomalies existed everywhere.

The day before and after Thanksgiving was like that, as was July Fourth week and President’s Week in February (You mean some people could afford to leave work for a week and  go on vacation?)

But the mother of all rookie trading sessions was the week between Xmas and New Year’s Day. Anyone worth a level 3 was gone, and the rookie kids (like me) left manning the terminals were given strict orders: Don’t Screw Up.

That was good advice, and most guys tried to follow it.  Back then, I had very little trading authority and not a lot of discretion. I was more than a clerk, less than a trader.

I was curious and experimental, and could not help but notice that it didn’t take much to move a Goldman or a Merrill out of the way. So that’s what I occasionally did. It was fun, so long as I did not lose money. We all went home (mostly) flat each night — no one wanted to have to explain it to the boss on January 2nd why we had a huge loss.

I suspect the action we are seeing today is similar — the kids are running the show, and no one wants to take a hit. Josh called this week Garbage Time, and I agree. I also imagine some of the big long only full invested shops (i.e., Mutual Funds, Pensions, etc.) have a standard practice for the traders that states “Any day X happens, do Y.”

When we sold off over 1% yesterday on essentially no news, these buy programs may have kicked in. If cash is sitting around, but the PM and the fam are lying on a beach, that’s how it happens. Hence, yesterday’s ugliness and reversal.

Be cautious about reading too much into the action this week or Monday. A full reboot awaits us all next Wednesday, January 2nd.

Category: Markets, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “Rookies Manning the Terminals”

  1. b_thunder says:

    What a perfect opportunity for the algos to stage a headline-driven pre-fiscal cliff flash crash. Algos don’t go on vacation during the Christmas week.

  2. Crunchy Breaded Fish Sticks says:

    Barry,

    A few weeks ago you discussed why you thought the cyclical bull market had ended, but that you had not added inverse ETFs yet. Are you waiting until after this Fiscal Cliff news?

    Thanks, and have a happy new year.

  3. Back in October, I mentioned why “I thought we may be coming to an end of the cyclical bull market that began in March 2009″ — but that “may” was a loaded qualifier, not a declarative sentence.

    We ended up putting most of that money back to work by December

    So far, the downside has been modest, and the market resilient. The jury is still out as to the end of the cyclical bull . . .

  4. znmeb says:

    I hope that “reboot” includes an announcement on January 3, 2013 that Harry Reid, John Boehner, Mitch McConnell and Nancy Pelosi have turned in their resignations, effective immediately.

  5. DonQuixote says:

    I’ll bet the traders are out today waxing up the rails on their sleds so they can go faster down the fiscal cliff and stay ahead of the crowd. In the meantime the guys back at the office are getting numb because they hear fiscal cliff 200 times per hour and if they do a google search we’re over 1.1B hits. My conclusion is everyone paying attention OR NOT is getting mushy brained over this nonsense and completely missing “THE BIG PICTURE”