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Rookies Manning the Terminals

Posted By Barry Ritholtz On December 28, 2012 @ 7:56 am In Markets,Trading | Comments Disabled

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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 [2], 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.


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[2] Garbage Time: http://www.thereformedbroker.com/2012/12/25/garbage-time/

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