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One Market or Several?

Why do traders bail out of some markets to go to other contracts? Wouldn't it be better to learn one market and stick with it?

The main reason traders bail out of a market is that they are not making any money. This has happened in various ways. In the currencies in the 1990s, for instance, lot sizes became too big for the market movers to fade (take the opposite side). The big players did not want to fade the trades of the smaller locals in the pit. In some instances, the smaller locals were standing around with their hands in their pockets for lack of something to do. Some locals were forced into conglomerates that took away their freedom to trade as they pleased. If they wanted to stay in the pit, they had to team up with other traders and together, as a group, they would fade the large orders that were/are coming into the pit. This meant that the biggest of the small traders would fade let's say a 500-lot order. He would then parcel out all the contracts he didn't want to the smaller traders: "Okay, you take 50, and you take 20, and you take 10, and you take 30," etc.

If you didn't take what was parceled out to you, you would never again trade in the pit. It was either take it, or get out of the pit. No one would trade with you if you refused even one segment that was parceled out to you. That's not exactly a free market type of situation. If you lost, then the "boss" trader would try to make it up to you, but this was seldom possible. In other words, your own trades depended entirely on someone else's judgment and ability to trade. The end result was the beginning of Forex as a major venue for currency traders. What happened then is that many currency traders moved to other markets.

What are the pit traders doing now that the best markets have moved to electronic trading? Just as with anything else, if you can't make money where you are, you move on. Some are moving on to other careers. Others are trying for success through trading from a screen. But here's a startling statistic: "Ninety percent of pit traders fail at trading from a screen."

So why does anyone leave one market for another? You leave when you can no longer make money. In 2003 I stopped trading the e-mini S&P 500. I was unable to make money there. That is not to say that others can't make money there, but for the way I like to trade, I had to move to other markets, and I found plenty of other markets in which to trade. To some extent, I had to change my trading style in order to succeed, but the changes were minor. I went from trading only the S&P 500 in open outcry to trading several markets other markets electronically. Being eclectic, I go where I am able to succeed.


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Tuesday, 05 July 2022

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.