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CNBC Guest Post: The Risks of Killing the CME Pits

Posted on February 8th, 2015 by Erica

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If you ask anyone who ever set foot on the floor of the New York Mercantile Exchange, they’ll tell you it was a place unlike any other. The screaming and yelling, the energy, the epic fights and the epic friendships. While we all competed against each other on a daily basis, we also had each other’s backs. Fortunes were made one day and lost the next, then made again. When the opening bell rang, it was like being in the Super Bowl every day.

I began as a runner on the CME Group floor in 1986. I was fresh out of Syracuse University and making $3.75 an hour. The education and experience was life-changing. When I moved back to New York, I traded gold and then crude oil in NYMEX’s crude oil pit. It was just after the Gulf War and oil was going crazy. So was the floor. Arms were swinging, bodies were flying and adrenaline was raging. I’d never seen anything like it and probably never will.

While the CME Group announcement that they will be closing the pits July is hard for all of us to take, it’s only the final of many nails in the coffin that began in 2006. That was when the NYMEX board voted to allow electronically-traded physically-settled energy contracts to be traded side by side with the open-cry pit markets. Previously, NYMEX ACCESS offered electronic trading but it was only available after-hours. Before this, the only time the electronic market was open during the day was a few days after the Sept. 11 attacks – NYMEX needed to settle the markets before the weekend.

I voted against electronic trading for a variety of reasons, including my concern that the market conditions were moving faster than the learning curve of the Commodity Futures Trading Commission and the regulators, who didn’t understand the new markets they were trying to enforce.

I remember when someone on the board said it would help the floor by making the WTI floor and WTI electronic contracts fungible, I laughed and replied that this would kill the floor within six months. Sadly, I was correct. It happened in the first 18 months.

After NYMEX placed their contracts online, seat leases dropped rapidly from $25,000 to $1,000 a month. Everyone knew their time on the floor was now finite. CME’s news about closing the floor isn’t surprising to anyone and will only affect a handful of people. The decision to launch electronic trading in 2006 and 2007 had life-changing consequences for thousands of people, but many have since moved on.

So who has taken the place of the floor market makers?

High Frequency Trading (HFT) trading stepped in. While there has been extremely bad press about the HFT traders (I was one of the biggest haters of the people who took my place), even I have to acknowledge that without them, there wouldn’t be a market or liquidity to trade off of.

If you slow down HFT to a snail’s pace, you’d find they do exactly what the floor traders did. The floor traders fought for location, the best traders were often the fastest and we all took advantage of the markets in efficiency. It’s pretty much the same for HFT.

Most people aren’t aware how traders got their spots in the pit and just how valuable their position was. There were crucial advantages in standing on the top steps, standing next to certain brokers, having phones lines closer to the pit and seeing the TV’s on the floor. It was all about having information and order flow, which is what allows today’s top HFT to succeed.

The closing of the gold and crude oil pits could worsen the issue of painting the tape (manipulating prices by both buying and selling) by large trading houses to help their positions or hurt traders that can’t bully the market. This has happened and will be a major issue for the settlement of back months. The front month is a weighted average and shouldn’t be affected.

The open access that has been given to funds that never traded energy or only traded as financial instruments has caused harm to the public on a supply and demand basis.

When the floor was open, access was limited, and used for hedging more then speculative trading. This latest massive selloff in energy proves the point that speculation is alive and well, and controlling the market. The world’s supply and demand didn’t change that drastically for a contract in crude when the front month came off over 40% in six weeks. This massive speculation is enabled by the ease of access to funds into the electronic market.

The days of trying to get across the floor and through the phone wires by doing limbo poses, of being so tight in the pit that I had to throw my trading sheets over my head behind me for my clerk to figure out my position and have him try to stick his arm back in the pit to give it to me, feeling the rush and power of being a floor trader – these days are long gone.

Long gone but not forgotten. Even when all we hear now are the clicks of the keyboard and funky sounds announcing a trade has gone off, we can always look back and remembers how great is was. And if you ask any of us if we missed it, we’d reply “EVERY DAY!!”

Trading Tip #3 – When You Hear the Word “Hope”

Posted on November 5th, 2014 by Erica

Trading Tip #3 – When You Hear the Word “Hope”

UntitledTake if from me – THERE IS NO HOPE IN TRADING. I tell this to every one of my executive coaching clients. If you keep thinking, “I hope it goes up” or “I hope it goes down,” then get out NOW. It’s not working. Do yourself a favor. Get flat and take another look at the market. Hope is on a date with an old friend of mine and trust me, it is not going well.

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Trading Tip #7 – Never Trade in Pain

Posted on October 27th, 2014 by David Greenberg

Trading Tip #7 Never Trade in Pain

This trading tip is meant more for the day traders and people who Untitled trade their own money.  I understand the traders  that trade for banks or funds are probably not going to be able to walk in their boss’ office and say “I’m not in the mood to trade today” or “I’m in pain today, and I think it’s better for me to stay flat for the day.”

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Trading Tip #4 – Being Able to Admit When You’re Wrong

Posted on October 15th, 2014 by David Greenberg

Trading Tip #4 – Being Able to Admit When You’re  Wrong

Untitled I remember the last conversation with my ex-wife just before we started the divorce. I sat her down, looked into her eyes and I said, “I’ve spoken to all the mathematicians, and it is theoretically impossible for me to be wrong every time.”

As a trader, one thing I know I am good at and have no issues with is admitting when I’m wrong and then changing direction quickly. It is an essential quality for being successful. Read more on “Trading Tip #4 – Being Able to Admit When You’re Wrong” »

Trading Tip #8 – Recovering After Getting Your Butt Kicked.

Posted on October 14th, 2014 by David Greenberg

Trading Tip #8 – Recovering After Getting Your Butt Kicked.

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The day after getting your butt kicked can be one of the most important trading days of your career. I am not talking about the normal, or slightly above normal, butt kicking. I am talking about one of those days that you just got hammered for whatever reason. Maybe you were stubborn, thinking “the market has to come back.” Maybe you added to a bad position and it just kept going against you. Maybe you said, “I Hope” and she wasn’t around to hear you scream her name. Or maybe, like me, you got caught on the wrong side of a world news event driven market, and the market gapped against you. Read more on “Trading Tip #8 – Recovering After Getting Your Butt Kicked.” »

David Greenberg Joins 9/11 Tribute Center Board of Directors

Posted on October 6th, 2014 by Erica

9/11 Tribute Center Press Release:

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(New York, NY – October 3, 2014)  David Greenberg joins the Board of Directors of the 9/11 Tribute Center and September 11th Families Association. After Mr. Greenberg lost a number of friends and colleagues on 9/11, he was back to work on 9/13 at the New York Mercantile Exchange. As a member of the NYMEX Board, he was able to help the exchange get back into operation in one week. It was the only building in the WTC area to be open during the first few months. NYMEX brought over 1,000 people in by ferry to operate and keep the market open. Mr. Greenberg volunteers at the 9/11 Tribute Center to remember his lost friends. In his spare time, he gives motivational talks to young people at major universities on leadership and personal money management.

In a statement today, Mr. Greenberg said, “My service on the board is to honor my friends, members and staff from the New York Mercantile Exchange and the New York Board of Trade who were lost and for all who helped in the recovery and rebuilding effort.”

Mr. Greenberg, founder of Greenberg Capital and former President of Sterling Commodities LLC, has over 25 years of experience in private investments, finance and global markets. He offers leadership, financial, and corporate and personal money management services to companies, academic institutions, private clients and professional sports organizations. Throughout his career, Mr. Greenberg has appeared on numerous media outlets including CNN, Fox Business News, Bloomberg and CNBC. He is frequently interviewed on world market events.

Mr. Greenberg has been a guest lecturer for the finance program at West Point Military Academy, Columbia Business School, the Jack Welch Experience at Sacred Heart University, the Whitman School of Management at Syracuse University and Hofstra University. In addition, he has taught a course on the transition to electronic trading at the Museum of American Finance. Mr. Greenberg is currently lecturing on personal money management, focusing on topics such as “Living Below Your Personal Financial Radar” and “The Art of Saving to Ensure a Sound Financial Future for You and Your Family.”

 

About the 9/11Tribute Center

The 9/11 Tribute Center is a visitor center opened in 2006 by the September 11th Families Association, a not-for-profit corporation. 9/11 Tribute Center offers visitors to the World Trade Center a place where they can connect with people from the 9/11 community: family members of lost loved ones, survivors, first responders and people who live and work in Lower Manhattan. Through walking tours, exhibits and programs, the 9/11 Tribute Center offers “Person to Person History,” linking visitors who want to understand and appreciate the historic events with those who experienced them. Visitors learn factual information about the events, the identity of 2,973 people killed in the attacks, the unprecedented rescue and recovery operations and the tremendous spirit of support and generosity that arose after the attacks. Personal gallery and walking tour experiences are available for student and group visits. Learn more about 9/11 Tribute Center programs, visit www.tributewtc.org.

9/11 – A Time to Remember, A Time to Help

Posted on September 10th, 2014 by admin

911_rememberAs the news coverage fades out please remember and please help those affected by September 11. I was in 9/11 and lost so many friends and co-workers, and as an uncle of a retired Army Ranger who is in chronic pain from injuries obtained in action, I am asking you to support a great cause.

The 3rd Annual Pike Hike to Ground Zero will take place on Saturday, September 14. The 17-mile hike will begin in Fort Lee, New Jersey and end at the Ground Zero Memorial.

This group of people was too young to feel the full impact of that tragic day as well as the pain felt from the troops coming back, but they’ve stepped out over the past few years to create a fundraising event to remember the victims of 9/11 and help wounded solders.

Please take a moment and look at this video and hit the link to the website. This is a great cause and close to the heart of all Americans.  No matter how small, please take the time to donate and show your support.

To donate please click here: https://support.woundedwarriorproject.org/group-fundraising/PikeHike2013

CFTC Leaders Jump Ship: Time for Some Real Change

Posted on November 15th, 2013 by David Greenberg

DSC_2006Once again there are a handful of open positions at the Commodities Futures Trading Commission (CFTC). First Jill Sommers, then Gary Gensler and now Bart Chilton are leaving. This agency’s mandate is to regulate commodity futures and options markets in the United States. Unfortunately, it is being run by people who have never traded commodities, run a clearinghouse for commodities or sat on an exchange board.

There is something inherently wrong with this thought process. It would be like me sitting on the medical practices board. Although I am sure that all the people on the CFTC have IRAs and other brokerage accounts, that doesn’t make them experts, just like having health issues doesn’t put me in a position to regulate doctors.

What does this mean when people with so little trading experience run an agency? Simply a replay of the past. Clearinghouses and financial services firms such as Refco, MGF and PFG have collapsed as a result of faulty oversight by the very agency pledged to oversee them. It will happen again.

Read more on “CFTC Leaders Jump Ship: Time for Some Real Change” »

Is Washington Finally Addressing Electronic Trading?

Posted on August 30th, 2013 by admin

On August 23, the Wall Street Journal wrote an article titled “Regulator Moves on Trading.” While it was very well written, it didn’t give any background information on why the CFTC is so behind on addressing electronic trading issues.

The CFTC has a long history of being late to the party on a majority of major issues, while being reactionary on issues that have cost hundreds of millions to the trading community. Unfortunately, in Washington many fingers are pointed and no one ever seems to be held accountable.

In 2012, CFTC Commissioner Scott O’Malia gave a speech at New York University’s Law School. He said that he was putting together a committee to learn about high frequency trading (HFT) and that until he had time to learn about it he could not comment on the good and bad points. He also acknowledged that commission oversight had not kept pace with electronic trading.

I gave him a ride up to Penn Station. During our trip, I told him that I was happy he was looking into this but asked why the CFTC was so late to the party, considering the flash crash had happened a few years before. He didn’t have an answer. This was also during the MF Global meltdown, which was another major failure of the CFTC. The commission did not handle this in an efficient way, and cost many traders their livelihood, which is an entirely different topic that I would be happy to speak about.
Read more on “Is Washington Finally Addressing Electronic Trading?” »

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Interns: What Did They Really Learn this Summer?

Posted on August 9th, 2013 by admin

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Skybridge Capital’s Intern Class of 2013

Since June, we have all either seen them, had them or worked alongside them. Interns, fresh from college and looking to gain experience and networking connections in the big city. But what did they really learn this summer?

My son and stepdaughter both interned this summer. My son’s internship started a few months ago, when his employer sent him books to study. He ended up reading four books on finance and woke up early to read five newspapers before commuting on the 6:50 train to New York. His paid internship was in the financial markets.

On the other hand, my stepdaughter’s public relations internship was unpaid (yes, unpaid. This was an intriguing topic between the two of them at  the dinner table). She worked every day from 9 to 6 for a firm that was energetic and interesting to say the least.
Read more on “Interns: What Did They Really Learn this Summer?” »

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