Originally appeared in September 2010
I have been extremely fortunate that many traders have taken the time to answer questions and provide guidance. It has helped me to advance as a person and a trader. Jeffrey Carter of pointsandfigures.com agreed to talk with me about markets and we also talked about women, food, and college football. He has been a trader since 1988, a former member of the CME Board of Directors, graduate of University of Illinois and holds an MBA from the University of Chicago, co-founder of Hyde Park Angels, trustee of National WWII museum, blogger as part of the StockTwits Network, husband, and father of two.
I first met him at a stocktwits.com event and later at a tweet up. Even though I read his blog often, I was surprised. He can speak intelligently on many different topics. He does not try to dominate a conversation although he could. He listens as much or more than he talks. A trait that no doubt has helped him as a trader. I was taken back at how in the moment he was and how he and his mind were in the same place. It is a skill that many traders do not have, including me. In our limited contact he has always been nice and genuine.
Questions are in bold and my comments are in italics.
What is/are the biggest changes to the market over your 20+ years?
Biggest change is easy, computerized trade. The other external changes that forced changes on markets were for-profit exchanges, public investment banks, and more regulation
Where or who do you think has an advantage in the market today?
HFT traders. No question. Co-location, speed and lots of money. Industry is consolidating around them. While volume has grown, breadth has not.
So it is basically the Pit but not localized?
It’s a virtual pit. But the HFT guys are standing on the top step. Actually if you look at some markets like coffee, they functioned better before computerized trade.
HFT are brokers of today?
HFT guys are the brokers/locals of yesteryear. Some have access to order flow, some don’t. Depends on the market, Citidel buys order flow from E-trade. Huge advantage for them, in futures it’s slightly different, but the HFT guys see the book before you b/c of co-location. Slanted playing field.
What is the best piece of advice do you have a trader?
Discipline. I think for a trader like myself, the days of big money are over. Make money, turn off your screen. There is a lot of jiggle to the market on opens and closes, you can make money then, after that forget it. Unless you have a lot of money, you can position trade then don’t get too greedy. 2009 and 2010, markets haven’t trended at all like they did in 2008. Bouncy, very tough to trade, so you have to adapt. I don’t know of too many people making consistent money in these markets. The other thing is adapt, if the bond trade sucks, find something else. Plenty of stuff to trade, including Singapore or trade overnight markets when the HFT guys turn off their machines.
Do you think the lack of trend will decrease the number of traders or will they begin to adapt?
Lack of trend is a short term thing. Computerization will shrink the trader pool. We originally thought it would make it bigger however, b/c the playing field is not level, people won’t enter or will soon leave after entering. I see more funds, less individual traders. You won’t see the old local like you used to.
Do you think it was a mistake for the CME to shift the advantage from membership to retail, in terms of accessibility and commission breaks?
CME shifted from one class of members to another. They were correctly driven by profits. If I was CME, I would have done a similar strategy. However, they need to solve the co-location thing. There is a lot less froth in the market, it has become more efficient, markets don’t trade to a price, they just go there, then trade. This seems like increased volatility, but it’s just a rebalancing of risk reward, in the old days you could get out of a loser. Now you can’t. Market is merciless.
What advice were you given that took you the longest to learn? Why?
One huge mistake I made was not taking more risk when I was trading. Blew some opportunities. Another was to think of myself in one form or another. I was an interest rate trader, so I didn’t go to look at Hogs or SPOOS when there was big money to be made there. Now, it’s possible to assume a lot of risk-but you get burned so badly that it’s not practical. Why have 500 spreads on? You can nurse 20 and if you are wrong or if the HFT or fund guys try to muscle the market, you don’t get burned. The startup costs are now significantly higher than when I got in. The game is all about risk/reward; currently the risk is pretty high. But when you are right there is not a better way to make money
I feel the same way about 2008, I did not know how good it was. Is there a way to hold those two thoughts in our heads, turning off the screens and taking the most advantage of an opportunity that may not be there for long?
Unless you are a gigolo to Maxim’s top 100 (I agree and laugh) it’s really hard to recognize. In 2008, I didn’t make money scalping. I made money by loading up and getting on a trend
The other good advice is never get cocky, once you think you have the market figured out you lose. Even if you think you are the biggest dog, there are bigger dogs out there George Soros is finding out right now, he is taking heat on his short gold.
I agree on all those points.
I have only met you in person twice but I am struck by how different you are than most of the traders who have been at it for a long time. You do not have the trader stare, we have talked you, are actually present. How have you managed to do it? Have you always been this way?
Social character. Different traders are different. When I am trading, I concentrate. I also don’t think that I am any bigger than anyone else. I have an awful temper, so I have to watch it. When it comes out it is venom, and not very smart. Some traders try to be macho, never worked for me.
Funny story. One day I was trying to be a big shot. Pete Mulchrone, who is still a pal, said, “Let’s go out drinking.” We went down after the close and I swear I drank about 20 beers from 2-6. Pete tore his shirt off and said, “We are going to America’s Bar, want to come?” I went to the train, a puddle. Pete is a fucking funny guy. I also never got the Porsche, etc. Spent money on education, a house, and some neat travel. Other guys spend it on other stuff. Save your money, a guy told me that once. Probably should have lived like a pauper, would have more today. The floors of the CBOT, CME, CBOE had more millionaires per square foot at any one time than any other place on the planet
The parking lot at CME Group is pretty amazing but I also never saw a need in that. Porshe one day, Pinto the next. I was fortunate to see that, in my father’s business and again at the CME. I fight it but it is becoming a habit.
The other thing that was funny was the camaraderie. Who else could you tell that you lost 100k and they would get it? There were plenty of evil guys on the floor, but there were a lot of nice ones to.
Going from a locker room of a 100, I was naturally drawn to trading. I have been fortunate to be around people who were nice to me VXD, LEV, WAL, DELI, GOP
How do you separate trading from the rest of your life? Your wife seems to actually like you. Most traders’ wives are not like that. How did you pull that off?
My wife says she bought the low. We met in college. I have been extremely lucky.
She and I are best buds. She also never thought she deserved to be shopping at Hermes all the time, wear the latest styles etc. That takes a lot of pressure off. Her appetite for risk is a lot different than mine though. Her background is upper middle class-and she is a good confidant. A great judge of character. Sometimes she is wrong, but that’s okay. She has put up with a lot of my shit over the years
Ha ha, “she bought the low”. That is awesome to hear. It is something I worry about in the future.
The worst and most expensive thing one can ever do is divorce. We have a long history. I agree with my buddy Bill Sheperd. If you want to have kids, get married otherwise forget it. It’s easier to do (relationships) when you are making money. I also am firmly convinced that you cannot trade from home. Need a different environment. Trading is all consuming. You have to recognize psychologically that you need to separate. Very hard to do. Very hard for spouses to understand. Plus, traders can have very addictive personalities so there is potential for a lot of bad shit to occur, drinking, drugging etc.
What is your favorite restaurant in Chicago?
Not a fair question depends on the food. I can’t pick one place in Chicago, there are so many I really like.
Best steak and best dining experience?
Grrr, everyone always asks steak. Erie Cafe is great. Never had a bad meal there. Gibson’s is nice if you want to be a movie star. Gene and Georgetti’s if you want that atmosphere. If I have a date, David Burke’s Prime is where I would go. Best dining experience is really hard. First anniversary we went to Toulouse which is now closed. First time I had soft shell crabs
We are so fortunate to be in a city of good food.
Every anniversary we go to a great place. Charlie Trotter’s was amazing. So was Everest Room, I didn’t care for Tru, loved Arun’s. One place I really love to go is the University Club If you are not a member of the U Club, join. It’s fantastic. Should have joined years ago, and I was too cheap to do it
And finally, what is probably on everyone’s mind what are we going to bet on the IU vs U of I football game?.
IU vs U of I? I think the Illini have a better team this year. Their QB is good. I’ll take Illinois and lay the points. Basketball ought to be a lot closer though. I think we should bet a round of beers at The Map Room.
Sounds like a plan. Thanks again.
Have a good one, trade well.
Thanks again to Jeffrey Carter. I hope everyone enjoyed it as much as I did.
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