About a Market Maker who failed Trading from Home

Trading from home isn’t easy.  This story details how an experienced market maker failed when he tied to trade from home.

A true story I want to share.

About 6 months ago I re-connected with a childhood friend whom I had not spoken to for 25 years.

Background

I’ve known my friend Guy since Kindergarten.  We went through grade school, Jr. High, and H.S. together. Academically, he was as gifted as they come. What took me hours of study to accomplish or complete, Guy seemingly could accomplish in a third the time and get better results.  He was in the National Honor Society in High School and was accepted at MIT in the fall of 1979.

After his first year at MIT, Guy secured a summer internship at a brokerage firm in Chicago at the CME. He started as a gopher in June, but by August he was trading on the floor of the exchange. Old school trading; hand signals and all. Guy’s effort, results, and promise led the firm to “make him an offer he couldn’t refuse”.  His trading career was underway…..he never set foot at MIT or any other institution again.

He traded in Chicago for a few years, then the company moved him to CA where he traded on the Pacific Exchange. After about 5 years, he quit to start a winery in Oregon. It did not work out. Severely tapped out financially from the Winery Operation, he moved back to the Chicago “to make some money”. There he spent many years as a market maker / trader in a number of stocks.  All told, he spent 25 years in the pits.

Present Day

After some “googling” I caught up with Guy. I told him what I was doing and solicited his help as a trading mentor. ……I assumed he was still in the business.
Turns out he retired as a floor trader about 2 years ago and is now back in the Pacific Northwest.  When asked why he quit, he said. “I really didn’t like what I was doing”.
He got his Real Estate license and now has a small real estate office.

I asked him why he didn’t just trade his own account from home. He said “I tried, but I wasn’t successful.”   I was absolutely dumbfounded. Here is one of the smartest people I know with a 25 year track record of success as a trader failing as a stay-at-home trader. We talked about that and drilled down.  Here are my conclusions.

Circumstance, Environment, Tools, and Attitude Play a huge Role.

  • Attitude and Motivation
    • Guy had come to not enjoy the process of trading. To him, trading was simply a job.  He quit for a reason … to get away from trading.
    • Fortunately he knew enough and was smart enough, to be able to go through the motions later in his career and still do a great job for both himself and his firm.
    • Over a long career, Guy lost his passion for trading. That lack of passion and desire likely reflected itself in his at-home results.
  • Environment
    • Trying to trade from his home office was like putting a shark in a pool. Completely removed from his natural environment would we expect a shark to thrive?
    • Being away from the trading floor, the immediacy of the order flow and; away from friends and competitors;  I imagine Guy felt like a shark trying to live in a bathtub.

 

  • Trading other People’s Money
    • Guy said while on the floor he routinely had P/L swings in the hundreds of thousands of dollars.
    • That being said, he also knew he had an infinite supply of liquidity at his disposal which enabled him to have the time / money to dig out of holes.
    • Guy never had to “worry about” losing money……..of course he was there to do a good job, but at the end of the day, losses would not be his own.
    • All that changes in the basement. Hard to migrate from that environment to truly owning your own P/L .
    • When you’re in the basement, you truly are alone.

 

  • Tools and Information Flow
    • Guy knew how to trade a particular way and had honed his craft around that method and the tools / information at his disposal.
    • The physical infrastructure of the trading firm and proximity to order and information flow greatly aided him.
      • As a market maker you see and participate in order flow in real time. I can see how that might be helpful
      • Do you think it would be helpful to pay nearly nothing in trade commissions?
      • Would it be an advantage to fill your own orders and set the pricing for others?  That’s what Market Makers do…..i am guessing that would be helpful.
      • When a company is about to get bought out, who do you think knows first?  Bob Pisani, David Faber or the traders and Market Makers on the floor? They can see it and feel it in real time. Market Makers are paid to win.
    • At home, that infrastructure, information flow, and financial backing was gone.  


So although trading from home seemed like a no-brainer, it turned out to be a problem in real life. From Floor Trader / Market Maker to ThinkorSwim platform in the basement, doing a job you don’t particularly like was a step down the food chain. Its doesn’t really sound appealing…..or a recipe for success.

Key Takeaways

Guy’s story doesn’t need to be our story.  Guy made his mark on the floor and in the pits. We can make our mark in our own way.

  • Never under estimate the power and advantages of access to information
  • Attitude is Everything! Have Passion and Love for what you do; Success will follow
  • Embrace flexibility. Guy was not willing or able to adapt his trading once certain tools were not at his disposal. Be flexible and adapt your methods to changing market conditions.
  • Learn to win with the tools you have.  Jimmy Page was once asked why he continued to play with his “old guitar” when technically better ones where available. He said, “because that’s the one I own, what I learned on and know how to play.” New isn’t always better and sometimes it can be far worse.  We learn to be successful with the tools we have.

 

Happy Hunting and Good Trading.

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