Talk versus technology | Options traders find rubbing elbows with other traders beneficial
MINNEAPOLIS, Minn. — Three old wooden tables and a trading floor are still used at the Minneapolis Grain Exchange, even in the age of all-electronic futures trading.
The tables and the trading floor are mere holdovers from the age of bustling human floor trading at the MGEX.
Most Minneapolis cash market and futures market action now take place through electronic methods between physically separated offices.
However, some traders say that the continuing use of the tables by a core of cash grain traders reflects the continuing value of human-to-human contact in the North American hard red spring wheat market.
They also think that the human element has figured out a way to remain a permanent piece of the spring wheat market.
“We’ve found it really valuable to be near the cash traders and be able to rub elbows with other traders,” said broker Austin Damiani of Frontier Futures, one of the core spring wheat futures trading firms that still has offices in the MGEX buildings.
“A lot of what we do is talk to other people and gather information and take other perspectives and synthesize our own ideas.”
Traders and brokers used to do this on the floor and in the pits of the Minneapolis exchange.
However, the advent of electronic trading killed futures floor trading and closed the pits. Some local traders and trading firms quit the business and others migrated to the all-electronic world.
However, some like Frontier just moved a short distance to a building across an alley from the main MGEX building that housed the exchange floor. The old floor has been converted into a business incubator centre.
Futures trading firms occupy several offices in the complex, with Frontier’s door opening directly onto the options trading floor of the MGEX Trading Room. It is a regulated area that houses spring wheat options traders and the three old wood tables.
There, cash grain traders from some of the biggest commercial grain firms still meet to discuss physical grain supplies.
The human players in the Minneapolis market have had to adapt to major changes in the last few years: the addition of electronic trading, the closing of the pits, the evolution of high frequency trading and trading hours that go far beyond what any human trader can feasibly work for more than a couple of weeks at a time.
The markets opened 22 hours per day last year, forcing traders to constantly stay connected to the action, whether they were in their offices or at home.
Traders were never really away from the action when the 2012 Midwest drought inspired an explosive rally, whether they liked it or not. With big price moves occurring all the time, they couldn’t just walk away until tomorrow.
“When I go to a (Minnesota) Wild hockey game, I take my iPad,” said Frontier Futures Minneapolis branch manager Scott O’Donnell.
“It’s a far cry from the three hours and 45 minutes (of trading in the era of open outcry-only.)”
The traders have adapted to the demands of modern futures trading, but they were relieved when spring wheat future trading hours were scaled back at the end of 2012 to a more manageable situation.
Traders say the reduced hours are more likely to build volume than hurt it because they allow them to work with their contacts to find buyers and sellers.
When the markets are closed for a few hours, traders can see what bids and offers are being assembled for the next opening and then check with clients to see if they’re interested.
“You need those opens for liquidity to build up,” said Damiani.
Traders of 2013 are significantly different from those of 10 years ago. They now sit under a looming presence of multiple large electronic screens, so many that they make the room hotter than the building’s air conditioning can handle.
They also have multiple forms of communication open in front of them, with instant messaging boxes, bulletin boards and Twitter supplying a constant feed of input and access to colleagues, customers and contacts.
Damiani is a fan of Twitter. He said it is popular with traders who no longer work in the same physical space as other traders. For him, it is a way of keeping up with developments from hundreds of sources, from farmers to traders to major news events.
However, he still finds it valuable to be in the presence of his colleagues at Frontier, with the options traders just beyond the doorway and the cash grain traders sometimes leaning on the old wooden tables.
Hard red spring wheat is still a specialized fringe commodity, so gathering people together who actually know something about its complications continues to be beneficial.
“It’s a local product at its heart,” said Damiani.
“You’ll have centres where people come together and talk. Naturally, there will be those places where the paths cross and people want to hear what’s going on.”
Those paths still cross in Minneapolis, and the people remaining at the centre think that crossroads will remain.