Back to Blog

Trading tips from the front office

By Tom Hougaard.
Did you ever see the trading pit scene from the film Trading Places? Well in real life it is every bit as crazy and then some. In 2007 I visited the oil pit in New York and got some rather unusual trading advice from a 20-year veteran of the pits. The floor traders seem to have a unique take on the market, probably because they are so close to the forces of demand and supply unleashed in the pit. Here is what the trader told me:
1. FIRST CUT IS THE CHEAPEST
‘The first cut is usually the cheapest. I see so many of the new traders who are unable to take a loss. They hold on to their position for too long. They don’t understand that I too am wrong more times that I am right, but I cut the trade the moment I am in doubt. That first cut has kept me alive in the pit for 20 years.’
2. THE MARKET IS EFFICIENT
He also told me about the nature of the market: ‘The market is efficient. It wants to go where the orders are. These orders can be stop (loss) orders or limit (buy or sell) orders.’ I asked him to elaborate and he said: ‘often the market will go to a certain price just to make sure as many people are filled as possible, and then it reverses. We say in the pit that they push them up to take them down.’
3. TREND DAYS ARE THE BEST
I asked him about intraday trends. He told me he had the advantage of being able to see the orders from the brokers. His best days were ‘trend days’, where the market continues in one direction all day. This point was aired by others I met in the pit. If a good trend was developing intraday, these guys would press it for all it was worth, irrespective of who was on the other side of the trade. They were never concerned about whether the market technicals were overbought or oversold. The only thing they had in mind was to press it as high or as low as they could before the bell rang.
CFD trading and spread betting carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary. These products are only intended for people who are over 18.

Share this post

Back to Blog

Spread betting and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading these products with this provider.
You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money.