Now that you’re tuned into the basics of how the old world staked its name in trading, we can delve into the not-so-distant past. In this part two article, we're showcasing the progression of exchanges in the U.S. followed by a small section on perspective of trading today. Let’s begin with the nostalgic 1850’s.
1850’s to 1950’s
As futures trading took off, more exchanges formed in the U.S. and products such as eggs, coffee, and even onions traded for a short while. Men gathered in large warehouse-like halls, surrounded by chalk boards, and small glass covered machines (operated by a wire service) that spit out rolls of paper with messages from around the country. Noise, paper, and fists likely went flying as information was disseminated in the fastest and most technologically advanced way known to man. All this was heightened by the invention and popular use of the telephone is the late 1880’s.
Then came the Bucket Shops and Curb Exchanges. Like a modern day pit, a bucket shop was a betting parlor of sorts where men would come to speculate on the price of anything trading at the exchanges. Prices were transmitted through the ticker tape machines and published onto chalk boards around the room. Jesse Livermore, a “fictional” character in the book Reminiscences of a Stock Operator started his career in this setting and his story is known today as one of the most interesting in trading history. Right outside, the curb exchange was a literal outdoor exchange that took place on the curb of what would become the NYSE building. People would scream out windows and use hand signals from nearby buildings to communicate their trades to their brokers on the street that worked even during snow storms. Notorious for its penny stock gimmicks and con men, this was a risky place to do business in more ways than one. Eventually, according to Plundered By Harpies, both of these trading venues were shut down or brought to the exchange floor in 1953 because of their ineffective self-policing policies.
1950’s – 2000’s
A decade later, technological innovations started to ramp up. The Teletype machine was the first major innovation of the time. Operating like a type writer hooked up to a computer, it sent messages straight from the keyboard, over the wire to another teletype machine where it was automatically typed out by the receiving machine. Less need for snail mail or costly wire service fees. Fast forward to 1969 and you get Grain Instant News subscription service. It was the only grain related news service that transmitted grain report figures, quotes, weather and other important news items via ticker tape that were current up to the minute. Followed by Quotron terminals in the early 80’s and popularity of facsimile (fax) machines in the late 80’s, the trading industry remained on the cutting edge of technology.
Surprisingly, the trading industry that we all know today is actually a phenomenon of the past 10 years for most traders. After the creation of CME Globex Electronic Trading Platform arriving in 1992, for the first time in history traders could be anywhere in the world with an internet connection and buy or sell any exchange listed product over the computer with no human interaction. In 1998, electronically traded futures on the CME represented 4% of the total futures volume for all products. Today, the CME says electronic trading represents over 98% of volume and has cut trade execution times to less than 3% (~5 milliseconds) of the time it took in the late 90’s.
Final Thoughts
Elite traders today sit behind glowing walls of data, constantly teasing the idea that they have all the information there is. But, in my experience, smart traders constantly remind themselves that there have always been market crashes, there have always been rumors, and there will always be human emotions. No length of fiber optic cable, no degree in advanced math, or any number of the foreign PhD’s in the world can predict the medium to long term future of price with consistently and accuracy. Still, there is certainly a happy medium between high frequency trading and the curious retail trader.
For some companies, innovations in technology can be game changing. Like for those pit traders, market participants must keep up with the times to stay in the game. Electronically traded futures and options have led the trading industry in usage for over 10 years now and deferring education on their capabilities seems foolish. This is an area most farmers need a lot of work in. And if small farms or family businesses continue going along their merry way without staying in touch with these new advances, there is not much to say other than ignorance is not the same as tradition. To avoid such mistakes, there's plenty of information out there and many professionals who can help.
As futures trading took off, more exchanges formed in the U.S. and products such as eggs, coffee, and even onions traded for a short while. Men gathered in large warehouse-like halls, surrounded by chalk boards, and small glass covered machines (operated by a wire service) that spit out rolls of paper with messages from around the country. Noise, paper, and fists likely went flying as information was disseminated in the fastest and most technologically advanced way known to man. All this was heightened by the invention and popular use of the telephone is the late 1880’s.
Then came the Bucket Shops and Curb Exchanges. Like a modern day pit, a bucket shop was a betting parlor of sorts where men would come to speculate on the price of anything trading at the exchanges. Prices were transmitted through the ticker tape machines and published onto chalk boards around the room. Jesse Livermore, a “fictional” character in the book Reminiscences of a Stock Operator started his career in this setting and his story is known today as one of the most interesting in trading history. Right outside, the curb exchange was a literal outdoor exchange that took place on the curb of what would become the NYSE building. People would scream out windows and use hand signals from nearby buildings to communicate their trades to their brokers on the street that worked even during snow storms. Notorious for its penny stock gimmicks and con men, this was a risky place to do business in more ways than one. Eventually, according to Plundered By Harpies, both of these trading venues were shut down or brought to the exchange floor in 1953 because of their ineffective self-policing policies.
1950’s – 2000’s
A decade later, technological innovations started to ramp up. The Teletype machine was the first major innovation of the time. Operating like a type writer hooked up to a computer, it sent messages straight from the keyboard, over the wire to another teletype machine where it was automatically typed out by the receiving machine. Less need for snail mail or costly wire service fees. Fast forward to 1969 and you get Grain Instant News subscription service. It was the only grain related news service that transmitted grain report figures, quotes, weather and other important news items via ticker tape that were current up to the minute. Followed by Quotron terminals in the early 80’s and popularity of facsimile (fax) machines in the late 80’s, the trading industry remained on the cutting edge of technology.
Surprisingly, the trading industry that we all know today is actually a phenomenon of the past 10 years for most traders. After the creation of CME Globex Electronic Trading Platform arriving in 1992, for the first time in history traders could be anywhere in the world with an internet connection and buy or sell any exchange listed product over the computer with no human interaction. In 1998, electronically traded futures on the CME represented 4% of the total futures volume for all products. Today, the CME says electronic trading represents over 98% of volume and has cut trade execution times to less than 3% (~5 milliseconds) of the time it took in the late 90’s.
Final Thoughts
Elite traders today sit behind glowing walls of data, constantly teasing the idea that they have all the information there is. But, in my experience, smart traders constantly remind themselves that there have always been market crashes, there have always been rumors, and there will always be human emotions. No length of fiber optic cable, no degree in advanced math, or any number of the foreign PhD’s in the world can predict the medium to long term future of price with consistently and accuracy. Still, there is certainly a happy medium between high frequency trading and the curious retail trader.
For some companies, innovations in technology can be game changing. Like for those pit traders, market participants must keep up with the times to stay in the game. Electronically traded futures and options have led the trading industry in usage for over 10 years now and deferring education on their capabilities seems foolish. This is an area most farmers need a lot of work in. And if small farms or family businesses continue going along their merry way without staying in touch with these new advances, there is not much to say other than ignorance is not the same as tradition. To avoid such mistakes, there's plenty of information out there and many professionals who can help.
If you're still searching for an unbiased grain marketer who understands futures and options, Crop-Side Marketing is available to answer your questions and get you started. And in case you're wondering, we do NOT require the use of futures and options within our program but we do offer them if you're looking for the service. Visit our site today to learn more.