How
to Make Consistent Profits
Trading Futures Part II
by Malcolm Robinson of
TheMasteryOfTrading.com
Direct
Access Electronic Trading
The issue of direct access is an important one and it
becomes more important the more short term your trading
is. The market can change from a state of seeming paralysis
to one of shocking volatility and activity in a flash.
The length of time it takes between you deciding to enter
an order and the order actually being in the market is
obviously important. When I first started trading I used
a phone broker and was dismayed that my fills would often
be so far from the price the market was trading when I
first entered the order.
The first time I visited the trading floor, I discovered
why. When I called in an order, first my discount(!) broker
would check my account equity, then he would call a phone
booth on the floor, the phone broker on the floor would
then write the order down and pass it on (by phone) to
a booth next to the appropriate pit, at that booth my
order would be written down again and then signaled to
a broker in the pit to be executed.
As you can imagine this would take quite a long time,
even longer of course if the market was very active, as
this would mean that the broker in the pit would be too
occupied to take new orders. Compare this to my experience
of trading as a pit trader. In the pit I was in the heart
of the market and could observe every single order as
it was executed (there was no delay in my price feed!).
To initiate a trade, whether it was to buy or sell at
the market, or join the bid or the offer, all I had to
do was open my mouth. You can start to see the huge advantage
that trading on the floor gave me over off floor traders;
and that doesn't take into consideration the fact that
my round trip costs fell by 96%.
Now the floor no longer exists, not in Europe at least,
so why talk about the advantages of pit trading? Well
the level playing field is now open to all, but very few
take advantage of it. Trading with an electronic trading
platform is exactly the same as trading in the pit, except
I can sit down, it is much quieter and there are no crude
jokes flying around.
I can trade with the click of a mouse; my order shoots
to the exchange, enters in the market and appears back
on my screen before I have time to blink. I think the
advantages of direct access trading are clear and any
futures trader still using a phone broker should move
to direct access, they will also find their commissions
are less (around £8 for private client traders).
The next question that arises is why trade futures? That
is an important consideration given that there are a variety
of alternatives vying for your trading capital (spread
betting, CFDs and options), but in my opinion, futures
are the only option (no pun intended) for successful short
term trading.
Continue
to: How to Make Consistent Profits Trading Futures Part
III
Malcolm Robinson
Copyright © 2002. Malcolm E Robinson.
All rights reserved.
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