The Truth About Traders
We are less than 100 days into the Obama administration and his press secretary has picked a fight with Rick Santelli over his remarks on CNBC. That debate is well on its way, but it would behoove everyone in America to understand the environment in which Santelli works.
The trading floor is a slice of Americana. Santelli descried it as a cross section of America, and it is. No matter which floor you walk on -- the NYSE, CME, CBOT, or CBOE -- you will see people of all skin colors, all economic classes, and from all walks of life. Democrats and Republicans. It’s a place where you can see a Harvard MBA rub elbows and fight for a trade with a person that barely graduated high school.
Traders are a very unique breed. They are an independent bunch, because most speculate with their own money. There are many misconceptions about traders. We are all very wealthy. We are all conservative Republicans. We are short-tempered aggressive people. We live wild lifestyles. Surely, some of these stereotypes have a grain of truth to them. You can find many stories about various antics that have happened with traders. Some actually are pretty funny. However, most traders are just like everyone else. They go to work, then go home and coach soccer and participate in their family life. They go to religious services, and they lead normal lives like most Americans.
Here is what is very different about traders and most Americans. Traders live in a very risky environment. They make decisions very quickly that will make or lose a lot of money. They have extremely high stressful jobs, and there is no guarantee that they will have their jobs tomorrow. Traders are pretty confident and humble all at the same time. Things happen on a trading floor in seconds, and those seconds mean the difference between success and failure. It’s really living life on the edge of a razor in the most competitive environment organized by mankind.
When you live in this type of environment it changes you. You see things going on in the outside world that you have no control over. Suppose you have bought a significant amount of T-bond futures, and you have a significant amount of profit in the trade. Just for argument's sake, let’s say you have made $20,000, and all indications that you follow say you should make another $10,000 and then exit the trade. Bernancke gives a speech. There is one sentence in the speech that causes the bond market to fall apart, and you can’t exit your trade. You lose $10,000. There are no bailouts for you. That is the world that we live in.
Most of the traders at the exchanges that you see on television don’t have outside customers. They trade their own money. When they lose, their family loses. When they make money, they keep it. Even traders with outside customers, like those from a hedge fund or some other type of fund, get a draw to cover their expenses. If they trade well, they get a pretty nice bonus. If not, they lose their job. There are no tag days for them when they lose.
This is why it’s particularly irksome to a trader to see General Motors get bailed out. It really bugs us when we see people that overreached in the housing market get bailed out. It’s especially galling when the government raises our income taxes to pay for it all. The money is hard and risky enough to make without the government confiscating it. There is no such thing as redistribution of wealth on a trading floor.
When traders survey the Washington, D.C., world, they see bureaucrats unfamiliar with our business over-regulating us. They see Congress acting and blaming us for excesses in the market that we didn’t create. They see agencies that want to add to our tax burden by proposing a transaction tax that will put us out of business. The nation's capitol is not a friendly place for traders.
The trading floor is the most democratic, entrepreneurial place in America. Markets don’t care about who you are, what school you went to, how your dressed, or what skin color you are. Markets only care about the best bid and the best offer. They are oblivious to everything else.
The market is a powerful force. It needs to be unleashed to provide the best quality of life for all Americans. Traders help grease the gears of the market. Eliminate traders, restrict traders, and you limit the ability for all America to grow and prosper.