In the frenzied world of futures trading, millions of dollars rest on an upraised hand.
At 6:30 each morning, between 3,000 and 4,000 men and women push through turnstiles on the fourth floor of a landmark building at the head of LaSalle Street in Chicago. Barbara Schweppe, a tall, slender 36-year-old, is among them. She continues past the security station and information desk, checks her coat, dons a loose, lightweight cotton blazer and pins her red plastic identification badge on her lapel. Then she heads for the raised, octagonal pits of the famed Chicago Board of Trade (CBOT). There, in the next seven-and-a-half hours, billions of dollars will change hands as thousands of traders and brokers stand shoulder to shoulder screaming out buy and sell orders for futures contracts on U.S. Treasury notes and bonds.
Welcome to the heady, high-stakes world of financial futures, a world of risk and opportunity little understood by those outside it. "We Don't Care How They Do It in New York" reads the button worn by many of the traders and brokers at the Chicago Board of Trade. For those who trade the hottest product in today's financial services industry, the fast track leads not to Wall Street but to Chicago, to the trading floors of the CBOT and, just blocks away, the Chicago Mercantile Exchange (Merc). On an average date at the CBOT, the bond pit alone trades $50 to $50 billion. (The entire New York Stock Exchange trades just $10 billion on a peak day.) "The big thing is to graduate to trading in the pits in Chicago," says Lauri Bloom, who works on the CBOT floor as a desk manager for Morgan Stanley.
Chicago invented financial futures in 1972, when the Merc first began trading contracts on foreign currencies. The city was a natural to take the lead in the new market, for futures contracts on such agricultural products as wheat and corn had been traded there since the nineteenth century. In essence, a financial future (also called a "financial futures contract") is an agreement between two parties to buy and sell something—in this case, a financial instrument such as a bond—in the future, at a price agreed on today. Financial futures allow investors to lock in today's prices for bonds, foreign currencies, stock indexes and the like, with buyers betting the prices will go up, while sellers bet that they will go down. All of the financial futures markets have experienced rapid expansion throughout the '70s and '80s, as their underlying markets (bonds, stocks, currencies and precious metals) grew in response to the explosion of government debt, the rise of pension funds and mutual funds and the proliferation of ever more exotic investment products. Today futures contracts on financial instruments, not stocks or bonds themselves, constitute the majority of trading volume on all exchanges.
In this world of tremendous pressure and competition, Barbara Schweppe is that most competitive of players, an independent floor-trader. With her all-American, girl-next-door looks, she seems an unlikely member of the brave, cowboy breed that executes trades at their own risk, rather than on behalf of other investors. Her workplace is the people-choked CBOT floor. At once shabby and grand, its 51,000 square feet are divided into two rooms, with the ceiling hovering up to 36 feet above and approximately 10,000 miles of telephone cable snaking below. Price boards around the periphery display more than 90,000 price changes every day.
From the moment the financial futures markets open, the sound of thousands of clamoring voices paces the market activity, from frenzied shouting at the peaks to a constant, bass throb at even the slowest moments. It's a byproduct of the competitive "open outcry" system. "It's my job to make sure the brokers notice me in the pit," explains Schweppe. "It's the person who shouts the loudest that's going to get the trade, right? There's a lot of excitement in that room and people are trying like crazy to get other people's attention."
To the uninitiated, all this shouting appears to be utterly without purpose. Across the floor, in every direction, upraised arms and hands wave and fluttering fingers signal wildly. "I remember the first day I worked on the floor. I went home and sat on the stairs and cried. I said, 'I am never, ever going to understand this,'" remembers Karen Doherty, now a nine-year veteran who is an independent broker in the municipal bond pit. In reality, the hand signals simply clarify the verbal offers to buy and sell made in open outcry: whether a trade is buying or selling, how many contracts and at what price. There are even hand signals to identify the brokerage houses. "To indicate First Boston, you make a clawing motion with your hands, like lobsters," explains Lauri Bloom. "For Bear Sterans, you hug yourself."
The bond pit, which is about the size of a one-bedroom apartment, is so crowded that the time-and-sales people who record information to be transmitted to the price quotation boards have to sit aloft on an exposed catwalk about fifteen feet above the floor. "You can stand in the bond pit when it opens," says Schweppe, "and literally lift your feet off the floor and not fall, because you're being held up by your shoulders." The brokers and traders are routinely punched, kicked, elbowed, stepped on, stabbed by pencils and bitten (a standby paramedical team is maintained by the exchanges at all times).
On a typical day, Schweppe will stand for hours at a time, doing hamstring stretches when it's slow, remembering not to cross her arms too much so that her posture isn't fatigued and to shout from her diaphragm to protect her voice. Once and only once during the day will she take a break, in most cases before 10:00 A.M.
This way of doing business—the noise and crowding and hand signals—creates a mystique that the activity on the floor is hopelessly complicated. In fact, the pits' operations are simple and straightforward, bound together by rigid rules and procedures. Basically, its works like this. A customer order is received at one of the hundreds of phone banks surrounding the trading pits. A phone clerk desk manager or account executive either hands the order to a runner, who then takes it to the pit, or hand signals the order to a broker's assistant, who gives it to a broker in the pit. Using open outcry and hand signals, the broker fills the order and reports it back to the desk and the time-and-sales people (a hard copy is returned to the desk later). The desk then informs the customer that the trade has been executed. A normal transaction takes less than one minute.
Other rules cover everything from the color-coding of trading jackets (brokerage staffs wear jackets of the same color for identification) to floor conduct (no eating, no swearing, no fighting) to arbitration of "out-trades," disagreements over, for example, who's buying and who's selling. The rules serve to regulate an environment where society's normal code of behavior is suspended or even up-ended, as members of the opposite sex press up against each other and shout in each other's faces.
"You have to be a very forthright person, kind of a man's woman," says Nancy Binoin, the CBOT's manager of member services, who oversees such areas as the purchase and sale of exchange memberships. For such fearless women, the explosion of the futures markets in the late '70s provided a welcome chance to come onto the exchange floors for the first time. "At that time, the markets were willing to hire and pay anybody," says Carol Mackoff, a vice president for Manufacturers Hanover Futures, who works at the Merc. "They weren't particular about gender." The CBOT got its first woman member in 1969; the first women joined the Merc in 1975.
The women who first ventured onto the trading floor entered a unique niche in the American economic system. Nowhere else can an entrepreneur, with an investment of less than $100,000 and without an idea or a patent, step in and hazard a bet on millions. And nowhere else will you find corporate positions in which success is based on immediate performance and is not a function of a long and arbitrary career path.
The "locals," floor-traders like Schweppe, are the entrepreneurs of the floor, executing trades on their own behalf, putting their own capital at risk. In order to trade, they must purchase a membership, or seat. Although full memberships have sold for up to $500,000, both exchanges offer a variety of restricted memberships that are far less expensive, and seats can also be leased. Barbara Schweppe, for example, owns an Associate Membership that allows her to trade financial contracts futures, but not grains or silver. Desk manager, floor manager and account executive positions are available through the brokerage houses, banks and other financial-services firms that employ people in the desks surrounding the pits. These are essentially sales positions in which one works with such institutional customers as banks or pension funds. Floor brokers, who act as agents executing customer orders right in the pit, are often employed by banks or brokerage houses, but may act as independent contractors as well.
No matter what the job, big bucks are within reach for all: This industry is probably one of a handful in which six-figure incomes are attainable in a matter of two to three years. Staff positions command anywhere from $80,000 a year to a quarter of a million, with compensation a combination of salary and commissions. Floor brokers can also book six-figure incomes, principally earned from commissions. The only source of income for "locals," however, is the profit or loss from their trading; it can range from millions for the best of them to zero—or even losses—for those less skilled or less fortunate.
While knowledge and experience can help, the floor is always open to those with few qualifications but great ambition. Nine years ago, Barbara Schweppe was a commercial real estate broker in western Illinois. Her brother, a CBOT trader, had been trying for some time to talk her into a trading career. But she had been widowed in 1979 and, as many books advise, didn't want to make any abrupt changes in her lifestyle. "Finally," she recalls, "I just said 'Forget it. I need a change. I'm going to Chicago.'" She started working as a clerk for her brother. Within a year, she leased a membership, descended into the vortex of the pit and began trading. "It's not an easy business," she says, "and understanding it depends upon how well you understand the fact that you can buy a pencil for ten cents and sell it for fifteen cents and not ever have the pencil in your hands. All you do is put the nickel in your pocket. The secret of the business is the ability to take risk."
While the number of women floor traders at the CBOT and the Merc is still very small—under 5 percent—the number of women working as trading floor support staff has risen to about 40 percent. Despite their growing visibility and importance, however, they have been the subject of more than one derogatory story—most notably one that appeared in 1985 on the front page of the Wall Street Journal. Subtitled "A Lot of the Men Are Eyeing Their Options, and A Lot of Women Their Futures," the piece featured trader groupies, women who swarm to the floor to work in the lowest-paying, most menial positions available, knowing "only a little about options and open interest" but "all about the odds" of snagging a rich husband. Four years later, women on the floor grimly remember every demeaning detail.
While floor jobs are demanding physically, they are equally taxing mentally. Every second that she is standing in the pits, Barbara Schweppe must be taking in information, measuring the market activity, tracking the highs and the lows of the day, how the market behaved when it was last at this point, the trades and "ticks" (trading floor jargon for the smallest increment a futures contract can move up or down). There are fundamental economic numbers to be aware of, such as money supply and interest rates and corporate earnings. At the same time, she has to read the pit, keeping an eye out for who's hurting, trying to gauge how soon they'll bail out.
The rumors fly. On the day of last fall's presidential elections, there was a flurry of activity and the market made a small move up, a "courtesy tick" for George Bush, who, it was rumored, was leading. The Japanese were in, the Japanese were out. "I can't tell you how many times Hirohito died before he actually did" says one trader.
Every piece of information might be of some use.
In the end, the fundamental rule of life on the floor—whether one makes a living from trading profit or from commissions—is that everyone there is a competitor. It is a zero-sum game; if somebody is making it, somebody else is losing it. "You find out a lot about yourself," says Schweppe. "Because, boy, when the money is on the line, your true colors come through, People know if you're honest or dishonest, kid or unkind."
Because the risk of even the smallest trade can be enormous, trust among the competitors is key. "Trust is how we survive in this business," says Lauri Bloom According to Mackoff, women have an advantage here. "The trust is there for women brokers and traders," she says. "You are taken at your word right at the beginning, whereas some of the men have to prove themselves." There are moments when almost too much money is at stake, the market seems to move to fast. One time, my clerk told me to buy 50 lots [contracts]," says broker Karen Doherty. "I bought 50 lots and the clerk flashed the fill back to the desk and the desk said, 'No, we only wanted to buy 5." At this point, it was already a $10,000 loser. In less than a minute."
In the last few years, the financial services industry has been dealt a series of blows, beginning with the insider-trading scandal on Wall Street, continuing through the historic stock market crash of October 1987, and culminating, to date, with the widespread federal probe of futures trading that has garnered sensational headlines. The futures investigation has focused on whether Chicago brokers and traders commit fraud in executing customer orders to buy and sell futures contracts. The concern is partly that the chaos of the markets creates opportunities for brokers and traders to cheat customers. (For example, under the cover of the noise and crowding, brokers might feed orders to favored traders rather than making them available to the entire pit.) But what makes the markets efficient and therefore attractive to investors is the open outcry system that produces all the chaos. Will the investigation kill the goose that lays the golden egg?
At the Merc and the CBOT, the rumors fly a little faster these days and there are jokes about the new cocktails served on the trading floor—subpoena coladas. "Maybe this is a good housecleaning, who knows?" muses one futures trader. "In any business, you are going to find people who are not going to play by the rules no matter what you do. We've just got to be quick in helping the investigation where we feel that it is valid, and quick in standing up for our rights when we feel were being bullied."
The media was quick to sniff potential scandal, because they're fond of the myth that the floors of the commodity exchanges are casinos, where wild-eyed gamblers speculate madly. Those who work on the floor deeply resent that image. "The greatest change I've seen in the last ten years," notes Mackoff, "has been the shift from speculative trading to hedging and institutionalization of the markets." The 200 largest pension funds in this country, for example, hold a trillion dollars in financial assets. One-third of them, including such enormous funds as General Electric and IBM, use stock and bond futures. For example, by definition, rising interest rates cause bond prices to decline, so a pension fund might sell bond futures to hedge against the effects of rising interest rates on its fixed-income portfolios.
Chicago is also where major innovations in these markets are being introduced. In 1987 the CBOT began an evening trading session to capture business from the Asian markets. Later this year, the Merc will bring up GLOBEX, an electronic trading system for futures and options, which will allow the exchange to operate virtually 24 hours a day.
What effects will these innovations have? What happens when the market moves in the middle of the night, while most Chicago traders sleep? No one really knows yet. But it is sure to create even more stress for those who work on the floor. As time-zone differences blur, many traders consider themselves on 24-hour call. They wear beepers and have cellular phones installed in their cars so they can be in touch with the markets at all times.
The intense nature of the business and the fast pace of the floor make burnout more than a casual topic of conversation. Yet people build 20- and 30-year careers here. There are two reasons. First, these women are aware that burnout can happen, so they learn to manage the stress. A couple of years ago, Schweppe, in addition to trading for her own account, became a partner in a trading firm that quickly grew from a staff of 4 people to 40. "But I left in January of last year," she says. "I was burned out and had zero social life. I didn't want to put in thirteen or fourteen hours a day. I'd leave home when it was dark and come home when it was dark. For one entire winter, I never saw the sun."
Secondly. Most of these women thrive on meeting the physical and mental challenges of a world in which performance is measured in intervals of seconds. "There are days when you just do it right," says Schweppe. "You are clicking. You're making a lot of trades. When those days happen, you are on top of the world, because that's what it's really about." Many of the women can't see themselves doing anything else. "I'll be 80 before they get me off the floor, says Carol Mackoff. "They'll yell 'How about deutsche mark contracts, Carol?' and I'll tap my cane on the floor five times."
There is an old joke in Chicago about the life of the floor-trader—sure it's tough, but the hardest part is figuring out what to do with evenings and weekends. When the trading day is over, the floor littered with the detritus of billons of dollars of business, the lights casting a yellow glow and footfalls echoing on the raised flooring, there are always those who linger, hobnobbing, conducting a postmortem on the day's trade. Barbara Schweppe heads back across the floor, picks up her coat, pushes through the turnstiles and rides the elevator down to LaSalle Street. In a few short hours, she'll be back.