TRADETHINK ARTICLES

The Switch to Electronic Market Sessions

December 12, 2008

By Chris Morse

Oh technology, what wonders it brings. Pretty soon, gone were the days and ways of the pit markets. It was so nice to trade the bonds and currencies in Chicago from 7:20am to 2:00pm Monday through Friday (almost a sense of normalcy). What great trading hours those were. But times are a changing. First there was EUREX (leave it to the Europeans) to become all electronic with all those Bobls and Bunds (Bonds) and the DAX. I think they may have even done it on purpose knowing us yanks would shoot ourselves in our own foots. Next came the ICE (former markets from the IPE International Petroleum Exchange) and ICE US that took over the NYBOT (Coffee, Sugar, Cotton, US Dollar Index).

It now comes time for the guys and gals in Chicago to come around. How Chicago loves its traditions (apparently more so then New Yorkers, just kidding you still have the NYMEX). With the good ole CME and CBOT we have the luxury, ah dilemma, of the electronic session and pit session trading side by side (though not at the same price or range). I know we need a place for the options to trade, but why the need for pit futures trading side by side when we have the electronic or vice verse? Is it a sense of mere logistics or a just can't let go of nostalgic kind of thing.

Don't get me wrong. I would love nothing more than to have RTH (regular trading hours) in Chicago from 7:20am to 2:00pm for the currencies and bonds. We could even trade electronically. But the genie is now out of the bottle and alas the desire of some yokel in Whereverville to trade Feeder Cattle at 3:00am is beyond me. What on earth could happen in the Feeder Cattle market at 3:00am to require trading hours to now be available like a 24-hour pharmacy or Wal-Mart. It is a big inconvenience and not a convenience. Used to be just place your trades in the morning before the market open and you were good to go until the next trading day. Those times are over. Now we have to consider how to place an order in the evening? This is just silly, especially when their maybe but 1 or 2 contacts bid or offered at a range wide enough to float an aircraft carrier through in some of the overnight markets (recommend the diligent use of stop limit orders and alerts).

So now what? I suppose we traders must get with the times (no pun intended) and place our trades in the evening. However we must pick and choose our battles, as not all of the markets are quite ready for the prime time (evening time) and not the type on television. Fortunately many of the market sectors are beginning to provide the liquidity to trade the newer imposed electronic or E market hours. It kind of is beginning to make more sense now as most order platforms follow the E (electronic) contract by default in the more liquid markets. To me it looks like we can comfortably begin to trade several markets in the currencies, bonds and fuels electronically overnight. The currencies were pretty easy because of the FOREX traders and the fact that this is much more of a global economy that we live in now. The fuels are simply trading electronically because of the ICE fuels are trading much more volume than before, and so the US exchange doesn't want to miss out on some business (who can blame them). The grains and meats I just can't quite see yet as needing the overnight session. Though if it is now our given right to walk into a Wal-Mart at 3:00am then I guess we should be able to trade some bellies too. Though I don't really see the need to have to go to a Wal-Mart in the middle of the night in the first place. So, why is Wal-Mart now open 24 hours a day, 7 days a week anyway (pretty soon 365 days a year too)? Ah, it is the competition. Someone just had to one up someone else to get a tiny little perceived edge (I say ill perceived or even misperceived edge). To the detriment of all us trying to be sane folks who prefer to sleep at night that CAN wait till 9:00am to get shaving cream or chlorine for the swimming pool. So now it is off to the races because some jerk (another company, country, exchange, person or thing) has to one up someone/thing at our expense.

In trading one must go with the flow. I too will be switching over to mostly electronic markets for the beginning of the year. There is just not the liquidity in the pit session hours to make a true side by side trading range any more in many markets. Fortunately, most markets are just about ready to roll over to electronic session from pit. Just a few markets like in the meats and grains sectors are not quite ready yet and will need to be followed during the RTH for now.

About the Author

Chris Morse is the Developer of the TradeThink trading system. He has been involved in the development of trading strategies for nearly ten years. Mr. Morse developed a very robust system which is now in private use at one of the largest FCM's and has earned sizable returns for the last 3 years. Mr. Morse now focuses his time exclusively on developing and managing his systems.