Into the Pit
by Joseph Wilson
In December 1985, I was approved for membership to the Chicago Mercantile Exchange. I obtained a
membership to the Index and Options Market, which gave me the right to trade the S&P 500 futures. Let
me digress for a moment. As you may already be aware, the S&P 500 futures have taken the brunt of the
heat from the regulators who are looking for a scapegoat for the October 1987 crash in the stock market. I
disagree with their criticisms, but that is another story.
The "big guys" trade the futures market in two ways: first, as a hedge for the stock portfolios and second,
in arbitrage situations, taking advantage of short-term disparities between the cash and futures prices. The
players in this pit are huge, sometimes trading 2,000 to 3,000 contracts at a time. Yes, Virginia, this pit is
the big time where millionaires and paupers are created daily. The difference between the first and second
can be based on decisions made in a few seconds.
And now to continue: Upon receiving approval for membership I had to pick out a broker's badge to wear
on my jacket while on the floor. The badge is about 3 inches by 4 inches and contains no more than three
letters. This is your ID for other traders. When you complete a trade it is processed with your floor badge
ID on it. I picked DOW (for Dow Jones Industrials) and, because no other member had it, I got it.