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> The only pits increasing in size were those related to
> Eurodollar derivatives. I was told that many of the
> best and brightest floor traders have migrated to
> that arena.
The eurodollar market, with 40 quarterly expirations plus the serials,
attracts a crowd similar in mindset to options traders. These folks make
markets in various strips and spreads across the range of expirations that
are gobbled up by over-the-counter derivatives desks.
In the latter 80's, as the CME was increasing the number of expirations to
meet institutional demand, there were perhaps ten good spreaders in the pit.
These were the non-aggressive, egg heads with masking tape holding together
their glasses. At the time, the spreaders were all quietly making huge
money while the front month scalpers were doing no better than in any other
pit. Slowly, the crowd figured out what was going on and started trading
the spreads and strips and, over time, the pit has become mostly made up of
these type of traders.
What makes it unique is that as the number of spreaders has grown, so has
institutional demand. Ten years ago, the entire demand was satisfied by
less than twenty market makers. Hedgers are still increasing their
activities which creates opportunity in the pit.
When the euros go entirely electronic, the biggest opportunity will be for
those that understand strips and how the commercial derivatives desks use
them. The desks are not overly price sensitive as the greater risk for them
is a lack of coverage. 'Sort of like back month spreading in the grains
only much, much bigger.
Sean
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