Why Chicago has so many traders and why are they so rich? (brokers, income)

[JacksonPanther]

But back to the OPs question... Just getting people to give me money to attempt to invest and grow doesn't make me a "trader." I can open an account with TD Waterhouse and "trade" with other people's money. That's not what the OP is referring to. He's talking about those people at the various exchanges downtown. those are the "traders" he's talking about. I couldn't just show up at the commodities exchange, even with a few million liquid, and be a trader.

Who are those guys?

[chet everett]

Originally Posted by JacksonPanther

But back to the OPs question... Just getting people to give me money to attempt to invest and grow doesn't make me a "trader." I can open an account with TD Waterhouse and "trade" with other people's money. That's not what the OP is referring to. He's talking about those people at the various exchanges downtown. those are the "traders" he's talking about. I couldn't just show up at the commodities exchange, even with a few million liquid, and be a trader.

Who are those guys?

Seats for the CBOT/CME and other exchanges are routinely sold. Some of the folks have dough from sports, their family, selling another business, quasi-legal extracts from their home country. It is easier to buy your way in than any country club...

Of course having a seat does not mean you will make money, and for folks that do not understand what they are getting into it can be a hard lesson.

[emathias]

Originally Posted by lenniel

I find it humorous when someone says "how does this person make so much money... their job looks easy, they don't have to work hard", etc, etc.

If something were easy, everyone would be doing it.

Some people are just smarter than others, are willing to take more risks than others.

While I'm a big advocate of the idea that carefully measured risk will usually be rewarded, it's simply not true that "if something were easy, everyone would be doing it." There are all sorts of opportunities where the job itself is not that complicated, but there are artificial barriers to entry. Sometimes these barriers are legal, sometimes they are financial, sometimes they are cultural or social, sometimes they're educational, sometimes they're there as an attempt to maintain a certain level of quality, but sometimes they're there simply to reduce competition and make sure that the participants who manage to make it in can make a living wage. Usually they're a mix of those last two - trade unions are usually a mix of those last two. There are a lot more people who could do plumbing work than there are plumbers, partly because not everyone wants to do it, but mostly because there is a permitting process and there are limits in place to ensure plumbers can continue to have pricing power.

Originally Posted by cubssoxfan

^^ Definitely! You need to understand global economies, global finance and global politics mixed in with knowing human nature. Knowing what will drive market highs and lows is essential. There is a ton of risk, but as we know- the greater the risk, the greater the potential reward.

Depending on what you trade, you might also be able to get away with just knowing how to construct statistical models. Being a trader requires a certain mentality, too. It doesn't require a person to be brash, but it requires a certain kind of confidence that is relatively rare in the general population. That's part of the reason traders have a certain reputation, and also why you used to see a lot of ex-sports people in Chicago trading, and also a disproportionate amount of children of wealth becoming traders in trading centers globally because the often have a kind of entitled confidence that is useful in trading (that and they have access to capital necessary to get started as traders).

[snoylekim]

Successful trading does require a deep understanding of what influences the market for what's being traded . Many traders specialize in only one or two markets . In spite of the capital outlay to acquire a 'seat' ( now shares) , the capital one puts up to trade a futures contract or options is margined; one is trading on a much larger contract, which allows for very good upside returns, and very frightening downside moves unless one knows what one is doing ( and sometimes luck) . This means that movements in prices that appear relatively minuscule ( e.g. a basis point , or 1/100% of an interest rate change, or a few cent change in a bushel of corn) have very large impacts on what's actually being traded. Anyone that doesn't understan this might as well take their stake to the riverboats .
In past days , many traders started out as 'runners' for the more experienced to acquire the micro-knowledge of the market and processes . I wonder what has replaced this 'internship' now that open outcry is disappearing or has been completely eliminated ?

[emathias]

Originally Posted by snoylekim

Successful trading does require a deep understanding of what influences the market for what's being traded . Many traders specialize in only one or two markets . In spite of the capital outlay to acquire a 'seat' ( now shares) , the capital one puts up to trade a futures contract or options is margined; one is trading on a much larger contract, which allows for very good upside returns, and very frightening downside moves unless one knows what one is doing ( and sometimes luck) . This means that movements in prices that appear relatively minuscule ( e.g. a basis point , or 1/100% of an interest rate change, or a few cent change in a bushel of corn) have very large impacts on what's actually being traded. Anyone that doesn't understan this might as well take their stake to the riverboats .
In past days , many traders started out as 'runners' for the more experienced to acquire the micro-knowledge of the market and processes . I wonder what has replaced this 'internship' now that open outcry is disappearing or has been completely eliminated ?

It's largely disappeared, or turned into more of a New York style program where students inbetween semesters of MBA programs or MS Fin or similar programs are interns. The days of it being common that someone without an advanced education could become a professional trader are fast disappearing.

[jonnynonos]

Ken Griffin isn't worth "hundreds of millions;" he's worth six billion and is the wealthiest person in the state. And at this point he has an army of Ivy league trained PhDs etc. working for him.

[jwaiter]

Originally Posted by chet everett

there are many people that LOOSE more on just a few transactions than most Americans make all year.... they "made $xxx,xxxx last month" is at extreme risk to LOOSE $x,xxx,xxx next month!

I thought I read (in this forum) that you are a college professor.

[chet everett]

Nope, not a college prof.

I type pretty fast and rarely proofread anything.

Fingers like to run fast and loose. Sometimes they lose track of what they are supposed to be spelling...

[Larry Siegel]

Originally Posted by JacksonPanther

But back to the OPs question... Just getting people to give me money to attempt to invest and grow doesn't make me a "trader." I can open an account with TD Waterhouse and "trade" with other people's money. That's not what the OP is referring to. He's talking about those people at the various exchanges downtown. those are the "traders" he's talking about. I couldn't just show up at the commodities exchange, even with a few million liquid, and be a trader.

Who are those guys?

If you can open an account at TD Waterhouse and trade with other people's money, please tell me how. I am only able to trade with my own money using an online brokerage account.

Or maybe you just *think* you are trading with other people's money. Hmmm....

[Larry Siegel]

Traders in the sense of people trading commodity, stock, or bond futures on the Merc or the CBOE with an individual sponsor's money have more or less disappeared; there are a few. What the OP means by "traders" is probably employees of hedge funds, investment banks (now just called "banks"), and money management firms working for a salary plus bonus. Many of them can earn total compensation in 7 figures although the number of people trying to do so greatly exceeds the number who succeed. The salary or draw is typically much, much less and essentially their whole compensation depends on the bonus.

And the very top hedge fund proprietors, who are in some sense traders, can earn a billion. This amount includes the increase in the market value of their companies as well as whatever they take out of the company. Typically they leave most of their compensation in the fund and it then compounds at a high rate. Ken Griffin of Citadel is probably the richest and best known Chicagoan in this category.