Traders without bounds

Just three months ago bankers, brokers and financial traders were perceived by the majority of Russian citizens as space aliens. The future appeared set for many years ahead. Then the crisis made some corrections. For the first time in seven years employment agencies became flooded with the former "celestial beings".

A series of publications was issued by several financial industry magazines saying that highly qualified financial professionals would get to do things unfamiliar to them. This situation should not be overly dramatized, though. The former participants of the securities market can apply their knowledge and experience to world currency market as Eugene A. Sokolinsky, the director of "Anonymous" dealing center thinks.

He says:

An article by A. Zaitsev "Should you trade futures on the Internet?" appeared in "RCB" magazine 16'98. I would like to express my disagreement with a few of his ideas.

INTERNET BUSINESS IS NOT A CAR RIDE

We trade on FOREX foreign currency exchange. Instead of futures we deal with another financial instrument, but from the point of view of trading technology they don't have significant differences, thus all further comments concerning FOREX are equally applicable to the futures. I respectfully quote the author:

A professional trader should analyze the situation continously, he should be concentrated, attentive, and decisive. Can you do it behind the steering wheel?

Unfortunately, other things are also hard to do behind the steering wheel, scratch your back, for example.

Let us compare trader's work on FOREX or futures market over the Internet with the work in a dealing room, whose advantages are often mentioned by my opponent.

Generally speaking, in my opinion, it is best to trade "on the floor" through your own broker on all world currency exchanges with a deposit of a few million dollars. There is no time lag in this case, but it is cost prohibitive to many people. You can also establish a dealing center at home. If you install a satellite dish on your patio, pay Reuters Tenfore or CQG for their services, that would be around $1,500 a month, you could get a rather decent information system, lacking, though, the ability to participate in the trading directly. Traders don't usually spend that much. That is why we should face the reality and come back down to our wicked earth from heaven.

SERVER OVERLOAD

When the market is very volatile, traders close their positions to avoid losses, and the server can not handle the large volume of transactions.

Leading Russian portfolio managers working on Russian securities marked were asked whether FOREX trading might be considered an alternative occupation for traders, analysts and portfolio investors who had worked on Russian securities market but had to leave their companies because of the crisis. Romex's (Moscow) Alexander Gulyi says: Yes, of course. FOREX, as opposed to the domestic securities market, is, at first, highly liquid, at second, the experience gained there by the specialists may be effectively used not only on FOREX. This is also favored by the current situation on world financial markets, when currency rate fluctuations exceed the average level during relatively calm financial conditions, giving the market participants an opportunity to make more money. While the floating rates exist, FOREX will not suffer from the worldwide crisis. On the contrary, we should anticipate new trends that were not possible in the past. I feel, that it would be a nice alternative, but not by a long chalk for all former market participants. It should be kept in mind, that FOREX is not trivial and working there will be, most likely, harder for newcoming specialists.

We can object the author with as just as much confidence that if there are only two or three telephones in the dealing room that are jumped by about 50 people at once when the rates move, then you will have a familiar queue not very conducive to normal trading. This number of requests is nothing for a server.

Our company has approximately 1000 clients, including the training accounts. Should all of them send inquiries at once, the server will, of course, be overloaded. This, by all means, is inconvenient, because a delay of 10-20 seconds may even result. But if these same clients would call us at the same time, even a multi-line telephone would hardly let anybody to reach us.

I maintain that dealing room is inconvenient for the traders. This conviction is based on my personal experience and observation of the traders. As quoted above, my opponent requires concentration and attention from a trader. I would like to ask him, if it is possible for a person to stare at the computer screen continuously during the working day anticipating the rate of this or another currency to move favorably? It is common for a trader to wait day after day and see nothing happening on the market. This stressful downtime leads to the person's being ready to open just any position, not because "the time is ripe" but to have something to do. Even at a loss.

Again, if a trader works from home or from office, or, even more conveniently from both home and office, he knows that the market is always accessible. Undue stress becomes no longer necessary. He may be doing something else simultaneously, taking a look at the screen every now and then. This doesn not mean taking the work lightly, as my opponent asserts. The screen will show that a ratio of two currency rates should reach maximum in a few hours and then go down. While in the trading room, the trader is screen bound. While in his office, he is at ease and can perform well.

The majority of people all over the world prefer working on financial markets from home. My friend who is a professor at Cambridge likes to play the stock market. He does not put too much time in this business, but when he sees an interesting situation on the screen, he will give an order over the Internet to a brokerage firm to buy or sell certain stock. FOREX is even more appealing to the participants because it allows trading at night that is best done from home.

THE BEST IS THE ENEMY OF THE GOOD

Euroinvest's Îleg Alimov: FOREX is perhaps the only market that did not suffer from the financial crisis. Rather, it gained from the influx of people from other areas of financial market. Securities specialists usually have good command of technical and fundamental analysis and are familiar with the issues of world economy.

To be successful, the trader needs timely and reliable information on market situation and access to the news that affect it. Large information systems, without doubt, surpass the capacities of the Internet in this respect.

Of course, such powerful information systems asReuters or Dow-Jones give much information including unnecessary. Presently, we send a bit less information through the Internet. This can not be argued. But even the people in the dealing room get less information than the floor traders. The same applies to our users who have real-time charts, indicators, news and so on. I assert that the volume of information available over the Internet is perfectly sufficient for normal activities of the traders.

INTERNET DOES NOT IMPEDE THE DECISION MAKING

Even reliable high-quality communications will not solve all problems. Experienced traders know how important the execution time is. In this respect the Internet trails the floor trading too.

As it seems, the author believes that entering an order on your computer takes considerable time. I have to assure the reader that this time is less than time needed to dial a phone number. Meanwhile, the time that server takes to transmit the information varies from 10 ms to 400-500 ms. Thus, the maximum delay will not exceed one half of a second which is negligible in comparison with time needed for decision making, giving orders to the broker and so on. Therefore, for all practical purposes there are no real delays when you trade on FOREX over the Internet.

INTERNET ALLOWS TO AVOID "CROWD MENTALITY"

The Internet does not consult, advise, warn, it will not guide you in the current situation, will not give the necessary information to the trader.

Everybody knows that all advice should be taken skeptically. Everybody knows the rule, but seldom follows it, especially experiencing the psychological pressure of such a group of peole as the crowd of traders in the dealing room. If this psychological issue is considered, the Internet provides a significantly more reliable work environment than the dealing room.