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an earth-shaking change. Traders have long been accustomed to trading markets for a specific segment of time. Individuals who day-trade markets are in and out within the same day. Certainly there is a version of this trading electronically in night sessions. Position traders have been accustomed to trading overnight surprises for decades. The only difference now is that they can actually do something about it by placing protective orders in the electronic sessions. Now position traders can more adequately protect their exchange-traded market positions. I believe it is actually a mistake for traders to think of the overnight markets as a threat to their proceduresto fear that there is someone "fooling around" with their markets while they are asleep. The truth is that there has always been market activity while some traders slumber, but this is not necessarily a concern that requires a vast adjustment. |
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Neal: Since markets are linked together, it won't be uncommon to watch big moves happen on weekends, while the Chicago markets are closed. This type of risk can play havoc with brokerage firms. |
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Russ: Big moves always play havoc with brokerage firms, whether they occur while some markets are open or closed. Certainly the futures commission merchant (FCM) has been forced to adjust to a variety of new risks during recent decades, and there are no simple answers. Electronic markets and other computerization of the futures industry actually provide for greater opportunities for more precise risk management. |
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As our firm created electronic order-entry capabilities, I adamantly insisted that risk management characteristics must be an integral part. Restrictions to prevent a customer from placing orders without adequate funds is a serious concern. |
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Yet there is simply no way an FCM can avoid unknown market risks. Computerization has at least allowed the FCM to react more quickly and in many cases to prevent risks of the unknown from decimating the firm. |
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