WHAT DO FLOOR TRADERS DO? You’ve seen them on TV and in movies, the men and women in colorful jackets yelling and waving their arms. Floor traders – making and losing piles of money in a frenzy of transactions that no outsider could understand. But that’s just TV. The fact is, investors can learn one great lesson from them. Want to know what it is? Floor traders are the people on the exchanges that facilitate the trading in stocks and options. What they’re allowed to do – and you and I are not allowed to do – is make simultaneous bids to buy an option at a lower price and offer to sell that option at a higher price. That’s called market making. The floor traders, when they make their markets, need to be ready to buy or sell whenever you or I send an order to them. When you and I want to buy, the floor traders are ready to sell. When you and I want to sell, the floor traders are ready to buy. And floor traders try to buy on that lower price and sell on the higher price and make that difference as profit. It’s a bit more involved than that, but they hope to make that small amount of money thousands of times a day. They do this whether the stock or options are moving up, down or sideways. That illustrates what floor traders do NOT do, and the lesson you can learn. Floor traders do not try to guess which direction the stock is going. They don’t read research reports. They don’t listen to Wall Street analysts. They don’t study financial statements. They don’t try to figure out chart patterns. In other words, they know they can’t predict the price of the stock, and they’re professional traders. And neither should you. Trying to pick whether a stock will go higher or lower is like trying to guess the flip of a coin. That’s why successful OFF floor traders – you and me – use strategies that have a high probability of making money without depending on being right in picking the direction of the stock. If it’s good enough for the floor traders, it should be good enough for us.
Posted on: Fri, 09 Aug 2013 15:38:09 +0000
Trending Topics
Recently Viewed Topics
© 2015