1988 - 1st Quarter (7)
1988 - 1st Quarter (7)
"13, 14, 15, 16, 15! It's a buy signal!"
One of the traders who had taken a call from the pit shouted.
Since there was a considerable delay for that information to reach the terminals, they had paid a separate fee to connect a direct information line from the broker.
'A buy signal already?'
Why did I have to start pyramiding precisely from today.
'The possibility of an uptrend?'
Well, of course, it's going to crash and burn all through March.
The Fed in this era doesn't announce interest rates.
Market participants have to check Reuters or watch the interest rate flow from City of London and judge for themselves.
That's why the Status Window's answer sheet has more destructive power in this era than in the future.
So, by what method does the Fed adjust interest rates?
"How about the short-term bonds side?"
They simply sell or buy Treasuries at the desk to guide them toward the internally set benchmark rate.
That's all.
"No change!"
What we're entering is 30-year futures, which the Fed can't intervene in.
But barring any special abnormalities, the long-term bond futures market has no choice but to follow the movement of short-term bonds.
"Deutsche, Great Swiss, Daiichi, sell 15 over 30."
"Brandon! Holsey! Luca! Sell 15 over 30!"
"Deutsche copy! Sell 15 over 30!"
"Great working!"
"Daiichi, copy!"
Moreover, since the Fed hasn't moved, that trend is just a natural flow in the market.
Then, extrapolating based on the Status Window's answer sheet, it means that if we just push the price down, the direction will quickly follow.
Putting it another way, it's a selling timing.
"K&M; here. U.S. Treasury 30-year futures, sell 5 at 15."
"Yes. That's correct. 20 at 15, 10 at 16."
"Sell 10 contracts each at 14, 15, and 16."
No matter how much it's the Execution Office, there is a degree of autonomy within the framework.
So, depending on each trader's personality or judgment, the orders vary.
As long as consistency is maintained within the overall framework, it's fine.
We kept gradually increasing trades like that for about 30 minutes.
"93 broken! Entering 31! Current price 92'31!"
Suddenly, it dropped more than 7 ticks at once.
Since we're short, it means we made a profit, but.
'Is the short-term bond side still the same.'
There don't seem to be any external stimuli.
"Can we grasp the trading volume?"
"Shall we try to get a rough idea?"
"Yeah. We don't need the exact quantity, just check if the trend has increased."
David immediately picked up the handset and started making calls here and there.
Unlike the future where everything appears on monitors, in this era, even proper trading volume aggregation isn't easy.
You can pay the exchange and buy data, but even that is only the latest from a few days ago.
The only way to get real-time aggregation is to roughly gauge it within the pit.
"No major changes, they say."
"Stay."
"Hold! Just track the price!"
Arbitrage, or program trading.
Guests who will follow the price we're pushing down, take a quick bite, and then exit.
"Ara-ya. Coffee."
"Yes."
Ara was also working quite busily.
Due to the Execution Office's characteristic of having a weak back office, miscellaneous tasks fell to Ara to handle.
'How many contracts have we filled?'
During a brief waiting period, I calculated the contracts filled so far.
The number of contracts executed so far is 398.
Not a bad pace.
No, rather, it feels a bit too fast.
"Check the atmosphere to see if we've been exposed to the market."
"Understood."
The reason we set a target of only 1,500 contracts, even though lowering the margin requirement to the limit would secure more volume, was simple.
If we hold more than that, they'll notice our presence.
When entering as a net position, the moment the position is exposed, it's no different from showing a weakness in this damn wilderness.
Even without a prior agreement, they would all rush to devour us.
I would have acted the same way.
"No signs of being noticed, they say."
"That's fortunate."
At David's answer, I let out a sigh of relief.
Well, at just the 400-contract level, it probably won't cause such a big problem.
"Um, boss."
"Speak."
"Why aren't other banks entering?"
It seems Ara had been watching everything even while working busily, as she asked a better question than expected.
"Because of net equity."
"Net equity?"
A method that in the future is called portfolio margin.
The formal name 'portfolio margin' isn't used yet, and in the industry, it's often called net equity.
There are actually slight differences, but that's not important, so let's skip it.
"It's a margin management contract made between an IB and an institution."
"Margin?"
"Yeah. Look at our position now. The contracts sold at 95, 94, 93, there are many of various kinds, right?"
"Yes."
"If it were stocks, you'd synthesize those and calculate an average price. Since you only need to calculate the investment amount and profit/loss, using an average price doesn't matter."
"But?"
"However, futures are MTM."
"Ah!"
As if realizing something, Ara clapped her hands.
"The margin call conditions are different for each contract!"
"Correct."
Even if you traded the same item, the contract made at 95 and the contract made at 93 are separate.
Margin calls come at different prices.
Therefore, futures must always be managed separately by trade price, but.
"So, bundling them together like a stock's average price to manage margin is called net equity."
The method of bundling them together is called net equity, or portfolio margin.
"I understand. But why does it vary by bank?"
"That's because the bank provides a kind of advance payment."
"Advance payment?"
"The exchange unconditionally demands a margin call."
"So the bank pays the exchange's margin call cost and takes that much from other assets?"
"Exactly."
That's why banks only provide portfolio margin to truly large institutions.
"So, even if we wanted to use it, we couldn't. Tier 1 banks are too arrogant, they didn't contract to that extent."
Several major banks refused the portfolio margin contract because our AUM was insufficient.
Wouldn't it only become possible with at least 100 million dollars or more?
"In banks without a net equity contract, they buy in relatively safe zones, and in accounts where net equity is applied, they buy in risk zones."
"I see."
Ara took out a notebook and began taking notes.
"93 re-entry! 93'3, 4! Rising again!"
"Stay."
"Just hold!"
We need to see if the arbitrage has exited.
This is why U.S. Treasury futures are good.
The trading volume is high, but the game of reading each other's moves is incredibly intense.
Ultimately, since large-volume trades repeat in the same zone at once, you can save quite a lot of money just by skipping the intermediate process.
That's the case in this era, but it starts to collapse the moment the exchange officially supports electronic trading.
Anyway, that's the situation now, so I should use it while I can.
Lunchtime.
Of course, there's no such luxurious time in the trading room.
"This is pretty good."
While other employees were eating sandwiches bought from a nearby shop, Ara and I started eating the homemade sandwiches Ara had made herself.
"That's a relief."
Unexpectedly, Ara didn't know how to cook.
At first, she had a sort of all-around capable image, but living together, I started to see one or two clumsy aspects.
"How many tries did it take to succeed?"
"......I'll keep improving."
"Well, that's a given."
Well, she's a hard worker, so.
From peanut butter sandwiches, she's now reached the point of making sandwiches of this quality.
Given time, she'll probably be able to cook properly.
While refueling and watching the monitor like that.
"Poof!"
"Cough! Fuck!"
"The phone! Why aren't those broker bastards calling!"
All the traders, including me, stood up from their seats at once.
1.5 points.
A whopping 1.5 points had risen in an instant.
It meant the positions we sold today had shifted from profit zone to loss zone, and simultaneously.
"1.6 left to the margin call line."
"J.S. Morgan, 1.4 points."
"Deutsche Bank is 1.3."
It also meant all the maintenance margin had been consumed.
"Sh-should we liquidate?"
"What should we do?"
"Even now, cutting losses......."
I took out a cigarette.
Trying my best to act as if nothing was wrong.
Only Ara, who lit it for me, would have realized my hands were trembling slightly.
"Quiet."
"Everyone shut up! You don't even have autonomy anyway! Wait!"
"......."
"......."
At David's sharp rebuke, the entire office was engulfed in silence.
The accounts with net equity settings are fine.
It's just that only the contracts newly entered today have entered the loss zone.
Maybe I should consider that fortunate?
If even the net equity accounts hit the margin call line, the contracts in those accounts would blow up in a chain reaction.
'Suddenly 1.5 points?'
That's possible.
Given that the current trading method is only open outcry conducted like an auction in the pit, if you sweep the market price, that level of volatility can occur.
No matter how much it's the heaviest single commodity in the world, U.S. Treasuries.
'So now is not the time to find the cause.'
Whether to endure that rise.
Or cut losses and re-enter.
"Inhale-. Exhale-."
My head is complicated.
What should I do.
I stared intently at the terminal, but the complex numbers only made my head dizzy and weren't of much help in making a decision.
"Ara-ya."
"Yes."
"Come sit here."
I patted my knees and called Ara as if calling a cat.
Ara approached without any hesitation and settled into my lap.
Thump. Thump.
I feel my rapidly beating heart gradually regaining its proper rhythm.
'The chart's closing price is 93'01.'
Ultimately, it returns to its original position, a sideways movement with neither gain nor loss.
The problem is how far it goes in the middle before returning.
"David."
"Yes."
"Listen carefully from now on. You all too."
"Understood."
Everyone swallowed their saliva and focused on my mouth.
"If a margin call phone call comes, tell them we'll deposit within today."
"Yes!"
"Whew-. I thought I was gonna die from fear."
Hmm.
I meant to bluff.
It seems they took it as a statement that additional funds were coming from the Bahamas.
"Do you have any money left?"
Ara whispered into my ear.
"Just leave it."
At my words, her pupils began to tremble violently.
It doesn't matter anyway.
If a real margin call comes, there's a way to solve it in its own way.
I'll just have to flap my mouth a lot.
When you struggle to survive on Wall Street, you inevitably acquire wind tunnel bullshitting as a passive skill.