SIMEX Traders
SIMEX Traders
SIMEX Traders
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le n the world of futures ond options trading, Chicago
I (SIMEX) has clearly imported "Chicago-style" trading
ti- is the focal point of many Horatio Alger stories.
II and made it work.
te Rumors and tales of what such traders as Richard With it have come new stories and new mystiques
:d , Dennis, Tbm Baldwin, and Rick Barnes have done in a
-particularly in the Far East's version of "pin-striped
v- day (or a career) in the market are legendary. And so are pork bellies," the Nikkei 225 stock index future.
ne the mystiques behind such money-making empires as Deregulation in Jopan has motivated Nomuro, Daiwa,
.al
,E!;:,1:;r:esearch
& rtading GRT and the o'connor Nikko, and Yamoichi, along with U.S. securities houses,
he to quickly sumound the pit with booths, and average
/s- .'While these stories age gracefully, and in large part dollar value of daily trading has surged to over $150
)c- .are tue, the growth of futures and options exchanges million. Arbitrage is now going on between the Osaka 50
.gvgrseas has allowed more than a growing market share stock future and the Nikkei, and increased institutional
: of volume orii ipio interest to iove oulside Chicago. participation means that new volume records are set
:.'-The "local" now adds as much color to many ofihe almost weekly.
.overseas exchanges. Perhaps more so than any other, Still, ftttle is known in the U.S. about this pit, whiclt
:,th€ Singapore International Monetary Exchange trodes a contract more volatile than the S&P 50O futures
51
INTERVIEW
contract. Four of its most successful sticks to daytrading, using point and SCHOENFELD: I was doing gradu-
traders are Loh Sui Hian, Phong Kai figure and bar charts in the pit. He ate work and research work in the
Huat, Yew Soi Khoon, and an Ameri- rarely goes home with a position at School of Management at the
can, Steven A. Schoenfeld. Accord- night, and is well known for bottom National University of Singapore.
ing to a reliable source, these four picking and skillfully timing long Midway through I switched my
traders have pulled as much as $I positions when the market is over- research to the Institute of Southeast
million from the Nikkei pit since it sold. Asian Studies, which is a think tank
started trading in September 1986. Interviewed on July 16, Schoen- run in cooperation with the Associa-
Each of them hod his own unique feld out lined important developments tion of Southeast Asian Nations
beginning. Phang, a Malaysian citi- taking place within the Nikkei pit, (ASEAN). By then I was already
zen, formerly worked on offshore oil facts U.S. institutions should know starting my involvement with
rigs and became tired of the hours about how the contract trodes, and SIMEX, so I did the first futures-
and pay of a manual loborer. He his perceptions of liquidity. Inter- related research there
describes himself as a trader who viewed on July 23, Loh, Phang, and I came home in spring of 1986 to
trades on "the feel of the pit," with Yew talk about a Far Eastern locol's borrow some money to trade. While I
one eye on the paper flow from such difficulty with taking o loss, the Jap- was home, I decided to do the floor
heavyweights as Nomura and Daiwa. anese, and their most successful days orientation program at the Merc
The 32-year-old Yew wos equally of trading in the pit. instead of SIMEX. I thought that
utired" after working after being at the Merc, the SIMEX
for o few years
in a manufacturing line as an engi- INTERMARKET: How did you end pits would be less intimidating.
neer for General Electric. He decided up as an American at SIMEX? I stopped in Tokyo on mY way
to look around for o chollenge and SCHOENFELD: I went to Asia to back to learn more about the JaPa-
discovered the SIMEX. study in general the development of nese markets. All along my intention
ft wssn't easy. Tfading the Deut- AsiazPacific financial futures mar- was to trade the Nikkei. I thought it
schemark and Japanese yen, Yew lost kets. I picked Singapore as the base had the most potential as a contract
heovily in o year and a half before because of the link with the Merc, for locals, and from an intellectual
switching to the Nikkei pit. The rise because it had an English-speaking standpoint, it was most intriguing
of the Japanese stock market allowed university, and because SIMEX was because I knew how large the JaPa-
him to dig himself out of a hole, and and still is the farthest along in the nese stock market had become, that it
the volatility of the contract made path to growth as a full-fledged had no hedging mechanism, that it
him more comfortoble positioning in futures market. was tremendously overvalued, and
the pit. A hordened trader, he has that it had a history of volatility. AII
earned a reputation of being able to INTERMARKET: :'Are you still that led me to believe that it would be
trude the contract's "big swings" of attending the university there? a good contract.
400 to 1000 points in a day.
Loh and Schoenfeld, on the other
hand, came to the pit with intellectual
backgrounds. The 24-year-old
a Fulbright Scholor in
Schoenfeld,
Economics from Clark University in
Worcester, Mass., first mode his way
over to Singapore to study the devel-
opment of Far Eastern futures mor-
kets last year and to work as o part-
time journalist. He is to the Nikkei pit
what journalist George Plimpton was
ina Detroit Lion or New York Yankee
uniform-o foreigner in a foreign
market. Borrowing $16,000 to trade,
he quickly turned his enthusiasm into
an understanding of the nuances of
the Japanese equity market and Far
Eastern culture. Profits and a trading
advisory firm-Lion Pacific Invest-
ment Pty. Ltd.-came with time.
Finally, Loh is reported to be the
most successful of them all. A gradu-
ate of Columbia University with
an MBA and o Bachelorb degree in
fuonomics, he shuns fundamental
analysis because "there is no woy that
I can compete with a Nomura or
Daiwa on a fundamentol level." He Steven A. Schoenfeld
t^tTt D| / / DV DT /C-a..-L.- 1 OR 7
INTERVIEW
t- INTERMARKET: How much did
you start trading with? YEW: I started trading the Nikkei
e SCHOENFELD: $16.000.
when it
was first launched and have
never looked back.
I traded for I 12 years in the cur-
v INTERMARKET: What,s been your
L
rencies and Treasury bonds during
sugcess on your investment? Chicago hours and had no money
k
SCHOENFELD: At this point, I afterwards. I was really down. My
don't like to talk about it is a ieal turnaround came when the SIMEX
s
return on investment because it is my started to trade the Nikkei. I got
t/
livelihood. It's not like you pui interested in trading and started over
I $15,000 into an account and it comes again.
out as more money. But not includine
my original investment, I have madi
INTERMARKET: And what did you
over $100,000.
change about your style to become
successful?
INTERMARKET: That's fantastic YEW: Before, I was trading curren-
for an American trading in a foreign cies, the Deutschemark and the Japa-
market. nese yen. There wasn't much vola-
SCHOENFELD: Some of it has to do tilityand liquidity at the time, so they
with my timing as far as the currencv were very difficult for a trader in the
goes. The Nikkei is priced in yen, so pit to trade. I stopped trading other
every time you make money or lose contracts to concentrate on the
money for that matter, you are also Nikkei. I like big market swings. My
making currency market decisions style of trading works well in these
Yew Soi Khoon
and can convert to your home curren- types of markets. That is what you
cy-in my case U.S. dollars. find in the Nikkei. Slowly I made
Through the fall and winter and December, and January, it was me
back all of my money.
until April this year, was keeping and one or two other traders in the
I pit. I still recall times when it was iust
most of my trading profits in my me in the pit playing with a quote INTERMARKET: Does SIMEX still
account in yen. Only when the yen have the incentive program they
broke 140.00 did I start converting it machine by myself complaining the
currencies were active and no one was offered locals in the beginning?
like gangbusters to U.S. dollars. Mv
timing was pretty good and probably trading the Nikkei. But I had com- SCHOENFEI;D: No. Since the
rncreasecl my returns by llVo. It was mitted myself to the conrracr-men- exchange sold out the last of the ini-
really a matter of discipline. tally and financially. tial seats [450], they dropped the
installment plan. One incentive that
INTERMARKET: And now? still remains is that if vou trade a
INTERMARKET: So you made SCHOENFELD: Now it is another certain volume a month, they will
money in the Nikkei right from the story. It is definitely the most popu- rebate your clearing fees. The number
start? Iar contract in terms of the numbei of of trades that you have to do your
SCHOENFELD: In the beginning, it locals. Eurodollar futures still do first year remains the same, but after
was very difficult because you could twice as much volume or more, but a the first year they expect you to do
call the market right and still be Iot of it is institutions trading hun- more volume if you are going to
wrong because of the illiquidity. you dred lots with each other or big locals receive the clearing rebates.
could call the cash markit and see a doing the spreads. There is still a tax incentive. And
turn beginning, but by then all the Without a doubr, the Nikkei pit is that will remain in force in the fore-
offers would be lifted and vou now the most populated. The last seeable future. If a local forms an
couldn't turn, or vice versa. iou count that I got was 90 locals in the approved company, which is a com:
ygyld usually end up by scratching or pit. We just moved to a bigger pit on pany under a certain tax statute
raKrng a loss on the trade.
June 22, and it is working out well. designed for SIMEX trades, and
- Any of the people who survived
the beginning of the Nikkei were
It is about the size of the Swiss trades through this company
franc or Deutschemark pit at the account, he is taxed at only 1090. That
Pretty much toughened. We were Merc, or perhaps the Japanese yen applies in any futures exchange
used to seeing the extent of the vola- pit. At first it wasn't full and was -London, Sydney, Chicago, any-
tility but not being able to profit from unevenly populated. Nomura now where that you trade.
the full extent of the movi. Once the has the front booth on the opposite
Pit became more active, it was easy side of the pit whereas previously INTERMARKET: How are you
for us, because we were used to a there had been no booths manned. trading the markets'!
rotten situation and it had become Now there is a very even flow dis- SCHOENFELD: I've always "
better. by my
tributed around the pit. nature preferred to be a day trader,
In September and October last something of a position trader, and
Yjat, it was active but volume was INTERMARKET. Mr. yew, you an overnight trader too. I'm very
definitely dwindling. By November,
didn't always trade the Nikkei, did you? aggressive at the close and willing to
WARKET
JJ
INTERVIEW
hold overnight positions. During the wise I might as well be upstairs. I also related trading on their Part.
day, I am usually looking to spot the like to trade the closes, because usu-
trend. I usually bome into the daY ally there will be something big. INTERMARKET: Can you tell if the
holding an overnight position, and Five minutes after TokYo closes Japanese houses are trading for them-
15 minutes extra before selves or customers?
will be making a decision to hold mY -and in the
position, lighten it, or increase it. It we close will usually be a short LOH: As far as Nomura and manY of
-there
all depends how heavy I come into the covering rally or some heavy profit the houses are concerned, I think they
market. taking. I
like to focus some of mY are trading for themselves in a large
Usually during the daY there will bigger trades at that time, because way. But manY orders from other
be one trend change. The market, for most locals are covering for the next houses appear to be for customers,
example, may shoot uP in the first 45 day. A lot of locals may be lightening and I would say that makes uP the
minutes, but then lose momentum. It up, or something else, and that usu- majority.
may not have a fall, but will start to ally can affect the market.
dribble down. So I may cover some. I INTERMARKET: What about the
may wait for things to bottom out INTERMARKET: What off-floor U.S. securities houses?
before establishing the size of mY business has made its way to SIMEX? SCHOENFELD: With thc U.S.
position. Or if things really go down, Do you see portfolio insurers, index houses, it is difficult to figure out
I'll cover and go short. arbitrage, or hedgers coming to the who is behind their trades. There is at
One of the things I've been work- market? least one -probablY two or three
players out of
ing on with an associate of mine at the SCHOENFELD: Before the JaPa- -very big institutional
Institute of Southeast Asian Studies nese were officially allowed to trade Asia who are going through the
is the first position trading system for
American houses and camouflaging
the Nikkei futures. No one else that I their trades.
There was a lot of sPeculation in
know has this kind of sYstem. We
have been developing it over the last the pit as to who these clients were.
nine months, have three Years of "For o big lroder, On the floor, we have seen some big
positions initiated bY one house,
tracking, and one year of tracking
with the Nikkei. I use it to keep posi- it is q more added to and liquidated bY a second,
and liquidated through a third' As
tions running.
Once I have a longer-term position
formidqble much as I can tell, this is still going
running, I try to forget it and focus
on my own daily trading activity in
mqrkel becquse on. This client started through Shear-
son Lehman, switched to Daiwa,
the market in front of me. I don't il is more ditficult switched to SecPac, and now spreads
trades diversely. Because the pit was
have to think about the long term.
Before, I was acting as a day trader
lo cul your very small, especially in the begin-
ning, and people are very aware of big
and as a position trader on the floor,
which is sort of contradictory.
lossgs.tt position sizes, it was probably a very
smart move. I resPect the trader or
INTERMARKET: How do each of traders who were behind it.
you day trade?
LOH: It may sound crazy for an for Tokyo [May 23], we saw a steady INTERMARKET: What size Posi-
economist to say this, but I trade on increase in their business. At first tions?
a technical basis. The majority of the they were a little bit reluctant, SCHOENFELD: It started in
time I am strictly a day trader. I may because they weren't sure which way November with this one big client.
take a longer-term position if I see their regulators were going to go. So This was after the Nikkei had had a
something significant happen in the they certainly weren't trading the vol- big correction and we were seeing
market. I keep a point and figure ume we expected them to. some steep discounts. He would come
chart going in the pit, and use bar Around February, we saw a lot into the market and just sit there with
charts. When I go into the pit, I also more activity from Nomura and a bid all day.'He was building uP
know precisely the price support and Daiwa. From Nikko, I saw some of positions of 1000 contracts, big posi-
resistance levels. the first program-related trading. tions then because open interest at the
PHANG: I basically trade on the feel- Whether they were buying or selling time was only about 3000 contracts.
ing in the pit, and watch what the for their index funds, or testing some He was not arguing about Price, and
cash market is doing very closely. As kind of arbitrage, it was apparent that as it turned out, he was right, because
the cash market turns upward, I can it wasn't just pure spec or hedge we were at a 400 to 500 point discount
buy. You can see some wild swings. trades. in November at the 1?,000 level, and
YEW: I use a mixture of technical Nikko would come into the market you know where the market is now.
and fundamentals to trade. I try to when we were at a steep discount or This was something that had a signifi-
take positions when both confirm a premium, and there would be a cant impact on the market.
position that I want to take. steady selling or steady buying until We saw this customer establishing
SCHOENFELD: If there are scalping that premium had come into some longs the whole ride uP. Not bverY-
opportunities, I am going to take normal relationship, even if it then body noticed it, but he was selling
them. That's why I'm there. Other- went back. It was definitely premium through another house while he was
',rr.
the low the next morning was 22,1C0. INTERI\{ARKET: . . . Casualties on
The futures had an even greater move
because the premium came out in lit-
the floor? -
SCHOENFELD: A lot of people, the .t=:
t't
erally three hours of trading. new ones, were cautious. But there ,
I've seen in my life. It was a the contract, because there are a lot s
)
u
1300-point decline from the 23,400 of smart players, was that the cash f.
level to 22,100, so we are talking continued falling but the futures
about a very large percentage move. stopped. We had been doing a big I
It started a recovery in the late morn- discount and were slowly moving
r
ing, and then dropped back. back to par and then to a slight pre- II
,mium. At that point I stopped worry-
d
INTERMARKET: A move of 2000 ing about cutting losses and started
points in the futures? buying. As soon as the cash stopped,
SCHOENFELD: Yes, in two ses- it didn't even have to turn yet, and the I
sions. We call it two sessions. Our futures started rallying. It was right
market never closes, but the Japanese back up like a rubber band, 800 ti
have two trading sessions, one in the points. We closed that day only down 0i
morning, one in the afternoon. So in 200 points, after being down 1200 in tl
essentially one Tokyo afternoon and the futures, 1000 points for the index. *
rnorning, it dropped 2800 points. The I made more money on the long side. n
futures started at the 24,200level and It was my best d1y at SIMEX.
in