- 2000: Volume 9, No. 5 Wireless Trading Transforming Futures Industry

There was a time when "open outcry" was considered an innovative approach to trading. The roots of the Chicago Mercantile Exchange extend back to markets that preceded establishment of the Chicago Butter and Egg Board in 1898. During this period the unique "open outcry" system was developed in Chicago. At the time of its incorporation as CME in 1919, the exchange, with its new name and charter, had 142 memberships that cost each. Annual dues were .50.

Part of the reason "open outcry" has been able to survive this long at the CME is the fact that the futures industry is a smaller and closer group of participants when compared to NASDAQ or the New York Stock Exchange. Its benefactors—brokers and local traders—trade on their own behalf and, consequently, can defend their positions quickly if the market moves against them. And because the end-users or customers are a much smaller population, it was much easier to placate them.

The Electronic Revolution

The CME began a revolution in index futures trading in September 1997 with the launch of "E-mini" S&P futures and options. The new product was traded electronically for small orders and via open outcry for orders of 30 or more contracts. Then, in June of 1999, the CME built on the success of this new concept by launching E-mini NASDAQ 100 futures, which have also seen exponential volume growth. The new products also trade in tandem with their larger, open outcry counterparts, bringing the two worlds of electronic and pit trading together in a unique "third way." According to some estimates, electronic trading volume is up 115 percent so far this year at the Chicago Mercantile Exchange. In fact, the growth of online futures trading has taken just three years to match the volume of trading in all other "open outcry" index products.

Wireless Trading

The explosion in online trading volume is a given. At the same time, the proliferation of wireless communication is seemingly unlimited. Some projections indicate that by 2003 there will be more than 1 billion wireless devices in the world. Local futures exchanges are transforming themselves into tech-enabled, new economy institutions. The logical next step is to allow online traders to move futures and options orders directly to the trading floor from a wireless device. Wireless trading is considered by many industry analysts to be the next step in the evolution of online financial services, providing traders the ability to trade anytime, anywhere from a wireless device.

There are many benefits of wireless communication to both futures and equities traders. However, because of the tremendous amount of leverage you get with futures, the increased volatility in futures products over equity products, and the relatively limited futures trading hours, one could argue that it is even more imperative for futures traders to have instant access to market information through wireless distribution.

Technologically Savvy

Futures traders, who make up less than 10 percent of the total amount of equity traders working today. By the very nature of the products they trade, futures traders have an additional degree of sophistication and knowledge and are far more likely to incorporate the Internet or technology into their trading decisions. Futures traders will eagerly adapt to wireless trading as soon as it becomes more readily available from the manager clearing firms.

The rapid expansion of electronic trading will be greatly enhanced by the growing popularity of Web-enabled devices such as digital phones and wireless PDAs. Contributing to the increase in wireless trading is the emergence of service providers which have been created to facilitate this new technology.

One such firm is Chicago-based Celltrader.com, which is able to interface with all devices and can be formatted for any brokerage firm. Celltrader.com is a wireless platform and a valued-added dealer for GoAmerica's wireless technology. As a primary satellite site of StockBrokers.com, a network of financial information Web sites, Celltrader.com is focusing on wireless trading. For example, Celltrader.com recently signed a deal with Prime Time Investment Services, which makes it the only wireless service with futures trading functionality.

By teaming with Prime Time, Celltrader.com is helping to bring futures trading to the next generation of online-traders. Customers now have wireless access to Prime Time Autotrade, a powerful single-purpose trading tool that moves futures and options directly to the floor broker, trading floor or any U.S. exchange platform. In addition, users have instant access to product market fills within seconds, along with real-time position and account views, and real-time account valuations.

This alliance sets a precedent for futures trading, allowing traders to stay in step with current technology and providing them with the very best and the most efficient way to enter futures and options trades.

Looking Towards the Future

The major world exchanges, including equity markets, have moved towards an electronic platform. As technology continues to advance, the futures exchanges will continue to evolve. In the next five years, the exchanges will merge the traditional "open outcry" format and electronic terminals. However, even more dramatic changes are in store a decade from now for the industry. Ten years from now, I predict that all products that are actively traded today will be posted on electronic exchanges and terminals, and computers will replace the local in the pits.

Rob Stein is an economist, and former CEO of brokerage Astor Financial, Inc., and president and CEO of Chicago-based www.celltrader.com, a wireless solution platform. Stein is a well-recognized authority in both trade and mass media. He has been quoted and/or featured on various news sources including: ABC Nightly News, CNN, CNBC, Reuters and Bloomberg news wires, The Wall Street Journal, USA Today, Business Week and The New York Times. He is a frequent lecturer and has written several articles about the economy and currency markets, including Foreign Exchange: The Next Asset Class and Logical Economics. Stein is also a regular contributor on WebFN, a newly launched Web-based financial news network.