Electronic transition creates structural arbitrage opportunities
The guest argued that the transition from physical pits to electronic screens historically created massive, highly profitable pricing discrepancies due to non-fungible contracts and lagged communication.
The argument
Bobby Schwartz noted that early E-mini contracts often traded at significant premiums or discounts to the physical pit prices. Traders who could bridge this gap electronically generated substantial profits before the exchange made the contracts fungible and integrated the clearing systems.
The thesis, stress-tested
✓ What validates it
- ✓Fungibility agreements between electronic and pit contracts
- ✓Convergence of pit and electronic prices
▸ Risks discussed
- ▸High execution latency
- ▸Separate margin requirements for pit and electronic legs
- ▸Eventual market efficiency eliminating the spread
Hear it yourself
"split seconds. Back in the day, you had people that were writing on trades that were on chalkboards, And then there'd be somebody on the phone with Japan, somebody on the phone with, you know, banks depending on what market it was, and that's how it would get reported. And so it was happening over minutes versus now it's it's real time instant gratification type quotes. And were you were you ever sitting there when you were trading and, like, this needs to go electronic? This is messy. This is or you were so in the flow and you're, like, it worked at the time for what it was."
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