In a time when precious metals were king, a college student set foot on the floor of the Commodity Exchange in New York, otherwise known as COMEX, and never looked back. The year was 1979 and the infant metal futures were primed for a rally that would take people and the precious metals sector to levels never seen before.
When Dave Stone walked onto the floor of the New York exchange, he thrived on being "in the ring" with brokers and traders and feeling like the business of the world was being transacted in front of him.
"It was very exciting," Stone says. "I always loved the challenge of figuring out patterns and puzzles, and when I was starting to predict market movement early in my career, it was very satisfying and eventually rewarding."
Stone began as a summer clerk at Easton & Co. and quickly advanced to head gold clerk at a time when gold ruled and companies could take a college student from a clerk to a broker just as fast as the markets themselves moved.
The opportunistic market environment catapulted Stone from Easton into his own business trading solely for himself.
But the euphoria that saw $873 an ounce gold in 1980 didn’t last forever. After a brief run-up in 1987, punctuated by the stock market crash in October of that year, the metals markets drifted into a narrow range for most of the 1990s.
"I stood in the silver pit every day waiting for that one volatile day a month where I could actually make expenses. Sometimes it didn’t even come," Stone says, adding that silver would often trade in a 3¢ range for an entire day. In today’s trading environment, silver futures can swing as much as $1 to $2 in a session.
But as the trading environment evolved, Stone adjusted. He soon moved into natural gas and crude oil while waiting out the downtime in metals.
Just as the early 1980s ushered in a new time for gold, the early to mid-2000s led to more changes as commodity markets moved toward electronic trading. "I had to succumb to the computer. [The exchange] had warned us about it in the early 1990s. We were lucky that it went as long as it did," Stone says.
Through all of these changes, his trading philosophy stayed the same: Researching and analyzing the previous day’s activities, charting support and resistance points, seeking out patterns and drawing from memory and experience of what makes a market move in certain situations. Stone focuses on the technical aspects of trading and only views fundamentals at arm’s length.
While electronic trading gives market players access to more products at their fingertips, it leaves behind the camaraderie of the trading floor and a sense of where the market was going by judging the people around you — their tone, reactions and movements. Now, Stone says, traders are playing a game of poker, but with their hands exposed.
In his best years as a floor trader, Stone made well above seven figures, enough to afford luxury cars and a summer beach home. With the onset of electronic trading, it became tougher to make a profit, but Stone continued to earn solid returns as he always took positions and did not depend on scalping the bid/ask spread like many other floor traders. However, recently it has become more difficult, which Stone attributes to the effect of high-frequency traders. "The influx of high-frequency trading and the mysterious ways your protective stop levels always seem to get touched off more has made it increasingly difficult recently," he says.
Stone questions whether high-frequency traders face the same ethical scrutiny as traders used to, and worries that an unfair playing field is developing.
"We had to take ethics classes to teach us the right and wrong things to do in trading pits," Stone says. Now exchanges allow high-frequency trading, which he equates to front-running. "Ethics is a thing of the past, until they change those rules," he says.
For now, Stone is moving ahead amid the change in trading from the days of shouting out orders in a trading ring, to watching numbers tick on a computer screen.
His focus is turning back to precious metals in light of the recent volatility as well as teaching the business to his 23-year-old son.
"As these markets change, you have to re-learn them. Something that may have worked in 1995 won’t work today," Stone says.
While high-frequency traders are making his life more difficult, the metals sector is reviving volatility not seen since the salad days of the early 1980s.
"Silver is what everyone wants right now and I hear predictions from $50 to $100 an ounce. From what I see, it is the smart money that is putting their cash into metals right now," Stone says.
Alison Ciaccio is Associate Editor/Oil for Platts in New York.