Climbing the Ladder: An Interview with Larry Levin
By Vince Chiofolo
Some of the truly prosperous players on Wall Street began their careers with the help of ivy-league degrees. Others used high-level contacts and strong prospects. And then there are those like CME Group’s legendary S&P 500 trader Larry Levin, who had none of the above, and by way of hard work, dedication, and will to survive, achieved legendary success.
The history behind the CME veteran is one which demonstrates that persistence and passion could turn an entry-level position – like his $3.35 per-hour job as a Lind-Waldock runner in the late 1980s – into a lucrative trading career. Eventually, Levin averaged 2,500 to 3,000 S&P contracts per day.
Levin’s career began in 1989 as he witnessed brokers and traders amassing extraordinary income faster than they could count it. From that point forward, Levin aspired to acquire the luxuries and lavish lifestyle that a trading career could bestow. His financial pursuits sparked a decision to drop out of Chicago’s Columbia College.
Levin’s hard work running contracts eventually hoisted him up to the next link in the chain, phone clerk to the S&P desk manager. Though trivial, both positions taught Larry the logistics and intricacies of both the futures pit and the commodities market. He began trading on his own account in 1993, and became a full-time floor trader a year later.
Between the years 2002 and 2005, Larry accumulated a sum of $1.9 million trading commodities, according to his aptly titled 2007 book, “How I Made $1,900,336.82 Trading Commodities.” However, it was not a smooth ride. Levin lost every penny in his brokerage account not once, but four times. While most traders in such a predicament would hang up their trading jackets and try their hand at a career involving less crippling consequences, Levin, understanding the roller coaster behavior of the market and willing to trudge forward, picked himself up from rock bottom and rebuilt his account back up to profitability each time.
Throughout his bumpy trading career, Larry picked up on the widespread public fascination with floor traders and their techniques. Knowing this, Levin formed Trading Advantage, an educational service designed to help aspiring traders master the commodities markets. Now known for his strong views, Levin appears regularly on many of the mainstream business media networks, such Fox Business News, CNBC and Bloomberg Television, providing insight and advice to the world’s traders.
Trader Daily caught up with Larry to discuss his past and to get his take on the current market.
TraderDaily: In your career, you have successfully climbed the ranks from the bottom to the top of the ladder. Do you think this type of advancement is possible in today’s market, particularly without formal education? What advice would you give to the guys at the bottom trying to follow your lead?
Levin: No, the trading floor was a place where you could start at the bottom and work your way up, or even find an opportunity with a different trading company in the same place (the trading floor). Back then, it was pretty easy to get an entry-level job on the trading floor, and if you were sharp, you had a chance to get noticed. Now, you must try to get in with each individual company, and that’s much more difficult. And without a finance degree, most won’t even talk to you.
TraderDaily: In the mid-1980s, Richard Dennis began his Turtles experiment, where he gave relatively inexperienced personnel a clearly defined trading system and some capital, with impressive results. In today’s markets, are traders born or can they be made?
Levin: Traders are made, not born. Every trader has to go through the same learning process. They all must learn from their mistakes, just like you’d learn any skill. The problem is most people don’t have a Richard Dennis to show them how to avoid the mistakes quickly. Therefore, people will run out of money long before they figure out how to trade.
TraderDaily: You first started marketing your training program, “The Secrets of Floor Traders,” in 1998. How much has commodity trading — and its secrets — moved off the floor in the years since then?
Levin: The edge used to be gained on the trading floor by seeing institutional orders and learning from other experienced traders. Today, the edge is to understand technical analysis and how to trade electronically. There is no edge on the floor anymore.
TraderDaily: Some trading firms like to start with people who have not traded before and, therefore, carry no bias or pre-conceived ideas to the table. Does this kind of approach work today, or are trading firms hiring people with as much experience as possible?
Levin: If the trading strategies are extremely defined, then hiring inexperienced people can work. But when you ask a trader to think and trade in a discretionary method, then experienced traders are necessary.
TraderDaily: In addition to the S&P 500 index trading that’s been going on for years, many institutional players use index ETFs to take long and short positions. Does heavy trading of ETFs distort the markets they are supposed to track?
Levin: I don’t really think so. Even if they do, it doesn’t really matter, as the market will move the way all traders make it move. Unless large positions are not allowed in the ETFs, it’s just something else that traders have to deal with. I don’t think about it much.
TraderDaily: A majority of your trading career took place prior to the widespread electronic trading that moves markets today. What’s your take on this evolution? Has it affected you personally?
Levin: I don’t fight it. I took on electronic trading as close to its onset as possible. It made me a lot of money! Unfortunately, many traders haven’t made the evolution to electronic trading, and they are struggling.
TraderDaily: Do you think that automated and low-latency trading played a role in the May 6 flash crash, or is that just an attempt to find a convenient explanation for something that is difficult to explain?
Levin: I do think HFT trading is a big part of it. But this is the world we live in, and you must have stop losses in place on all positions at all times. Naked positions are the kiss of death. In all honesty, I don’t know exactly what caused the Flash Crash, but it wouldn’t surprise me one bit to see one happen again.
TraderDaily: A lot of prop traders blow out — you did it four times and managed to get back in the business. Was there a common thread behind your four wipe-outs? What did you learn from them?
Levin: The common theme was that I figured out how to get more money each time I blew out. I’m a big fan of learning from your mistakes and evolving into a better trader. The reason most people blow out is that they trade with real money before they know what they are doing. The key is trading with a simulator until you have the proper skills.
TraderDaily: How did you avoid giving away your edge when you came out with “The Secrets of Floor Traders”?
Levin: The edge is different with each person. Each trader needs to find what works personally for them (and it can be different for each person). So you can’t really give it away, you can only help someone find his or her own “personal edge.”
TraderDaily: How helpful are E-mini S&P 500 contracts for traders who are not starting out with a substantial amount of capital?
Levin: They are extremely helpful as they were devised for the small trader in mind. They allow you to trade a contract that is 1/5 the size of the big S&P 500. It was the smartest move the CME group ever made.
TraderDaily: What is the biggest single mistake you see new traders make?
Levin: Not using stop loss orders. It’s how to end your trading career very fast!
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