As a trader in the Eurodollar futures pit at the Chicago Mercantile Exchange, Angelo Reynolds cites mental toughness and courage as two of the necessary factors to successful pit trading. "I knew I always wanted to be involved in the markets," Reynolds said. After graduating from the University of Pennsylvania in 1984, Reynolds. took a job as a runner at the Philadelphia Stock Exchange.



After paying his dues on the trading floor, Reynolds worked his way up into a brokering position and began filling foreign currency options. In 1987, a Chicago trading firm approached Reynolds regarding the possibility of a move to the Chicago Board of Trade bond pit. However, at that time, Reynolds said, "the market was good in Philadelphia and I wasn't really ready to move."

However, a few years later, the currency options market began to slow in Philadelphia. "As the market got slow, I began to think about a move to Chicago," Reynolds explained. In June 1991, Reynolds made the move to the Midwest and began filling paper in the Eurodollar futures pit for Quantum.

After successfully filling orders in the Eurodollar pit for three years, Reynolds began to consider shifting to the trading side. "I had been a broker for about eight years and there is more of a challenge and more financial opportunity in trading." In June 1994, Reynolds took the leap and joined Deerpark Derivatives as a trader in the Eurodollar pit.

"It was kind of scary the first couple of months," Reynolds admitted. However, he sticks to a couple of "basic rules that everyone knows" that has allowed him to achieve success.

"In my type of trading-scalping-you have to cut your losers and let your winners ride." Every day Reynolds squeezes into the Eurodollar pit, with roughly 1,000 other people, and looks to take advantage of short-term inefficiencies in the market.

Another basic rule Reynolds trades by is trading within your means. "You can't trade outside your capital, you can only trade 5% of your capital." As a "scalper," Reynolds' average time frame for trades is minutes. "Right after a number, it could be a split second (that I hold a trade) or it could be two to three hours ... the average is five to 10 minutes."

On the transition from broker to trader, Reynolds said "you have to be more sophisticated to be a trader than a broker because you have to understand the underlying reason the market is moving."

When he began trading, Reynolds studied a book on fundamentals in order to gauge the importance of various economic releases throughout the month. "I study (the figures) a lot. You have to if you are going to be an effective scalper. When the 7:30 a.m. government economic reports flash on the board, Reynolds said, "I look at the numbers to see if they are inflationary."

For example, if the monthly release of the Producer Price Index came in 0.2% above expectations, "you start looking (to hit) bids-because that means it's inflationary and the bonds are going to go down."

As Eurodollar futures often trade in tandem with T-bond futures at the Chicago Board of Trade, Reynolds notes that he watches cash Treasury bond prices closely throughout the day as well. "If we see cash bonds turn around (to the upside) the locals will come in and just start buying Euros," Reynolds said.

In recent weeks, Eurodollar futures have been trading within extremely narrow ranges-a four- to five-tick range is not uncommon for the March Eurodollar contract lately. The major factor confining Eurodollar prices is that most analysts believe Federal Reserve will keep monetary policy steady between now and year-end.

Nonetheless, Reynolds said, "even in a one- or two-tick range you can still make money .. there will be 1,500 (contracts) on the bid and 2,000 on the offer."

Eurodollar futures are known for having great liquidity. "There's always 2,000 (contracts) at every price," Reynolds said. Total open interest for Eurodollar futures currently stands near 2,398,012. So even if the Eurodollars fluctuate within narrow ranges, "when the Euros move, there could be a 1,000 lot you can hit, so it makes it worth the wait," Reynolds said. "I'll do 700, 800 or 900 contracts because I know there will be 500 at the next price. I know I'll be able to get out."

While some traders leave early in the morning if they've had a good trade, Reynolds said, "I'm the type of guy to stay all day. I love to trade." However, he added, "I'll cut my losses and go home" if he's having a bad day. "It's usually 1,000 ticks either way," Reynolds said for his cut-off point for leaving. One tick in the Eurodollar contract is worth $25.

When asked what are some of the qualities that make a successful pit trader, Reynolds answered, "Number one is confidence. Number two is mental toughness. Number three is interpersonal skills. Number four is a basic understanding of the markets and number five-have enough capital-not necessarily in that order."

"You have to have mental toughness because if you are wrong you have to be able to take defeat and not lose your courage."

For beginning traders, Reynolds recommends the path he took-beginning as a runner. It is important "to take your time to build your foundation of understanding of the industry otherwise you won't last long. I just take it one day at a time and try to build on what I've done and hope I can continue to be successful in the future," Reynolds concluded.