Dan Dicker: How electronic trading changed (ruined) crude oil prices

As a local on the New York Mercantile Exchange (Nymex), Dan Dicker traded thousands of contracts a day. He loved the pit, loved the action. He left the floor when Nymex had its IPO and, like other members, walked out a multi-millionaire. But his trading — and global viewpoint — changed and he’s often asked to provide his opinion and analysis across the airwaves, from TheStreet.com to OilPrice.com. But it’s his writing that is most provocative and he doesn’t hold back. We asked him to give us his viewpoint of the brave new energy world.

Futures Magazine: Let’s start by how you got into trading. How did you become a trader? How did you get your start on the Nymex floor?

Dan Dicker: It’s the kind of story that everyone tells ….no one is so focused and decides they want to become an energy trader. I was pre-med at Stony Brook, which is part of the New York State University system and [decided] in my second or third year that I really didn’t want to be a doctor. 

My roommate at the time, who has been a longtime friend — and is my business partner now in MercBloc  — was Mark Burnett, went down to where his cousin was [working], which was trading at the brand new New York Mercantile Exchange, which had just introduced heating oil. My father actually suggested I go and take a look at this thing because it was new, and though I was good with numbers, I wasn’t patient about long-term things, and this was kind of quick and exciting. [Mark] and a partner of his at the firm he was working [for] got me a job as a clerk for two locals. I worked for them about nine-10 months before I decided to borrow, I think it was $11,000 from my father to open an account. In those days you could lease a seat for $450 a month. 

FM: You traded in unleaded gasoline?

DD: That’s where I spent the lion’s share of my career. I always had positions and intermarket spreads on — like heating oil and gas, cracks and so forth. And I spent a full year in the crude oil options pit when they first introduced those, and those were a lot of fun. But most of my career I was a pit trader in unleaded gasoline —that’s where I spent most of my time. 

FM: How did you prep for trading on the floor?

DD: I would be lying if I said I got a sense of the macro side of energy in the early part of my trading years. I was like everyone else and we were consumed with trying to get a sense of where paper was coming and how fiercely it was coming and what the sentiment was of those who were pushing the heavy volume. That was far more important to me than having any macro sense of what was going on in energy in general in a bullish or bearish trend. We did over the course of days tend to deal with biases as the markets moved; that was something  you naturally did but I’d be lying to you if I said I’d spent three hours in the morning doing all sorts of research — I did not. What I did is I saw that there were a whole bunch of guys serious about getting long the market, and the market was going up, and there was a certain macro trend we noticed, that you were better off buying dips than selling rallies, and that went with what the flow sounded like, and how serious they were. At times the best information was knowing who you could ignore.

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