Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=216995
Story Retrieval Date: 3/11/2014 11:00:36 AM CST
What does it take to be successful in futures markets? Leaders at Sweet Futures offer their take.
Trading in for a Sweeter future
“Ian, you came to the top. Now you’re going to the bottom.”
That’s what Pat Arbor, chairman of the Chicago Board of Trade, said to Ian Sweet in 1996 when he was looking for a job at the futures exchange. Unhappy with medical school, he dropped out to become a runner on the CBOT trading floor making $126 a week. That was barely enough to pay for his meals, he said.
Now, Sweet is his own employer and is earning a high six-figure salary running his own futures brokerage firm. A fringe benefit--his daughter sits outside his executive office on the 33rd floor of the Board of Trade building at the intersection of LaSalle Street and Jackson Boulevard.
“Nobody starts a business to fail. I wanted to make a huge company,” said Sweet, 43.
Sweet Futures LLC connects futures commission merchants with everyday traders. FCMs are larger companies that solicit futures contracts. Brokers at Sweet Futures are the middlemen who help customers better understand the derivatives business. Their job is to connect customers with FCMs and simplify the complicated nature of futures trading.
“In order to trade these markets you either need to be a professional and have access to the markets directly yourself or you need to go through an intermediary,” said John Lothian, a National Futures Association commodity trading advisor. “You need to have a real relationship with a clearinghouse.”
In between being a runner and launching his own firm, Sweet worked for Rosenthal Collins Group LLC, a large FCM, running the firm’s brokerage arm. In the next cubicle sat next to Mike Popilchak. That’s where “It all began,” Popilchak said.
Sweet learned the basics of grains markets as a runner; he learned how to be a broker at Rosenthal Collins. Popilchak said larger FCMs often don’t have the resources to immediately assist customers and may not be able to provide individualized research. That’s the type of service Sweet strives to deliver.
“I was with a company that couldn’t handle all my customer needs so I started to go on my own to handle all the needs of my customers,” Sweet said. He wanted to manage bigger accounts and delve into the growing energy sector. However, he had to make learn about energy markets first and it had to happen fast.
When his first Rosenthal Collins client asked about natural gas, Sweet put him on hold, looked to Popilchak and asked, “What is a natural gas?” Now, nearly half of Sweet’s contracts comprise gas and energy futures.
Sweet broke away from Rosenthal Collins in 2010 and formed his own independent brokerage firm. He made Popilchak his vice president. The duo now sit directly across from each other in their Board of Trade office.
Rosenthal Collins is one of the nine FCMs that Sweet works with, and Popilchak said Sweet Futures has maintained a healthy relationship with the larger firm.
The fact that Sweet works with nine different FCMs differentiates it from most other brokers who only work with one or two. For example, if a client has a rare request – such as a product that only trades on a global exchange – Sweet’s brokers can find the FCM that will best accommodate the request.
Sweet’s team of 18 brokers sits outside his office, separated only by a large glass window. That may sound small but Sweet Futures is large enough to be its own FCM, managing individual traders holding $5,000 in options accounts to corporate clients holding more than $500 million. Sweet brokers work with every type of client in the futures industry--from retail and energy companies to meat and grain producers and exporters.
Many clients ask Popilchak: “Why would we come to you when we can go directly to an FCM for business?”
His answer: Brokerage firms provide an added element of research and connectivity, “making sure that service level is on par” and ensuring clients get the service and information they need. “We’re brokers, we know the FCM environment,” he said. “They can focus on trading and we can concentrate on the request.”
Sweet credits his success to “providing an honest service and providing many choices when other provide only one.”
And honesty is important after recent scandals in futures trading such as with MF Global, a large futures brokerage firm that misused customer funds. Investors have lost a lot of confidence in futures markets and worry about two big things: what investments are too risky and who do I trust with my money?
Sweet builds trust through personal relationships. Clients find comfort in the fact that brokers at Sweet are available around the clock, giving them access to trading information whenever they need it.
“Sweet Futures is very different from other brokers because in short: They care,” says client Jeenay Kambdar. “They care about your progress, they care about everything.” He said he has not abandoned the futures industry because trading “is not dangerous when it’s done right,” and Sweet helps him do it right.
Kambdar is a trader in Mumbai who deals in crude oil futures. He was referred to Sweet Futures by his father who worked with Sweet for three years. It doesn’t bother him that he has never seen Sweet in person because the firm is always available. Sweet typically services a customer request in two hours. Kambdar says that was not the case with the eight other brokers his family worked with in the past.
“Many firms provide competitive rates but no real access to anybody,” Popilchak said. ““It’s like you’re calling a utility company: There’s a contact email and an 800 number.” Sweet said most of his new clients come from referrals, proof that relationships do matter in the world of trading.
Sweet’s success as an independent broker wasn’t assured. In the late 1980s MF Global lowered commission rates and many smaller brokerage firms dissolved or were bought out because they couldn’t compete.
Small firms were also pressured by the move to electronic trading, which required expensive capital investments. But Sweet Futures stood its ground and invested in new technology. Now, more than 90 percent of its trading is done electronically.
Surprisingly, the 2008 financial crisis did not hurt Sweet’s business. In fact, Popilchak says Sweet Futures grew during that turbulent period because of the increased need for hedging services and growth in energy markets.
“They need to know what’s going on with their money,” said Michael Kuta, an options broker at Sweet. “They need to know what’s going on with the current market situation and they need to know that you’re there on a 24-hour basis to access at any point in time.”
What’s next? The firm is physically expanding, moving from a single office in Chicago into offices in Georgia and Tennessee, and possibly New York, Texas and Florida in the near future. Sweet also says the firm is developing new trading technology that will “revolutionize the way that trading is done.” He doesn’t want to discuss details at this point but patents are pending.
As the firm grows so does the weight on Sweet’s shoulders.
“Everybody’s depending on me. I have a ton of employees. All of them have families. I worry much more,” he said pointing to a growing bald spot.
“He’s going to become like me,” said Popilchak, who is already completely bald. But the end of the day, Sweet and Popilchak’s worries have not kept them from innovating and expanding.
“We had grandiose thoughts about where we would go with this from the beginning,” Popilchak said. “And we have no limitations on our growth.”