Reborn in America, I am a legendary short seller on Wall Street.

Chapter 88: Market Crash at Opening (5k-word long chapter, requesting votes in August)

On Saturday morning, Larry arrived at Reading Securities in Hartford at nine o'clock. As soon as he entered the door, he stood there steadily and looked around the entire Reading Securities business department.

The front desk manager frowned slightly when he saw Larry, but then he remembered that this was the rich young man who had opened an account two weeks ago, back when he was wearing a Colt pony badge on his shirt!
The reason the front desk manager hesitated for a moment was that, although not much time had passed, the blond boy's demeanor had changed noticeably.

I'm more confident now, and my vision is sharper.

"Good morning, sir! How can I help you?" the front desk manager greeted him politely.

Larry glanced at him and said casually, "Manager, I'd like to buy or sell some stocks!" As he spoke, he handed the gold-embossed account card from his wallet to the front desk manager.

The front desk manager took the account card and glanced at the name on it. He had personally given it to the blond boy.

“Mr. Livingston! This should be your first time trading. We will send a trader to accompany you throughout the process.” The front desk manager led Larry to a temporary VIP seat before asking, “Anything else you require?”

Larry sat in the VIP seat, unbuttoned his coat, and turned to ask, "What's a temporary credit account?"

Larry had heard the brokerage teller mention this temporary credit account when he last opened an account here.

Larry genuinely didn't know, because Paine Weber Securities is a large brokerage firm and doesn't offer this service, but Reading does.

The front desk manager smiled and said, "Do you understand 'profit-adding'? It means that after the initial position generates a profit of more than 20%, we will provide a temporary margin account. Your floating profit will be used as new margin in the temporary margin account, and you can buy more based on the latest price."

Larry suddenly realized that unrealized gains in stocks are generally just unrealized gains, unless you sell the stocks and use the money to buy more stocks.

However, the temporary credit account proposed by Reading uses the customer's floating profits as new margin, allowing the customer to add to their position based on the floating profits.

This is more like futures trading, because in the futures system, profits can be added to positions on the same day.

Compared to Paine Weber Securities, which has many IPO underwriting and bond sales businesses, these second-tier securities firms can only increase their clients' trading volume through various leverage methods. Therefore, coming up with such a system at this time is a special kind of "innovation".

But that's fine too!
Perfect for today!

Verifying new clients' accounts and handling fund transfer contracts is very troublesome, but fortunately, Reading doesn't have many clients, and the front desk manager specially arranged for a trader to help Larry. So, before long, the trader had already delivered the trading order bearing Larry Livingston's name to Larry.

Larry carefully checked the balance in his account that could be used as margin: $1.2. He nodded, thinking to himself that this was his first time trading with a legitimate brokerage firm, and he had encountered such a good opportunity. He had to make the most of it!

A good beginning is half the battle.

It is now 9:40, and there are still 20 minutes before the market opens.

At that time, the New York Stock Exchange still used a manual outcry and continuous trading system. This trading system relied entirely on on-site traders from various securities firms to quote prices. In other words, the price of the first stock transaction of the day was the opening price, and the price of the last transaction was the closing price.

This system has many drawbacks, but it is irreplaceable in the absence of computers.

Larry was a little nervous. He had spent the whole night in the hotel thinking about how to operate today, but he was still nervous when it came to the actual operation.

Because actually participating in trading on an exchange is much more complicated than dealing with a betting company.

In a sense, betting companies are conducting trans-temporal transactions...

In other words, customers can open and close positions at the price they see. This kind of convenience will not be possible even in the United States until computers are widely used 100 years from now.

Previously, Larry saw Omaha's stock price rise from $62 to $105 at a betting shop in Hartford, so he went to the trading desk and placed an order to sell at $105. But such convenience is simply impossible on the real New York Stock Exchange.

If Larry had filled out a trade order at a reputable brokerage firm when he saw Omaha's opening price at $62, the execution price might have changed to $64 or even $66 fifteen minutes later, because it takes time for the trading order to be sent to the NYSE and for the brokerage firm's floor traders to execute it.

If Larry wanted to sell when the price reached $105 at the end of the trading day, his order would likely have been sent to the stock exchange long before closing time, making it impossible to sell.

Therefore, every decision made when buying and selling stocks through a securities company carries significant risk.

Larry is now looking to short Colt! Because he has anticipated a collapse in Colt's stock price.

Logically, Larry should have waited until the first transaction price appeared before placing his order. However, since Larry had planned this for so long, if the stock price crashed at the opening, he might not be able to short it at all.

Or, when Larry's market order is executed, the price has already fallen below the ideal entry point.

Therefore, Larry cannot wait for the first price to appear; he must make a decision 15 to 20 minutes in advance. Furthermore, he cannot set a price; instead, he must execute the transaction based on whatever the market price is at that time.

"Market price! Short 800 shares! Colt Firearms! Now!"

Larry coldly gave the trader the order to close the deal.

The trader, who was holding a pen and preparing to fill out a transaction form, was almost stunned when he heard this—shorting Colt firearms at a brokerage firm in Hartford?
He looked up at Larry blankly, as if seeking confirmation, and asked...
Are you referring to Colt Firearms Company?

Larry turned his head, his expression still cold. "Yes, it's Colt Firearms. Fill out the form quickly. I need to make sure this trading order is transmitted to the New York Stock Exchange before the market opens at 10 a.m.!"

The trader unconsciously swallowed hard, quickly filling in "market price, short, 800 shares, Colt firearms" on the order form, and then added a note: "Client requested pre-market trading."

The trader then quickly handed the order to Larry for confirmation.

At that time in the United States, the short-selling system was "naked short selling," which meant that Larry, who sold the stock, did not need to actually own Colt stock or borrow Colt stock from a brokerage firm before selling it.

He only needs to issue a short-selling order, and the floor traders will sell the stock short, but the settlement will need to be confirmed 5 days later.

In a sense, those who engage in naked short selling and those who buy the "short" stocks on the exchange are also gambling against each other.

Larry read it carefully, nodded, took the pen, and signed his name on the transaction form.

With almost no delay, the trader, holding the still-wet trading order, rushed into the telegraph room and slammed it onto the table.

At that moment, the wind he created while running blew away two small sheets of paper from the table beside him...

"The client requests to short 800 shares of Colt Arms before the market opens!" the trader shouted urgently to the telegraph operator.

The telegraph operator was taken aback and quickly took the form to check it.

In fact, it wasn't just the telegraph operator; even the front desk manager, who was standing next to the telegraph room, heard it. He glanced blankly at the trader, then unconsciously looked at Larry's back as he sat in the temporary VIP seat...

Isn't he the son of the owner of Colt? Why would he short the company he knows best?
Oh right, I don't think I saw him wearing his pony badge today...

The front desk manager pursed his lips, but his high level of professionalism prevented him from saying a word to anyone.

After confirming the transaction, the telegraph operator placed one hand on the key of the brass telegraph machine, quickly converting the transaction instructions into coded messages in his mind.

"Beep beep, beep beep beep, beep..."

The Morse code, like a rapid drumbeat, urged this urgent message forward at breakneck speed.

This coded message traveled along the direct telegraph line from Hartford to New York, instantly traversing the plains of New England, crossing hundreds of miles at the speed of light, and arriving at the Reading Company's telegraph receiver outside the New York Stock Exchange in Lower Manhattan. The translator, wearing headphones and sipping coffee, suddenly saw the red light flashing on the receiver. He hurriedly tossed his coffee aside, pulled a pencil from behind his ear, and prepared to begin translating the incoming transaction message…

"Beep beep, beep, beep beep beep..." The Morse code seemed to be the whisper of an ancient god.

The cipher sergeant listened intently, and one hand had already written it down on the message paper.

"Market price... Colt firearms... Short 800 shares, pre-market trading... Hartford..."

After confirming that everything was correct, the telegraph operator read the message again before handing the trading instruction from Hartford to the trader sitting at the table.

It's not even 9:48 yet.
The trader first glanced lazily at the message, but was suddenly drawn to the words "pre-market trading." He immediately picked up the trading order, jumped up, pushed open the telegraph room door, and shouted something to the outside.

"Delivery guy! Damn it, who's on duty today? Is Jerry here? Where's Little Butt? Long-Legged Henry will do too..."

A courier wearing a blue vest quickly stood in front of the trader.

The trader handed him the order form, emphasizing only one phrase: "Pre-market order!!"

The courier no longer needed to listen to any other instructions. He put the order in the deep front pocket of his vest and sprinted out of Reading Company's telegraph receiving area, heading towards the New York Stock Exchange floor 200 yards away...

Corresponding to the order runners were eighty-seven brokerage firms of all sizes from across the United States of America. The messages they received would also be delivered from the telegraph room to the New York Stock Exchange floor by order runners wearing vests of various colors...

At this moment, with ten minutes left before leaving the city, the New York Stock Exchange floor was already like a boiling furnace.

Beneath the enormous arched glass dome, over 400 traders dressed in various striped and solid-colored suits crowded around the sycamore wood trading counters, frantically preparing trading orders to be issued soon...

The deliveryman entered the room, slightly out of breath, but he still went to the Reading Securities counter, grabbed the report, and gave a short shout.
"Pre-market order!"

A lean floor trader at Reading snatched the trade order, frowned as he carefully examined the instructions, and then shoved the telegram into the hands of a man in a blue suit.
"Elliott! Pre-market order, to the manufacturing and arms sections!"

Then, the lean floor trader pointed to the southwest corner of the trading floor.

The floor trader named Elliott had sharp eyes and his cuffs gleamed from use. He nodded, quickly glanced at the trading order, placed the message on top of a stack of trade orders, and strode to the "Manufacturing and Arms Counter" in the southwest section!

At this moment, the counter was surrounded by more than a dozen arms. Elliott stood in front of the counter, raising his right arm high, his index and middle fingers pointing to the sky together—the exclusive gesture for selling stocks—and simultaneously, his voice, sharp as a knife through the air, drowned out the surrounding noise:

"Colt! Do you have any Colts? I'm selling 800 shares!! Pre-market order."

Before the shout had even faded, the buyer's broker at the adjacent counter suddenly turned around, spread his five fingers in response, and shouted, "I'll take it!"

"How much do you have there?" Elliott shouted, holding a market price list and waiting for the other party to make an offer.

The buyer's broker glanced at the order form in his left hand, then looked up and exclaimed, "48 and three-quarters!"

Elliott was slightly surprised, because the stock closed at over $53 yesterday, and the first order price today had already dropped to $48?
However, this doubt was only momentary. Elliott had already quickly filled out a formal form and slapped it on the buyer's trader.

The entire process took no more than 30 seconds, and a securities transaction was completed!
The moment the transaction is completed, the exchange's quote clerk has already inscribed the transaction record onto wax paper with a stylus.

The rotary printing press roared, and the first transaction price for Colt firearms today—$48 and three-quarters—had already spread throughout the United States via the paper tape of the automated stock quote machine!
Sweat beaded on Elliott's forehead as he quickly noted down the buyer's broker code in the trading book, tore off the pink confirmation slip, and tucked it into the sliding capsule of the exchange's brass tube.

With a "whoosh," the sliding capsule swiftly slid into the settlement room, where an employee copied the pink slip into three settlement statements:
One copy is kept at the exchange, one copy is sent to the brokerage firm of the buyer and seller, and another copy is submitted to the securities clearing bank for filing.

At 10:5, the floor counter of Reading Securities had received the transaction report. The lean floor trader copied the transaction price and number of shares on the transaction report and casually handed the report back to the order clerk.

This time, the courier didn't rush to leave. Instead, he waited until 10:10 a.m., when he had collected nearly 20 transaction reports, before he set off and ran back to the telegraph room of Reading Securities.

He handed all 20 transaction confirmation slips to the trader, because the order for selling Colt firearms was at the bottom, and by the time the order clerk handed it to the trader, that confirmation slip had already become the first one.

The trader didn't dare to delay. He walked into the telegraph room and placed the stack of transaction reports in front of the brass telegraph machine.

The telegraph operator and the trader cross-checked the price on the first trade confirmation, and then the telegraph operator pressed the telegraph key with four fingers...

"Beep, beep, beep beep beep, beep beep beep..."

The message once again crossed mountains and rivers, returning to the telegraph office in Hartford.

The Hartford telegraph operator, responsible for both sending and receiving messages, listened to the Morse code in his headset and wrote down the report on the report form.

"At 48 and three-quarters, 800 shares were traded, customer code..."

After the report was completed, the telegraph operator knocked on the glass door. The branch trader who was standing by pushed the door open and came in, took the report, and quickly glanced at it.

The trader frowned as he looked at the trade report and muttered something under his breath.
"Oh, that's a really low price. Did something happen to Colt today?"

However, he had no time to think about it. As the trader looked at the client code on the trade confirmation slip, Larry Livingston's handsome but cold face quickly flashed into his mind.

He took the form and strode towards Larry.

At that moment, Larry, who was sitting in the temporary VIP seat, had already seen the opening price: $48 and three-quarters!
However, he had no way of confirming whether his offer was the price at which the deal was made.

Less than two minutes after that bid ended, the young man guarding the bidding machine was already shouting out the second bid for Colt firearms that day.
"Colt, $44.5!!"

Then came the third, the fourth, the fifth...

When the trader politely handed Larry the trade confirmation slip, Larry's gaze had already become as black as a hole:
The latest transaction price has fallen below the $40 mark, reaching $39.1...

Larry felt a little uneasy as he received his transaction report. Colt's stock price had plummeted as he'd hoped, but he still didn't know the price at which his transaction had been executed…

Larry secretly prayed that his sale price would be at least $44.5...

But the moment Larry flipped through the transaction confirmation, his eyes widened and his face lit up with joy!
Aha, I won! It's the opening price of $48 and three-quarters!
Larry knew that even if he placed a pre-market order, it might be intercepted by other short-selling traders, but he was really lucky this time, choosing the best opening price to short in a wildly falling market.

Larry looked up at the clock on the wall; it was already 10:18 a.m.

"Great price! And the return on investment is fast too!" Larry exclaimed.

The trader, hands on his hips and laughing, said, "That's because you were the first to place the order. If you had been even 5 minutes later, the order confirmation might have been 30 minutes later!"

Larry stopped laughing. He looked up at the trader and calmly ordered, "Please give me another copy of my trading order!"

The trader paused, then asked, "Do you still want to trade?"

“Yes!” Larry nodded slightly.

(End of this chapter)