![NYSE-floor](https://upload.wikimedia.org/wikipedia/commons/0/01/NYSE-floor.jpg)
Open outcry is a method of communication between professionals on a
stock exchange or
futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or ...
, typically on a trading floor. It involves shouting and the use of
hand signals
Hand signals are given by cyclists and some motorists to indicate their intentions to other traffic. Under the Vienna Convention on Traffic, bicycles are considered 'vehicles' and cyclists are considered 'drivers', a naming convention reflec ...
to transfer information primarily about buy and sell orders.
[ floor trading hand signals ] The part of the trading floor where this takes place is called a ''pit''.
In an open outcry
auction
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition ex ...
,
bids and offers must be made out in the open market, giving all participants a chance to compete for the order with the best price. New bids or offers would be made if better than previous pricing for efficient
price discovery
In economics and finance, the price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers.
Overview
Price discovery is diff ...
. Exchanges also value positions marked to these public market prices on a daily basis. In contrast,
over-the-counter
Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescr ...
markets are where bids and offers are negotiated privately between principals.
Since the development of the stock exchange in the 17th century in Amsterdam, open outcry was the main method used to communicate among traders. This started changing in the latter half of the 20th century, first through the use of telephone trading, and then starting in the 1980s with
electronic trading
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products c ...
systems.
, a few exchanges still had floor trading using open outcry. The supporters of electronic trading claim that it is faster, cheaper, more efficient for users, and less prone to manipulation by
market maker
A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the ''bid–ask spread'', or ''turn.'' The benefit to the firm is that i ...
s and
broker/dealers. However, many traders still advocate for the open outcry system on the basis that the physical contact allows traders to
speculate
In finance, speculation is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline in value.)
Many s ...
as to a buyer/seller's motives or intentions and adjust their positions accordingly. As of 2010, most
stocks and
futures contract
In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
s were no longer traded using open outcry due to the lower cost of the aforementioned technological advances. As of 2017, open outcry in the United States was very limited, such as in a much more stream-lined form at the
Chicago Board of Trade owned by the
CME Group.
History
Since the 1980s, the open outcry systems have been steadily replaced by
electronic trading
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products c ...
systems (such as
CATS and
Globex
The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an ...
).
Floor trading is the meeting of traders or
stockbrokers at a specific venue referred to as a trading floor or pit to buy and sell financial instruments using open outcry method to communicate with each other. These venues are typically
stock exchanges or
futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or ...
s and transactions are executed by members of such an exchange using specific language or hand signals. During the 1980s and 1990s, phone and
electronic trading
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products c ...
replaced physical floor trading in most exchanges around the world.
As of 2007, few exchanges still have floor trading. One example is the
New York Stock Exchange
The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed ...
(NYSE), which still executes a small percentage of its trades on the floor. That means that the traders actually form a group around the post on the floor of the market for the specialist, someone that works for one of the NYSE member firms and handles the stock. As in an auction, there are shouts from those that want to sell and those that want to buy. The specialist facilitates in the match and centralizing the trades. On 24 January 2007, the NYSE went from being strictly an auction market to a
hybrid market that encompassed both the auction method and an
electronic trading
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products c ...
method that immediately makes the trade electronically. A small group of extremely high-priced stocks isn't on this trading system and is still auctioned on the trading floor. Even though over 82 percent of the trades take place electronically, the action on the floor of the stock exchange still has its place. While
electronic trading
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products c ...
is faster and provides for anonymity, there is more opportunity to improve the price of a share if it goes to the floor. Investors maintain the right to select the method they want to use.
The
London Metal Exchange
The London Metal Exchange (LME) is a futures and forwards exchange with the world's largest market in standarised forward contracts, futures contracts and options on base metals. The exchange also offers contracts on ferrous metals and precious ...
is the last open outcry exchange in Europe. It utilises short periods of face-to-face "ring trading" for price discovery, with further trades taking place electronically.
Conversion to electronic trading
* The
London Stock Exchange
London Stock Exchange (LSE) is a stock exchange in the City of London, England, United Kingdom. , the total market value of all companies trading on LSE was £3.9 trillion. Its current premises are situated in Paternoster Square close to St P ...
moved to electronic trading in 1986.
* The
Borsa Italiana, Italy's stock market, located in Milan, moved to electronic trading in 1994.
* The
Bombay Stock Exchange
BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange. It is located on Dalal Street in Mumbai. Established in 1875 by cotton merchant Premchand Roychand, a Jain businessman, it is the oldest stock exchange i ...
, Mumbai, embraced electronic trading in 1995 by introducing the
BSE
BSE may refer to:
Medicine
* Bovine spongiform encephalopathy, also known as mad cow disease, a neurodegenerative disease of cattle
* Breast self-examination
Stock exchanges
* Bahrain Stock Exchange, Bahrain
* Baku Stock Exchange, Azerbaijan
* B ...
Online Trading (BOLT) System on 14 March 1995.
* The
Johannesburg Stock Exchange
JSE Limited (previously the JSE Securities Exchange and the Johannesburg Stock Exchange) is the largest stock exchange in Africa. It is located in Sandton, Johannesburg, South Africa, after it moved from downtown Johannesburg in 2000. In 2003 ...
(JSE) adopted electronic trading on 7 June 1996.
* The
Colombo Stock Exchange
The Colombo Stock Exchange (CSE) ( si, කොළඹ ව්යාපාර වස්තු හුවමාරුව, translit=Kolamba Vyapara Vasthu Huvamaruva; ta, கொழும்பு பங்கு பரிவர்த்தனை) i ...
(CSE) adopted electronic trading (The
Automated Trading System An automated trading system (ATS), a subset of algorithmic trading, uses a computer program to create buy and sell orders and automatically submits the orders to a market center or exchange. The computer program will automatically generate orders ba ...
(ATS)) in 1997.
* The
Toronto Stock Exchange
The Toronto Stock Exchange (TSX; french: Bourse de Toronto) is a stock exchange located in Toronto, Ontario, Canada. It is the 10th largest exchange in the world and the third largest in North America based on market capitalization. Based in the ...
(TSX) adopted electronic trading in 1997.
* The
Korea Exchange
Korea Exchange (KRX) is the sole securities exchange operator in South Korea. It is headquartered in Busan, and has an office for cash markets and market oversight in Seoul.
History
The Korea Exchange was created through the integration of Ko ...
(KRX) adopted electronic trading in 1997.
*
International Petroleum Exchange
International is an adjective (also used as a noun) meaning "between nations".
International may also refer to:
Music Albums
* ''International'' (Kevin Michael album), 2011
* ''International'' (New Order album), 2002
* ''International'' (The T ...
(IPE) moved to electronic trading in 2005.
*
Minneapolis Grain Exchange
The Minneapolis Grain Exchange (MGEX) is a commodities and futures exchange of grain products. It was formed in 1881 in Minneapolis, Minnesota, United States as a regional cash marketplace to promote fair trade and to prevent trade abuses in whe ...
(MGEX) moved to electronic trading in 2008.
*
New York Stock Exchange
The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed ...
, 2006–2007, under
John Thain
John Alexander Thain (born May 26, 1955) is an American businessman, investment banker, and former chair and CEO of the CIT Group.
Thain was the last chairman and chief executive officer of Merrill Lynch before its merger with Bank of America. ...
*
New York Mercantile Exchange
The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place in the Battery Park City section of Manhattan, New York City.
T ...
(Nymex), 2006.
*
Frankfurt Stock Exchange
The Frankfurt Stock Exchange (german: link=no, Börse Frankfurt, former German name – FWB) is the world's 12th largest stock exchange by market capitalization. It has operations from 8:00 am to 10:00 pm ( German time).
Organisation
Loca ...
, 2011, all trading moved to
Xetra (trading system)
Xetra ( Market Identifier Code (MIC): XETR) is a trading venue operated by Frankfurter Wertpapierbörse (FWB, the Frankfurt Stock Exchange) based in Frankfurt, Germany.
In 2015, 90 percent of all trading in shares at all German exchanges was tra ...
, ending the possibility to execute orders via open outcry on the floor. Market makers, however, continue to operate on the floor as "Xetra-Specialists", providing liquidity.
Since the 1980s, Nymex had a virtual monopoly on 'open market' oil futures trading, but the electronically based
IntercontinentalExchange
Intercontinental Exchange, Inc. (ICE) is an American company formed in 2000 that operates global financial exchanges and clearing houses and provides mortgage technology, data and listing services. Listed on the Fortune 500, S&P 500, and Russel ...
(ICE) began trading
oil contracts that were extremely similar to Nymex's in the early 2000s and Nymex began to lose market share almost immediately. The pit-traders at Nymex had been resisting the electronic move for decades, but the executives believed the exchange had to move to the electronic format, or it would cease to exist as a viable business. The executives introduced CME's
Globex
The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an ...
system into Nymex in 2006.
The Asylum
Leah McGrath Goodman, 2011, Harper Collins In 2016, NYMEX ceased all open outcry trading, leaving only open outcry at its sister exchange the Chicago Board of Trade.[
]
Hand signals
Floor hand signals are used to communicate buy and sell information in an open outcry trading environment. The system is used at futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or ...
s such as the Chicago Mercantile Exchange.
Traders usually flash the signals quickly across a room to make a sale or a purchase. Signals that occur with palms facing out and hands away from the body are an indication the gesturer wishes to sell. When traders face their palms in and hold their hands up, they are gesturing to buy.
Numbers one through five are gestured on one hand, and six through ten are gestured in the same way only held sideways at a 90-degree angle (index finger out sideways is six, two fingers is seven, and so on). Numbers gestured from the forehead are blocks of ten, and blocks of hundreds and thousands can also be displayed. The signals can otherwise be used to indicate months, specific trade or option combinations, or additional market information.
These rules may vary among exchanges or even among floors within the same exchange; however, the purpose of the gestures remains the same.
See also
* Trading jacket
References
External links
New York Times Open Outcry Table
TradingPitHistory.com - Trading Pit Hand Signals Gallery and Archive
{{Authority control
Financial markets
Nonverbal communication