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Open outcry is a method of communication between professionals on a
stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), securities, such as share (finance), shares of stock, Bond (finance), ...
or
futures exchange A futures exchange or futures market is a central financial exchange An exchange, bourse (), trading exchange or trading venue is an organized market where (especially) tradable securities A security is a tradable financial asset. The term ...
, typically on a trading floor. It involves shouting and the use of hand signals 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 In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), d ...

auction
, 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 The price discovery process (also called price discovery mechanism) is the process of determining the price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for one unit o ...
. 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 medicine Medicine is the Art (skill), art, science, and Praxis (process) , practice of caring for a patient and managing the diagnosis, prognosis, Preventive medicine, prevention, therapy, treatment or Palliat ...
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 ca ...
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 function of a market maker is t ...
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 as to a buyer/seller's motives or intentions and adjust their positions accordingly. As of 2010, most
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
s and
futures contract In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availabl ...
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 TradeThe Chicago Board of Trade (CBOT), established on April 3, 1848, is one of the world's oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange (CME) to form CME Group CME Group Inc. (Chicago M ...

Chicago Board of Trade
owned by the
CME Group CME Group Inc. (Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange, The Commodity Exchange) is an American global markets company. It is the world's largest financial derivatives exchange, and trades in asset class ...
.


History

Since the 1980s, the open outcry systems have been being 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 ca ...
systems (such as
CATS The cat (''Felis catus'') is a of small . It is the only domesticated species in the family and is often referred to as the domestic cat to distinguish it from the wild members of the family. A cat can either be a house cat, a or a ; ...
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 ag ...
). Floor trading is the meeting of traders or
stockbroker A stockbroker is a regulated broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a sell ...

stockbroker
s 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 exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), securities, such as share (finance), shares of stock, Bond (finance), ...
s or
futures exchange A futures exchange or futures market is a central financial exchange An exchange, bourse (), trading exchange or trading venue is an organized market where (especially) tradable securities A security is a tradable financial asset. The term ...
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 ca ...
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 A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an U ...

New York Stock Exchange
(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 A hybrid market allows a stockbroker A stockbroker is a regulated broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is execute ...
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 ca ...
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 ca ...
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 the futures exchange with the world's largest market in options and futures contract In finance Finance is the study of financial institutions, financial markets and how they operate within the financial sy ...
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 A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community ...
moved to electronic trading in 1986. * The
Borsa Italiana Borsa Italiana, based in Milan, is the Italy, Italian stock exchange. It manages and organises domestic market, regulating procedures for admission and listing of companies and intermediaries and supervising disclosures for listed companies.ital ...
, Italy's stock market, located in Milan, moved to electronic trading in 1994. * The
Bombay Stock Exchange BSE Limited, formerly known as the Bombay Stock Exchange is an Indian stock exchange located on Dalal Street in Mumbai. Established in 1875, it is Asia's oldest stock exchange. The BSE is the world's 7th largest stock exchange with an overall ma ...

Bombay Stock Exchange
, Mumbai, embraced electronic trading in 1995 by introducing the
BSE
BSE
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 A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and sto ...

Johannesburg Stock Exchange
(JSE) adopted electronic trading on 7 June 1996. * The
Colombo Stock Exchange The Colombo Stock Exchange (CSE) ( si, කොළඹ කොටස් වෙළඳපොල, translit=Kolamba kotas velandapola; ta, கொழும்பு பங்கு பரிவர்த்தனை) is the main stock exchange in Sri La ...
(CSE) adopted electronic trading (The
Automated Trading SystemAn 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 bas ...
(ATS)) in 1997. * The
Toronto Stock Exchange The Toronto Stock Exchange (TSX; french: Bourse de Toronto) is a stock exchange in Toronto Toronto is the capital city of the Provinces and territories of Canada, Canadian province of Ontario. With a recorded population of 2,731,571 in 201 ...

Toronto Stock Exchange
(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 Busan (), formerly romanized as Pusan and now officially known as is South Korea South Korea, officially the Republic of ...

Korea Exchange
(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 Th ...
(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 Minneapolis () is a city in the U.S. state of Minnesota. With a population of 429,954 as of 2020 United States ...

Minneapolis Grain Exchange
(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 A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an U ...

New York Stock Exchange
, 2006–2007, under
John Thain
John Thain
*
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 (New York City), Brookfield Place in the Battery Park City section ...

New York Mercantile Exchange
(Nymex), 2006. Since the 1980s, Nymex had a virtual monopoly on 'open market' oil futures trading, but the electronically based IntercontinentalExchange (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 ag ...
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 TradeThe Chicago Board of Trade (CBOT), established on April 3, 1848, is one of the world's oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange (CME) to form CME Group CME Group Inc. (Chicago M ...

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 An exchange, bourse (), trading exchange or trading venue is an organized market where (especially) tradable securities A security is a tradable financial asset. The term ...
s such as the
Chicago Mercantile Exchange The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives market The derivatives market is the financial market A financial market is a market Market may refer to: *Market (economics) ...

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