Floor trading
Encyclopedia
Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
s meet at a specific venue referred to as a trading floor or pit to buy and sell financial instruments using open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
method to communicate which each other. These venues are typically stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
s or futures exchange
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
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
Electronic trading
Electronic trading, sometimes called etrading, is a method of trading securities , foreign exchange or financial derivatives electronically...
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
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
(NYSE) which still execute a small percentage of their 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. Just like in an auction, there are shouts coming from those that want to sell and those that want to buy. The specialist facilitates in the match and centralizing the trades.
On January 24, 2007, the NYSE went from being strictly an auction market to a hybrid market
Hybrid market
A hybrid market allows a stock broker to either have his order executed immediately in a fully automated electronic exchange, or to have it routed to the trading floor where it is completed manually via the more traditional live auction method in the presence of a specialist broker...
that encompassed both the auction method and an electronic trading
Electronic trading
Electronic trading, sometimes called etrading, is a method of trading securities , foreign exchange or financial derivatives electronically...
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
Electronic trading
Electronic trading, sometimes called etrading, is a method of trading securities , foreign exchange or financial derivatives electronically...
is faster and provides for anonymity, there's 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.