Many of my readers have shown special interest in the behavior of floor traders. To people doing stock, Forex, dow futures or emini day trading, floor traders have a mystique and they want a peak behind the curtain.
I’ve never been a floor trader, but I’ve been trained by floor traders that took me right down into the pits of the CME so I could experience it up close and personal during market hours. I’ve visited the New York Stock Exchange, the Chicago futures exchanges several times, but to me there was something special about the Chicago markets. The energy is very different than New York and I loved it.
I’ve also been to the Tokyo Stock Exchange, but that is now completely electronic and is as silent as the Chicago pits are loud. The energy of the TSE is just like walking into a library! Click here to read more about my trip to the Tokyo Stock Exchange.
Most screen traders (those who trade from computers) assume that floor traders have some special edge that screen traders don’t. There is, or was, some truth to that. But actually most floor traders are not successful. In addition, the open outcry system of the floor is giving way to electronic trading and the “floors” around the country, and the world, are shrinking and even disappearing.
While that transition represents progress, the nostolgic part of me mourns that loss. The floor has a unique and exciting quality that I hate to see disappear.
So if the pits are on the way out, what’s the point of learning about them?
It’s important because screen trading gives you the impression that the markets move based on the lines and squiggles of indicators. But when you stand on the floor of an exchange you see, hear, smell and feel that what really moves the market is people. You can hear their energy, you can see the greed on their faces and you can almost smell their fear.
That’s the REAL market, and that’s what makes the market really move.
Today I share with you the first video of this series on floor trading. It is actually a preview to a new movie that is coming out which looks very interesting.
Please post your comments and questions below about the video and about floor trading.
this film reminds me of when I first started to trade – I opened up eSignal set up a few pages and before I knew I was hooked on the excitement and the buzz it gave me – That was only a year ago. If you are an enery junky then this is where you should be – Video is electrifying
Hi Dr Barry,
The trading floor reminded me of gladiators in the Colosseum in Rome, fighting to the death. Greed and fear and physical violence.
The survival and herd instinct. Caveman. Male. Macho. Be a winner not a loser. It seems that however Man tries to bury his carnal instincts with education and sophistication, they are just a scratch beneath the surface. Man, the greatest predator on Earth. a self-destruct, built-in obsolescent being. Mother Nature… RIP.
Geoffrey Salvage
Yawn. I think the full length movie will be exciting but watching this trailer I learned nothing. But it did reassure me of how I would expect us Chicagoans to act. The Mike Ditkas’ of the trading floor. I grew up in the Chicago area and never realized all those trading floors where there until just now. It’s hard to believe what an impact personal computers have had on our lives. Taking the number of floor traders from 10,000 to under 1,000 is a huge impact. Very interesting. Looks like one of those jobs that I’m glad someone else wants to do it. I look foward to the movie but this trailer left me wanting more. I’ll have to visit those exchanges when I go visit the family.
Is it possible for members of the public to arrange a visit to any of the Chicago trading floors? I would love to see them before they go quiet…
I was recently on the floor of the CBOE in Chicago and it was rather quiet and appeared that most of the pits were replaced with computer trading. The only exception was the S&P pit where they were still crying out the trades. Interesting to see the pit go from relaxing to excitement in mere seconds. Most of the computer traders were relaxing and some were reading books. Wanted to go over to the Merk and I’m certain it would have been different as I think they still use the crying out method. Didn’t have time to do that. I talked to a former floor trader and he told me that it was difficult to make a living now in in the pits as the bid/ask margins are too close. He told me what it cost him to be in the pits and it was astounding (office, back office personnel, exchange fees, runners, etc.) So he went to work for the CBOE, but it appeared to me that his heart was in the pits.
Wow! Is this where our electronic orders get processed and are these the people we “amateur” traders are competing against? Do these floor traders have access to charts? It would seem to me that this environment would be prone to error. Amazing that is works. I can see now that these markets are explicitly moved by people
First, it was not an ” Incredible” Video because of the simple fact that most people know about the general pecularities and behaviors of the “Trading Floor” or Pit. I was expecting more insight.
Having said that,this Video only cast a very negative Image on the Floor Trader because most people always thought that they were LOUD but Displined Individuals with large Capital,and fast instints,and the nature of the circumstances surrounding them in the Pit, yet it is NOT so.
For example it never even crossed my mind that they would be violent to each other, or behaving in such childish and inmature ways !
My RESPECT and Admiration for the Pit Trader is less after seeing this Video.
Intersting subject, but I did not get how there guys trade. Do they know that market is going to sell off or rally in a specific time? How do they find buyer or seller? Are there floor trader the same as big boys or big investors? Thnaks. I look forward to hear more Dr Barry.
intuitively I’ve known that a trip to the pits would offer some huge insights if not epephanies. your video is such a small slice. I reference Richard Ney (Making it in the Market) in the 70’s who tried to put it into words. Bravo! anyhow. J.B.
The competitive atmosphere in which these guys operate and its intensity must be very exciting but no place for a beginner. It seems at odds with the approach of trying to remove fear and greed from the decision making process, I look forward to seeing the movie.
I was under the impression that with the advent of the internet the floor trading is on the decline. Infact many floor traders gave up their chairs for small quiet desks on a floor off the exchange.
Some I know had trouble making the change others loved it.
To answer the above. I don’t think they know wnythign that any of us dont know except that they are more tapped into the local rumor line. They do get to see the orders coming and gong live real time. Much of that might be their own activity. They are just like us trying to scrap money out of a market that is alive and makes it easier to loose than gain. Many use mean reversion algorithyms some use trend following methods, some are intuitive and do well. As I understand they all fall victim to the same issues we do only its heightened because they are right there in it. Emotional rollercoaster daily.
Hi Barry,
As a new trader, its always interesting and educational to visit more mature sites. The level of conflict and verbal interaction on the video did surprise me, but it showed clearly the intensity and power of trading. It brings out the best in greed and fear in all of us. Thanks for posting it.
Interesting video. As I was watching it I realized that we as computer traders have a huge advantage over the pit traders. We can use charts and technicals and not get so emotional about trading. They allow their emotions to run wild and get caught up in the moment which may cloud their judgement and lose them money…
Thanks for the video.
It must be where “swing trading” got it’s name!!!
Not surprised at the violent side of things, when you have so much greed there!!!
I had the privilege of visiting the CBOE a few years ago and it was a zoo! I admire anyone who can make a career out of being a floor trader. It is serious brain damage! I’d rather sit at home behind my computers and only have to listen to the “voices” in my head while trading!
My first thought was, “Wow, trading jackets really do exist!”
I, too, was surprised that while one trader is congratulating himself for a good trade, there are others ready to deck him for it.
The trading floor looks very exciting, and alot could be learned there for sure, but in the long run I think would have better control of my own emotions by trading in my quiet little home office.
I, too, hope to visit the CBOE floor before outcry is gone.
Thanks for sharing, Barry – and interesting perspectives from other viewers, too – thanks.
Way cool! How do those guys last? Must be a high burn out rate. Can’t imagine making and losing those sums of money. It must be incredible!
Can’t imagine this will have mass-market appeal. But I so want to see it!
I think the biggest concern for the small (retail) trader today is not “what is the pit trader doing?”, but rather what will the market maker do with my order ?
It’s important to know how to place your trade; the size, the price and when (time of day). If you don’t know how to place a trade (i.e. “I just trade at the market.”, then you WILL get bad fills. (hint: look at the bid/ask spread)
I strong suggest reading up on how to place your trade, especially if it is of size, or in not extremely liquid markets. Otherwise, the maket maker will pick your pocket.
Good Trading.
Those guys are nuts! Since I can’t think when it is noisy, sure glad that I can retreat to my quiet office.
I would not be able to be a floor trader. I have a lot of respect for those who are able to do it.
Dear Dr Barry
I really admiring about your courses and your experience in the markets,also background(your dad’s teachings for you).But I can’t tell it all about FTraders.They don’t see any stochstics,fibs,or analyse any charts(unless they got it all before going on the floor).But assuming how people are -they don’t give a s~it at all how trend is going to go.They loose, we loose.So disappointing question-where we are and where they are?Who can help me to find out the point?Thank you!
Darius, last time I was on the Floor of the CME there were quite a few floor traders with laptops along the sides of the pits. Also there are TONS of people with computers both on the floor and off the floor that send messages to the floor traders all day long.
Barry
there’got to be abetter way
I thought it was all electronic these days! Are all the exchanges like in the video?
Sue, some exchanges have closed down, some have gone all electronic, but there are a few that are holding on to the old model – though even they have integrated a lot of electronic orders and are actually “hybrid” exchanges.
compared to your other things I thought it was a waste of time.
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