What is a “Exchange Floor”?
A trade floor is a place where stocks, bonds, futures, and options are bought and sold.
The New York Stock Exchange (NYSE) and the Chicago Board of Trade (CBOT) are two markets that have buildings with trading floors.
A financial company like an investment bank or hedge fund might also have a trading floor where most of the trading takes place.
KEY POINTS
- A trade floor is a place where people buy and sell stocks and do other related business.
- Trade floors can be found at places like the New York Stock Exchange (NYSE) or in the offices of financial firms where trade takes place.
- Before computer trading, open-outcry was the most common way to trade on trading floors
- Trade floors still exist today, but they aren’t as big or useful as they used to be because screens and algorithmic trade have taken their place.
Learning about Trading Floors
On an exchange, the trade floor is made up of pits. Because the trading floor was shaped like a circle and had steps cut into it, traders had to step into the arena to do their business.
When you think about how busy and frantic this kind of action is, you can see that the name is pretty accurate.
On trading floors, there were many different kinds of sellers. The floor brokers are the most popular. Their job is to trade on behalf of their clients.
There are also hedgers, scalpers, spreaders, and position traders, who are all different kinds of traders.
Brokerages, investment banks, and other companies that do trading can also have their own trade floors.
In these situations, “trading floor” refers to the real office where the trading division is located. The trading division can do business over the internet or by phone.
Tips
The rise of computer trading platforms, many of the trading floors that used to be the most important part of market exchanges have gone away. Now, trading is mostly done online.
Trading Floor at NYSE
The trade floor of the New York Stock Exchange (NYSE) is at 11 Wall Street in New York City. It has been there since 1865.
In 1878, the exchange put in phones, so buyers could talk directly to traders on the NYSE trading floor.
Most trades that happen on the trading floor today are done automatically and take less than a second.
On the trading floor, a bell is rung to mark the start and end of each business day.
In 2017, the NYSE said that it would allow all U.S. stocks and exchange-traded funds to be traded on its trading floor.
This would increase the number of assets that could be traded on the trading floor from about 3,500 to about 8,600.
In the first half of 2018, this extension was finished.
The Open Outcry Method & Trading Floors
Before electronic dealing, open outcry was the most common way to trade on trading floors.
The method uses both spoken and hand signals to send information, such as the name of a stock, the number of shares the seller wants to trade, and the price they want to get.
For instance, if a broker wants to raise their price, they might raise their hand. When trades are made using open outcry, a deal is made between the people on the trading floor and the brokerages and investors they work for.
The U.S. Securities and Exchange Commission (SEC) gave BOX Options Exchange (BOX), which is also based in Chicago, permission in 2017 to do open outcry dealing on their trading floor. This is a win for this way of trade.
Cboe Global Markets (Cboe) has both an electronic trading floor and a standard open cry trading floor. In mid-2022, they will be adding more space to their Chicago location.
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The End of the Trading Floor
dealing floors used to be the norm for buying and selling stocks, but computer screens, electronic markets, and algorithmic dealing have mostly taken their place.
When it came out in 1967, Instinet was the first big electronic alternative to the trading floor.
With Instinet, clients (only institutions) could deal with each other without going through the trade floors.
Instinet grew slowly and didn’t really take off until the 1980s. Now, it is a major player along with Bloomberg and Archipelago (which the NYSE bought in 2006).
Nasdaq began in 1971, but it wasn’t really an electronic trading system at first. Instead, it was mostly just an automated quotation system that let broker-dealers see the prices other firms were giving (and trades were done over the phone).
Nasdaq added more features over time, such as automatic trading systems. After the crash of 1987, when some market makers wouldn’t answer their phones, the Small Order Execution System was put in place to let orders be put in electronically.
Then other systems came. In 1992, CME released Globex, and in 1998, Eurex came out. Many other exchanges also started using their own electronic methods.
Due to the benefits of computer systems and the fact that clients prefer them, a large number of the world’s exchanges have switched to this method.
In 1986, the London Stock Exchange was one of the first big exchanges to make the change.
In 1994, the Borsa Italiana did the same thing. In 1997, the Toronto Stock Exchange moved, and in 1999, the Tokyo Stock Exchange did the same.
Along the way, many of the most important futures and options markets have also made the change.
Today, the United States is pretty much the only country that still has something like an open outcry market.
Open outcry is used in some way by all of the major commodity and options markets, including Cboe, CBOT, the New York Mercantile Exchange (NYMEX), and the Chicago Mercantile Exchange (CME).
In these cases, though, customers can also use electronic options. Today, most trading is done over the Internet instead of on trade floors.
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