DEFINITION of 'Pit'
A specific area of the trading floor that is designated for the buying and selling of a particular type of security through the open outcry system. In the pit, brokers match customers' buy and sell orders through shouting and hand signaling. Orders that are not executed in the pit are executed through electronic trading.
BREAKING DOWN 'Pit'
Pits, also called trading pits, have an octagon shape with several tiers to improve visibility. Brokers show their brokerage affiliations through their jacket colors and badges. Clerks take orders by phone or computer from customers, and runners transmit orders between the clerks and the brokers.
In the noisy, fast-paced and chaotic environment of the trading pit, hand signals facilitate quick trading and make it possible to be "heard" above the crowd. For example, when a broker turns his palms toward his head, he is indicating a buy order, and when his palms are facing away from his head, he is indicating a sell order.