Pit

AAA

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.

RELATED TERMS
  1. Trading Floor

    The floor where trading activities are conducted. Trading floors ...
  2. Open Outcry

    A vanishing method of communicating on a stock, commodity or ...
  3. Floor Trader - FT

    An exchange member who executes transactions from the floor of ...
  4. Runner

    A broker employee who delivers a market order to the broker's ...
  5. Rings

    The locations on the floors of futures and options exchanges ...
  6. Theta

    A measure of the rate of decline in the value of an option due ...
Related Articles
  1. Investing Basics

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  2. Active Trading

    Take A Tour Of The Futures Trading Pit

    Discover why controlled chaos can mean an exciting investment experience for you.
  3. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  4. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  5. Home & Auto

    Understanding Rent-to-Own Contracts

    They can work for you or against you. Here's how to negotiate a fair one.
  6. Home & Auto

    Avoiding the 5 Most Common Rent-to-Own Mistakes

    Pitfalls that a prospective tenant-buyer could encounter on the road to purchase – and how not to stumble into them.
  7. Home & Auto

    Renting vs. Owning: Which is Better for You?

    Despite the conventional wisdom, renting might make more financial sense than you think.
  8. Investing Basics

    Understanding the Spot Market

    A spot market is a market where a commodity or security is bought or sold and then delivered immediately.
  9. Investing Basics

    Explaining Options Contracts

    Options contracts grant the owner the right to buy or sell shares of a security in the future at a given price.
  10. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
RELATED FAQS
  1. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  2. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  3. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  4. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  5. What is the interest rate offered on a typical margin account?

    Interest rates on margin accounts vary according to the size of the loan and the brokerage firm being used. Generally, interest ... Read Full Answer >>
  6. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!