What is 'Open Outcry'

Open outcry is a method of verbal and hand signal communication used by traders at stock and futures exchanges. Signals and shouts convey trading information, intentions, and acceptance in the trading pits.

Open outcry is also called pit trading.

BREAKING DOWN 'Open Outcry'

 

Trading pits are the parts of trading floors where actual trading takes place.Traders make a contract when one trader declares they want to sell at a certain price and another trader responds that they will buy at that same price.

Open outcry is similar to an auction where all participants have a chance to compete for orders. It leads to transparency, efficient markets, and fair price discovery. Because trading can occur between any two participants at any given time, it differs from over-the-counter trading where trading is negotiated between two parties privately.

The length of the trading day differs between open outcry exchanges and those that use electronic trading such as the Globex. Regular market hours typically run from 8:30 a.m. to 4:15 p.m. Eastern Standard Time. Open outcry sessions for some commodities such as corn futures and options (CBOT) run from 9:30 a.m. to 1:15 p.m. 

First introduced in 1992, the Globex is the first global electronic trading system for futures and options. The Chicago Mercantile Exchange  (CME) developed the Globex automated system. Electronic trading on Globex is available nearly 24 hours a day, from Sunday evening through late Friday afternoon. There is a short break each day between closing one day's trades and reopening the next day's trading. This break varies from 30 to 60 minutes depending on the product of trading.

The End of Open Outcry Trading

While open outcry dates back centuries as the dominant method for trading, most exchanges now use electronic trading systems. These automated systems reduce the costs, improve trade execution speed, and create an environment less prone to manipulation. They also make it easier to aggregate information for all interested parties. Electronic trading is now available, often for free, on home computers and smartphones.

Some professional traders lament that electronic trading cannot capture the intangible information upon which pit traders relied. As an example, electronic trading is void of the subjective assessment of a buyer or seller's intentions or motivations. Electronics do not relay the mood of the trading pit, which is now only available in old movies. Trading Places, starring Eddie Murphy and Dan Aykroyd, provided a rather good look into the methods, frustrations, and even the advantages that experienced pit traders have at their disposal.

RELATED TERMS
  1. e-CBOT

    The CBOT is an electronic trading platform that gives traders ...
  2. London Metal Exchange - LME

    The London Metal Exchange (LME) is a commodities exchange in ...
  3. Extended Trading

    Extended trading is trading conducted on electronic exchanges ...
  4. Chicago Mercantile Exchange - CME

    The Chicago Mercantile Exchange is a futures exchange which trades ...
  5. Closing Quote

    A closing quote reflects the final regular-hours trading price ...
  6. Opening Cross

    Opening cross is a method used by Nasdaq to determine the opening ...
Related Articles
  1. Trading

    Intro to Open Interest in the Futures Market

    Learn about open interest, a concept used to confirm trends and trend reversals for futures and options contracts.
  2. Trading

    Automated Trading Systems: The Pros and Cons

    Automated trading systems minimize emotions, allow for faster order entry, lead to greater consistency and resolve "pilot error."
  3. Investing

    How Nasdaq Continues To Innovate

    For centuries, a stock market was a physical arena where buyers and sellers traded shares. Then the NASDAQ opened and changed everything.
  4. Personal Finance

    Quit Your Job to Trade Stocks?

    Ready to quit your day job and become a full-time trader? These tips will help you determine your area of expertise.
  5. Trading

    Top 10 Rules For Successful Trading

    Whether you're a novice or an expert, these 10 rules should be the backbone of your trading career.
  6. Trading

    Trading in the Pre- and Post-Market Sessions

    Pre-market and after-hours trading may offer benefits for traders, but there are some potential problems.
  7. Trading

    Best Undergraduate Degrees for Day Traders

    Here's a look at some popular undergrad majors for those wanting to begin a career in the exciting, fast-paced world of day trading.
  8. Trading

    The Best Day Trading Schools and Courses

    Jumping into day trading without some training could lead to losses. Here's how to pick a good day-trading course or school.
  9. Investing

    An Introduction To Real Estate Futures

    These futures are intended for institutional use, but retail investors looking to speculate on prices can benefit as well.
RELATED FAQS
  1. What's the difference between the Chicago Board of Trade (CBOT) and the Chicago Mercantile ...

    Read about the CBOT and Mercantile exchanges; both are futures exchanges that offer different futures contracts and specialize ... Read Answer >>
  2. What is the electronics sector?

    Learn more about the electronics sector and the challenges and opportunities presented to electronics companies by new and ... Read Answer >>
  3. Why are traders on the floor of the exchange?

    Learn how trading on the floor of the stock exchange has evolved over time with computers now managing the majority of buying, ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center