DEFINITION of Rings
The locations on the floors of futures and options exchanges where trades are executed. Rings are the circular arenas on exchange trading floors where traders transfer information about buy and sell orders. They are part of the open outcry system of trading that involves verbal bids and offers and hand signals to convey trading information.
A separate ring is used for each different trading instrument; for instance, the options on a futures contract would typically be in the adjacent ring. The different areas of one pit correspond to the various contract expiration months, with the nearest month taking up the largest section. Workstations around each ring allow exchange members to communicate with pit traders, brokers and large institutional investors. The ring is also called the pit, or the trading pit.
BREAKING DOWN Rings
The rings, or pits, were designed so that the participants can see each other. The round shape has wide steps that lead down towards the center of the pit. Buyers and sellers stand on the steps and shout orders and use hand signals to convey information.
Many different hand signals have been developed to facilitate the trading process, and these signals are often confined to a single exchange or even a certain pit. The Chicago Mercantile Exchange version of a call option, for example, involves holding the hand in the shape of a "C" where the thumb forms the bottom of the letter and the rest of the fingers line up to make up the top of the letter.