What is a Trading Floor?

Trading floor refers to an area where trading activities in financial instruments, such as equities, fixed income, futures etc., takes place. Trading floors sit in the buildings of various exchanges, such as the New York Stock Exchange (NYSE) and the Chicago Board of Trade (CBOT).

Understanding Trading Floors

The trading floor is also referred to as the pit of an exchange. This is due to the fact that, initially, the trading floor was circular in design, and traders had to step into the arena to conduct their desired transactions. Factor in the hectic, frenzied nature that accompanies this type of activity, and one can see that the moniker is quite descriptive.

However, with the advent of electronic trading platforms, many of the trading floors that once dominated market exchanges have disappeared as trading has become more electronically based. (For more, see: The Death of the Trading Floor.)

Brokerages, investment banks and other companies involved in trading activities can also have trading floors. In this case, it refers to the physical office location that houses the trading division, which can complete transactions over the internet or telephone.

There are many different types of traders that can be found on trading floors. The most common are the floor brokers, who are tasked with trading on behalf of clients. Other types of traders include, hedgers, scalpers, spreaders, and position traders.

Key Takeaways

  • Trading floor refers to an area where trading activities in financial instruments, such as equities, fixed income, futures etc., takes place.
  • Trading floors sit in the buildings of various exchanges, such as the New York Stock Exchange (NYSE) and the Chicago Board of Trade (CBOT).
  • Open outcry was the primary trading method used on trading floors before the rise of electronic trading.

NYSE Trading Floor

The NYSE trading floor is located at 11 Wall Street in New York City and has been in its current location since 1865. The exchange installed telephones in 1878, which provided investors with direct access to traders on the NYSE trading floor. Today, most of the transactions that take place on the trading floor are automated and execute in less than a second. A bell is rung on the trading floor to signal the opening and closing of each day’s trading.

In an era where trading floors are becoming a relic of the past, the NYSE announced in 2017 that it would allow all U.S. stocks and exchange-traded funds to trade on its trading floor, increasing the number of securities that could be traded on the trading floor from roughly 3,500 to about 8,600. This expansion was completed in the first half of 2018.

Trading Floor and Open Outcry Method

Open outcry was the primary trading method used on trading floors before the rise of electronic trading. The method uses verbal and hand signal communications to convey information, such as a stock’s name, the quantity the broker wants to trade, and the price at which he or she wants to deal.

For example, a broker might raise their hand if they wish to increase their bid. Trades executed using the open outcry method form a contract between individuals on the trading floor and the brokerages and investors they represent.

In 2017, the Chicago Board Options Exchange (CBOE) confirmed it intends to keep its traditional open outcry trading floor. In another win for this trading method, the Securities and Exchange Commission (SEC) has given approval for BOX Options Exchange (BOX), also based in Chicago, to conduct open outcry dealing on their trading floor.