What Is the Pit?

The pit on a securities exchange floor is the area reserved for buying and selling by traders. The traders buy and sell securities in the pit using the open outcry ⛎system, which requires shouting and hand signals. The lates❀t prices are displayed in real-time, allowing everyone to compete for the best price.

The pit is also called the trading floor.

Most physical trading floors have been replaced by electronic trading platforms but a few still exist, including the one at the 澳洲幸运5官方开奖结果体彩网:New York Stock Exchange (NYSE).

Understanding the Pit

When most people picture a 澳洲幸运5官方开奖结果体彩网:stock exchange, they tꦡhink of a fast-paced, chaotic environment inhabited by a cluster of traders shouting orders. This is accurate on some exchanges even today, although the surviving pits have shrunk in size.

The traders wear different colored jackets and badges that represent their 澳洲幸运5官方开奖结果体彩网:brokerages. They're working to g♋et the best price for their customers or for the brꦇokerage houses that employ them.

Most of the activity takes place at the beginning and end of the trading day. Clerks take orders by phone or computer from customers in the pit, and runners transmit orders between clerks and brokers.

Brokers and dealers may buy for themselves, their firms, or their firm's clients. Specialists work their "books" or ledgers in the pit, making a market in 澳洲幸运5官方开奖结果体彩网:securities and keeping track of orders awaiting execution.

Since all orders are displayed, everyone has a chance to participa𒁃te in trading activity.

Very few physical trading floors survive today. The NYSE and the 澳洲幸运5官方开奖结果体彩网:Chicago Mercantile Exchange (CME) Group still have pits.

Electronic trading platforms were first introduced in the late 1980s and early 1990s, Most of the world's major exchanges made the transition long ago.

Special Considerations

Traders in the pit shout, wave their arms, and use special signals with their hands to communicate their trading intentions on the floor. Hand 😼signals facilitate faster trading and make communication possible over the crowd noise.

For instance, when a trader places their palms toward themselves, it indicates a buy order. If they place their hands away from themselves, it's a sell order.

Some exchanges develop unique signals. Traders on the floor of the 澳洲幸运5官方开奖结果体彩网:Chicago Board of Trade (CBOT) indicate the month of January by using a fist to mimic jamming something into their heads. Traders at the CME group hold their throats between their thumbs and index fingers to denote the same month.

The Pit vs. Electronic Trading

Although there is still some appeal in the open outcry system, electronic trading is cheaper to run. Cutting out the 澳洲幸运5官方开奖结果体彩网:middleman means a drop in fees and commissions for traders and investors and higher productivity for brokerages.

Exchanges iཧncluding the NYSE and the CME Group began reducing the number of brokers on the floor in 1984 after adopting an updated system operated by phone.

The rise in internet technology in the 1990s completed the process. This period saw more powerful computers, higher trading volumes, and a drop in trading 澳洲幸运5官方开奖结果体彩网:commissions.

The 2000s saw the rise of algorithmic trading and faster technology. With this boost in technology, traders and the companies they work for benefit from a higher volume of trades during the trading day.

The Bottom Line

The pit, or the trading floor, is the area of a securities exchange that is set aside for traders who buy and sell shares in real-time for their clients and th𝄹eir brokerages. Electronic trading has largely replaced t🐟his process. Some major exchanges still have pits, although they have shrunk in size.