For many people, even just the words "stock exchange" invoke images of men clad in weird jackets frantically gesturing and yelling to each other while quickly scribbling on their pads. Albeit exaggerated and over-simplified, this is how a lot of exchanges (be they stock, options, or futures) used to function. Increasingly, though, the human floor trader is becoming a relic of the past as exchanges go virtual and traders handle business through impersonal computer terminals and phones.
With virtually all of the momentum on the side of electronic trading - there has been no major conversion from an electronic system back to the old method - is there much of a future left for human floor traders or human interaction?
Open Outcry - Previously the Only Game in Town
Given that stock and commodity trading predates the invention of the telegraph, telephone or computer by hundreds of years, it is fairly obvious that face-to-face human trading was the standard way of doing business for a long time. Some exchanges began as little more than informal gatherings of local businessmen with common interests (a grain buyer and a grain seller, for instance). Over time, though, the functions become more regular and specialized, and the people involved came up with common rules and policies. Ultimately, this culminated in the creation of open outcry markets for financial instruments like stocks, bonds, options and futures. Rules and procedures varied from exchange to exchange, but they all had a trading floor (sometimes called a "pit") where members conducted their business. (For more, see The Birth Of Stock Exchanges.)
To read the full column, please follow this link:
http://financialedge.investopedia.com/financial-edge/0511/The-Death-Of-The-Trading-Floor.aspx
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