Can someone tell me why floor traders in commodities still exist in America? What is the benefit of them over a machine, and what can they do that a machine can't do. I noticed when NYMEX went electronic for energy side by side, volume exploded mostly from electronic trading. At the very least, every comm market that a floor trader is in, should also have electronic side by side, that way I could get some choice. The NYSE floor is quickly becoming a sleepy place...many specialists have been let go. Do you guys see this trend happening at the NYMEX & CBOT too?
Ah, yes. When the exchanges were member owned the members resisted being replaced and loosing their livelihood. Now with the public structure and the equity membership cash out, only diehards will try to maintain a pit structure only to loose in the end.
On the financial options side the pit will be around for some time. It is possible to get a liquid market on a 10yr option June-Sep call calendar in about 3 seconds that will be about 50,000 bid and offered on both sides in the pit. This happened today with Countrywide rolling about 50,000 June 109 calls into Sep 109 calls. Most financial option positions are rolled and also done as complex spreads. Yes the screen can do them and it is available, but generally isn't any faster and not nearly as liquid as doing so in the pit. Exact same goes for Eurodollar options and the liquidity scale is sick (can easily do 100,000 of something if need be) compared to Treasury options. Grain options are much less complex and most trades that occur are way out of the money puts and calls by small retail accounts, very likely candidates for being liquid and deep markets on the screen.
The trading pit is nothing but an expensive membership only club that lets you buy the bid and sell the ask. Nothing more. Electronics have killed most of them, but a few still remain clutching on for dear life. The culture and social history of the pits are amazing to read about, though. It's a far cry from the lonely isolation of staring at monitors these days.
Think of "the floor" as a feather bedding union and then it all makes sense. Sort of like the electricians union at the McCormack Place that bans exhibitors from plugging in their own electric wires into standard outlets.
Plug it in yourself and tell them to f-off. You won't get moved out for a week after the event and you will have to have to meet a guy in a hideous open collar shirt on the lake with an envelope full of cash just to get out of there. They do let you off with a warning.
my experience has been limited to grains and livestock for floor trades and all i know is its been pretty damn good. my size is usually 5 contracts sometimes only 1 or 2 and they get me fills that electronic wouldn't. and when there is a malfunction on ecbot or globex,its a very nice feeling to have an alternative i dont know who IB uses for cbot/cme floor broker but they do a really good job for a small timer like me
for some products the floor will still be around. Grains, Energy, Metals, Bonds will still have open-outcry for sometime. index equity pits and NYSE specialists seem to be slowly withering away though.
Thanks guys for an explanation. Basically floor traders are like Windows 95. We all upgraded to XP years ago, but a few systems are left somewhere...but soon those motherboards will even die...along with it their legacy operating system.