Trading floor definition

What is a trading floor?

A trading floor is where financial instruments such as stocks, bonds and commodities are bought and sold. Trading floors are usually electronic, and they can be found in major exchanges around the world including the ICE Futures Exchange, the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE).

History of trading floors

Formerly, an exchange’s trading floor was often referred to as ‘the pit’ because it was a physical location within an exchange where traders would enter in order to fill buy and sell orders.

Following the advent of the internet, many trading floors were replaced by electronic trading systems. These are widely considered to be faster than the traditional way of trading, in which traders used the open outcry method of shouting, and hand signals to communicate bid and ask prices.

How do trading floors work?

Traditional trading floors worked by traders interacting directly with each other in the pits of major exchanges. Today however, trading floors are filled with computer systems and television screens. A certain number of human traders can still be found on trading floors, although their numbers are greatly reduced from what they used to be.

The open outcry method of trading has largely been phased out, although it still remains in certain exchanges such as the NYSE and the Chicago Board Options Exchange (CBOE).

Famous trading floors

Perhaps the most famous trading floor in the world is that of the New York Stock Exchange (NYSE), located at 11 Wall Street in New York City. Founded in 1792, the NYSE is the world’s largest stock market in terms of the total market capitalisation of its listed companies. Its trading floor has seen fortunes both made and lost – including in the infamous Wall Street Crash of 1929 which brought about the Great Depression.

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Another famous trading floor is found in the London Stock Exchange (LSE). This is one of the oldest stock exchanges, founded as the Royal Exchange in 1571. The trading floor for the LSE is located in the City of London, and it is the second largest stock exchange in Europe, behind the Euronext exchange.

A final example of a famous trading floor is that of the Chicago Board of Trade (CBOT), which was established in 1848. Initially, the CBOT only dealt in agricultural futures such as corn, soybeans and wheat, but it has since grown to include contracts on metals such as gold and silver, as well as bonds such as US treasury bonds (T-bonds).