Introduction
The pit is a particular part of the trading floor which is planned for the selling and buying of a security of a particular type via the system of open outcry. In the put, brokers are going to match the buy or sell orders being placed by the customers through handle signals and shouting.
Orders would be displayed through the system of open outcry to all the traders being present at the pit. This will provide them with a chance for all those present in the designated area to compete and quote their prices. Dealers and brokers will trade their respective client orders. Those orders that are not going to be executed in the pit are eventually executed by means of electronic trading.
Understanding Pit
Pits are also called as the trading pits. They are octagonally shaped with various tiers in order to provide the best possible visibility. Brokers show their respective affiliation badges or colours of their jackets. Clerks are designated to accept orders by computer or phones from customers.
Runners are tasked with transmitting orders between the brokers and clerks. They are then allowed to trade their respective shares and represent themselves. They are also allowed to be represented by firms who represent their clients, businesses, or proprietary accounts. Specialists may operate their books on their own on the pit floor by making the markets and maintaining a ledger of orders in anticipation of execution.
Hand Signalling
The trading pit, which is a chaotic environment apart from being fast-paced and noisy at the same time, hand signals would help in quicker trading and allowing to be standing out among the crowd. For instance, when brokers go onto raising their hands above, that broker is pointing that he would like to place an order for buy.
