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Trading Floor

Reviewed by Vineeth | Updated on Oct 05, 2020

Catalogue

Introduction

Trading floor points to the area where buy and selling (trading) activities pertaining to financial instruments, such as futures, equities, fixed income securities, and so on, happens. Trading floors are located in the facilities of stock exchanges, such as the Bombay Stock Exchange (BSE) and the National Stock Exchange.

Breaking Down Trading Floor

The trading floors are also called as the pit of a stock exchange. In the initial days, the trading floors were designed in a circular pattern, and investors were to step into the pit in order to place the kind of transaction they intended to.

However, with the developments in the technology of late, the pits are not of any significance now as the electronic trading platforms replace them. Therefore, most of the trading floor or pits that once dominated stock exchanges are now not to be seen as they are ably substituted by the electronic modes of operation.

Investment banks, brokerage firms, and other related companies in trading may also have a pit or the trading floors. Here, the trading floors points to the actual location of the facility of the organisation where the trading division is located, and this is where the transactions are completed over a phone call or internet.

Open Outcry Method

Open outcry method was one of the most basic trading methods that were in place on the trading floors prior to the emergence of electronic trading.

Under this method, hand signal and verbal communications were made to put across the information like the name of a stock, the number of shares that an individual wanted to trade, and the price that the broker wanted to deal it with.

For example, if a broker intended to raise the price of their bid, then they were supposed to lift their hands up.

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