Trading Floor

DEFINITION of 'Trading Floor'

The floor where trading activities are conducted. Trading floors are found in the buildings of
various exchanges, such as the New York Stock Exchange and the Chicago Board of Trade.
These floors represent the area where traders complete the buying or selling of an asset.

BREAKING DOWN 'Trading Floor'

The trading floor is also referred to as "the pit" of an exchange, due to the hectic nature of the
area. However, with the advent of electronic trading platforms, many of the trading floors that
once dominated market exchanges have started to disappear as trading has become more
electronically based.

Trading floors can also be found in brokerages, investment banks and other companies involved
in trading activities. In this case, it refers to the physical office location that houses the trading
division, which can complete transactions over the internet or telephone.

Floor trading
Floor trading is where traders or stockbrokers meet at a specific venue referred to as a trading
floor or pit to buy and sell financial instruments using open outcry method to communicate with
each other. These venues are typically stock exchanges or futures exchanges and transactions are
executed by members of such an exchange using specific language or hand signals. During the
1980s and 1990s phone and electronic trading replaced physical floor trading in most exchanges
around the world.

As of 2007 few exchanges still have floor trading. One example is the New York Stock
Exchange (NYSE) which still executes a small percentage of its trades on the floor. That means
that the traders actually form a group around the post on the floor of the market for the specialist,
someone that works for one of the NYSE member firms and handles the stock. Just like in an
auction, there are shouts coming from those that want to sell and those that want to buy. The
specialist facilitates in the match and centralizing the trades.

On January 24, 2007, the NYSE went from being strictly an auction market to a hybrid market
that encompassed both the auction method and an electronic trading method that immediately
makes the trade electronically. A small group of extremely high-priced stocks isn't on this
trading system and is still auctioned on the trading floor.

Even though over 82 percent of the trades take place electronically, the action on the floor of the
stock exchange still has its place. While electronic trading is faster and provides for anonymity,
there's more opportunity to improve the price of a share if it goes to the floor. Investors maintain
the right to select the method they want to use.
Floor trader
A floor trader is a member of a stock or commodities exchange who trades on the floor of that
exchange for his or her own account. The floor trader must abide by trading rules similar to those
of the exchange specialists who trade on behalf of others. The term should not be confused with
floor broker. Floor traders are occasionally referred to as registered competitive traders,
individual liquidity providers or locals.

These traders are subject to a screening process before he or she can trade on the exchange. The
people who operate as floor traders are in an open outcry system that has slowly been replaced
by automated trading systems and computers that work in the same fashion as humans without
the interaction of people buying and selling stocks.

Process of becoming a floor trader

The process of becoming a floor trader begins with the completion of a business degree at a
university. It is recommended to graduate with a master's degree; however it is equally viable to
earn a bachelor's degree. Fundamental analysis should be studied. Those who have earned a
higher degree have a slight advantage over other floor traders as it will be clear that the more one
knows about how the stock exchange works, the better they will be able to perform as a floor
trader.[1]

Following the degree, as much experience must be gained about the stock exchange as possible
as it is an extremely fast-paced and competitive work environment. This is crucial to becoming a
successful floor trader. Some may decide to work for a brokerage to get an idea of how the
system functions or work as a clerk who essentially does tasks identical to that of a floor trader
but for another person. This is an alternative to saving money for a membership which can be
expensive.[1]

Every floor trader (FT) is required to file a completed online Form 8-R and have a fingerprint
card. They must also have proof from a contract market that they have been granted the trading
privileges to work on the trading field. A non-refundable Floor Trader Application Fee that
comes at the cost of $85.00 is also required to become certified as a floor trader.[2]

Every non-natural person floor trader (FTF) is required to file a completed online Form 7-R. To
be granted trading privileges, they must abide by the same process as the floor trader. The
application fee comes at a higher cost than an FT with it totalling $200.[2]

Floor broker
A floor broker is an independent member of an exchange who can act as a broker for other
members who become overloaded with orders, as an agent on the floor of the exchange. The
floor broker receives an order via Teletype machine from his firm's trading department and then
proceeds to the appropriate trading post on the exchange floor. There he joins other brokers and
the specialist in the security being bought or sold and executes the trade at the best competitive
price available. On completion of the transaction the customer is notified through his registered
representative back at the firm and the trade is printed on the consolidated ticker tape which is
displayed electronically around the country. A floor broker should not be confused with a floor
trader who trades as a principal for his or her own account, rather than as a broker. Commission
brokers are employees of a member firm.