What is the Trading Floor?

by Investing School on April 8, 2011

The “trading floor”, which might also accurately be termed “the pit,” and errantly referred to as the “trading room,” the “dealing room,” is a term that simply refers to a trading area or venue. The term will often be used in reference to the place where the traders and/or stock brokers will come together with the purpose of buying and selling equities.

Although the term “trading floor” may sometimes be heard referring to the “trading room” or “dealing room,” the words are not synonymous. The latter two phrases literally refer to the offices where stock market business is centered for the brokerage houses or the investment banks. The trading floor is the actual location at the stock exchange where the buying and selling of securities will occur.

There are a number of large markets that make use of the trading floor system, for example, the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, and the Chicago Board Options Exchange, all of which are located in the United States. The London Metal Exchange in the United Kingdom also still utilizes “open outcry” on the trading floor.

Gradually, however, the trading floor system is becoming replaced with a selection of electronic trading systems. Some claim that electronic trading is faster, cheaper, more efficient, and less likely to be manipulated by unscrupulous brokers and dealers. Nevertheless, many traders are in favor of using the trading floor system because they prefer the certainty of physical and personal interaction for completing transactions, and for gauging the motives of other buyers and sellers.

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