CandleFocus Glossary Editor
Open outcry is a type of trading method characterized by verbal bids and offers that take place between traders on an exchange floor. This method of trading has been in place since at least the 17th century and is still used today at some exchanges including the Chicago Board of Trade (CBOT). Open outcry trading facilities are managed by a central exchange which facilitates communication between the buyers and sellers.
At exchanges such as the CBOT, trading begins by the traders gathering in the pit. All traders in the pit can view the available bids and offers, but the actual trading process is conducted verbally. After the traders have agreed upon the price for the order, the trade is recorded with a member of the exchange presenting an open outcry ticket pegging the details of the trade. Once the trade is completed, the floor trader will then either send the information to a terminal to execute the trade. This process is faster than the electronic trading because it enables traders to analyze the market and make live trading decisions quickly.
In the 1970s and 1980s, Open Outcry was the primary method of trading. However, it has now been largely replaced by electronic trading. Electronic trading allows nearly instantaneous execution of buy and sell orders and updated news on pricing, market trends and stock performance. This enables traders to access larger amounts of market data which allows them to make quicker and more informed decisions.
The reason for the decline of open outcry trading is because it is less efficient than trading by electronic means. In addition, open outcry trading was subject to the impact of human emotion, which could influence trading decisions and make them less efficient. Open outcry also led to a lack of anonymity, making the process less advantageous to large institutional traders.
Despite the decline in open outcry trading, some exchanges still use it as a supplemental tool. For example, the Tokyo Grain Exchange uses open outcry for wheat, maize, and soybean contracts as a tool for regulation amid other electronic trading environments.
To sum it up, open outcry was the primary method for how pit traders communicated trade orders in the past. While it has proven to be successful, electronic trading has become more efficient, leading to its decline in popularity. The competitive atmosphere that open outcry creates is still a valuable tool in certain markets, although electronic trading remains the primary method of trading.
At exchanges such as the CBOT, trading begins by the traders gathering in the pit. All traders in the pit can view the available bids and offers, but the actual trading process is conducted verbally. After the traders have agreed upon the price for the order, the trade is recorded with a member of the exchange presenting an open outcry ticket pegging the details of the trade. Once the trade is completed, the floor trader will then either send the information to a terminal to execute the trade. This process is faster than the electronic trading because it enables traders to analyze the market and make live trading decisions quickly.
In the 1970s and 1980s, Open Outcry was the primary method of trading. However, it has now been largely replaced by electronic trading. Electronic trading allows nearly instantaneous execution of buy and sell orders and updated news on pricing, market trends and stock performance. This enables traders to access larger amounts of market data which allows them to make quicker and more informed decisions.
The reason for the decline of open outcry trading is because it is less efficient than trading by electronic means. In addition, open outcry trading was subject to the impact of human emotion, which could influence trading decisions and make them less efficient. Open outcry also led to a lack of anonymity, making the process less advantageous to large institutional traders.
Despite the decline in open outcry trading, some exchanges still use it as a supplemental tool. For example, the Tokyo Grain Exchange uses open outcry for wheat, maize, and soybean contracts as a tool for regulation amid other electronic trading environments.
To sum it up, open outcry was the primary method for how pit traders communicated trade orders in the past. While it has proven to be successful, electronic trading has become more efficient, leading to its decline in popularity. The competitive atmosphere that open outcry creates is still a valuable tool in certain markets, although electronic trading remains the primary method of trading.