floor- vs electronic trading

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panta_rhei

Hi,

I was wondering why there still floor trading exists. I mean is electronic not much more efficient in terms of balancing supply and demand?
 
This is a good topic to discuss. Imo the floor exists for a few reasons. The first is I think the exchanges are trying to preserve floor trading as long as they can because it is our heritage and it is how it all started so they want to keep that, if nothing else to have a place were visiters can actually watch trading happen (who wants to see a bunch of people clicking their mouses?)

The next reason is with all the exchange mergers going on (especially cbot/cme) all it takes is one shutdown on globex and it could be catastrophic to the traders in the futures industry. You couldn't even really hedge because there isn't any way to do it. So you need the floor open in cases like that because that can never shut down.

Another reason floor trading is still around is for the options markets. They can be highly complex and the screen isn't that efficient in options YET!!! I hear in the treasury options pits at the CBOT there is actually heavier bid/offers on complex stratagies than there are on the screen and they can be done quicker from what im told on the floor.

Also some commercial players still prefer to do business down on the floor and actually talk to somebody rather than just click a mouse.

I think floor trading will continue to be around for at least the next 10 years but obviously its days are numbered.
 
Calling a floor broker to negotiate the price and ask him what he will give you for a block of 500k shares might be better at times than electronically trying to manipulate the market and not knowing what price you will end up with when you start buying or selling.
 
Quote from peilthetraveler:

Calling a floor broker to negotiate the price and ask him what he will give you for a block of 500k shares might be better at times than electronically trying to manipulate the market and not knowing what price you will end up with when you start buying or selling.
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You don’t need a floor broker to execute 500k lot. I am not saying do it electronically by any means. If you have a good desk that works your order flow there is no reason in the world to send it to a floor broker. The institutional desks are what make the volume go round, and it’s a complex system of payment for order flow and soft money deals.
 
Quote from youngtrader:


Another reason floor trading is still around is for the options markets. They can be highly complex and the screen isn't that efficient in options YET!!! I hear in the treasury options pits at the CBOT there is actually heavier bid/offers on complex stratagies than there are on the screen and they can be done quicker from what im told on the floor.
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The VAST majority of options traded these days are done electronically. Virtually all the retail stuff is electronic in equity options. The BOX and the PHLX are basically 100% electronic on the multi-listed stuff, the single listed proprietary products on the PHLX still get a fair amount of open out cry, but no where near 5 years ago.

There are still some issues with quoting complex multi leg spreads in equity options on an electronic platform but I am sure they’ll iron that out too. The NASDAQ recently bought the PHLX and I expect they’ll go 100% electronic in the next few years.

Places like the CBOE still have some great high volume proprietary products like the SPX but anyone who does serious business in those products is going to use a broker to shop his orders to more then just the pit.
 
Quote from youngtrader:

dipper17

I am quite aware of that. I am speaking about options on futures/commodities and not options on equities.
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I was answering the original posters question by adding to your answer. He didnt specify options on future or equity options or options at all. In addition you commented on options and THEN made a further comment on futures options. Sort of left a gaping whole in the whole equity vs. futures options.
 
Quote from panta_rhei:

Hi,

I was wondering why there still floor trading exists. I mean is electronic not much more efficient in terms of balancing supply and demand?
More...

Well, right now, the floor trading (pits in financial terms), is going to be a thing of the past. Computers came long way back, but many things are still both partially manual and computerized. It takes time for all manual things to be slowly fully computerized; for proper transition is required so that the computerization is error free.

Please see the following threads, for more information:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=119065

http://www.elitetrader.com/vb/showthread.php?s=&threadid=119189
 
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