View source for Open outcry

{{Short description|Communication method on the trading floors of stock exchanges}}
{{Use dmy dates|date=May 2020}}

[[File:NYSE-floor.jpg|thumb|Until 2009,<ref name="NYSE Next Generation Model">https://www.nyse.com/pdfs/Next_Generation_Model.pdf {{Webarchive|url=https://web.archive.org/web/20121017035630/http://www.nyse.com/pdfs/Next_Generation_Model.pdf |date=17 October 2012 }} NYSE Next Generation Model fact sheet, 2008</ref> trades on the floor of the [[New York Stock Exchange]] always involved a [[face-to-face interaction]]. There is one podium/desk on the trading floor for each of the exchange's three thousand or so stocks.]]
[[File:NY stock exchange traders floor LC-U9-10548-6.jpg|thumb|The New York stock exchange trading floor in September 1963, before the introduction of electronic readouts and computer screens]]
[[File:Chicago bot.jpg|thumb|Open outcry "pit" at the Chicago Board of Trade (CBOT) in 1993]]
[[File:Life and character of William Taylor Baker, president of the World&#039;s Columbian exposition and of the Chicago Board of trade (1908) (14784557132).jpg|thumb|CBOT "The Pit" in 1908]]

'''Open outcry''' is a method of communication between professionals on a [[stock exchange]] or [[futures exchange]], typically on a trading floor. It involves shouting and the use of [[Hand signaling (stock market)|hand signals]] to transfer information primarily about buy and sell orders.<ref name="hand-signals">{{cite web|url= http://www.oxfordfutures.com/docs/Handsignals.pdf |title=''The Art of Hand Signals'' |archive-url=https://web.archive.org/web/20120205014100/http://www.oxfordfutures.com/docs/Handsignals.pdf |archive-date=5 February 2012 }} floor trading hand signals&nbsp;{{small|( 455&nbsp;[[Kibibyte|KiB]])}}</ref> The part of the trading floor where this takes place is called a ''pit''.

In an open outcry [[auction]], [[Bidding|bids]] and offers must be made out in the open market, giving all participants a chance to compete for the order with the best price. New bids or offers would be made if better than previous pricing for efficient [[price discovery]]. Exchanges also value positions marked to these public market prices on a daily basis. In contrast, [[Over-the-counter (finance)|over-the-counter]] markets are where bids and offers are negotiated privately between principals.

Since the development of the stock exchange in the 17th century in Amsterdam, open outcry was the main method used to communicate among traders. This started changing in the latter half of the 20th century, first through the use of telephone trading, and then starting in the 1980s with [[electronic trading]] systems.

{{asof|2021}}, a few exchanges still had floor trading using open outcry. The supporters of electronic trading claim that it is faster, cheaper, more efficient for users, and less prone to manipulation by [[market maker]]s and [[Broker-dealer|broker/dealers]]. However, many traders still advocate for the open outcry system on the basis that the physical contact allows traders to [[Speculation|speculate]] as to a buyer/seller's motives or intentions and adjust their positions accordingly. As of 2010, most [[stock]]s and [[futures contract]]s were no longer traded using open outcry due to the lower cost of the aforementioned technological advances.  As of 2017, open outcry in the United States was very limited, such as in a much more stream-lined form at the [[Chicago Board of Trade]] owned by the [[CME Group]].<ref name=Economist1>{{Cite magazine |date=2017-01-05 |title="Open outcry" is in retreat but futures and options trading-volumes surge |url=https://www.economist.com/finance-and-economics/2017/01/05/open-outcry-is-in-retreat-but-futures-and-options-trading-volumes-surge |magazine=The Economist |issn=0013-0613}}</ref>

==History==
{{Refimprovesection|date=March 2024}}
Since the 1980s, the open outcry systems have been steadily replaced by [[electronic trading]] systems (such as [[CATS (trading system)|CATS]] and [[Globex]]).

'''Floor trading''' is the meeting of traders or [[stockbroker]]s 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 exchange]]s or [[futures exchange]]s 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. As in an auction, there are shouts from those that want to sell and those that want to buy. The specialist facilitates in the match and centralizing the trades. On 24 January 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 is not 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 is 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.{{As of?|date=September 2012}}

The [[London Metal Exchange]] is the last open outcry exchange in Europe. It utilises short periods of face-to-face "ring trading" for price discovery, with further trades taking place electronically.

===Conversion to electronic trading===
<!--  as said  14:21, 13 April 2006 NASDAQ was on open outcry but started as an electronic system
* [[NASDAQ]] became the world's first electronic stock market in 1971. -->
* The [[London Stock Exchange]] moved to electronic trading in 1986.
* The [[Borsa Italiana]], Italy's stock market, located in Milan, moved to electronic trading in 1994.
* The [[Bombay Stock Exchange]], Mumbai, embraced electronic trading in 1995 by introducing the [[Bombay Stock Exchange|BSE]] Online Trading (BOLT) System on 14 March 1995. 
* The [[Calcutta Stock Exchange]] (CSE) adopted the fully online trading and reporting system C-STAR (CSE Screen Based Trading and Reporting) on April 4, 1997.
* The [[Johannesburg Stock Exchange]] (JSE) adopted electronic trading on 7 June 1996.
* The [[Colombo Stock Exchange]] (CSE) adopted electronic trading (The [[Automated Trading System]] (ATS)) in 1997.
* The [[Toronto Stock Exchange]] (TSX) adopted electronic trading in 1997.<ref>{{Cite news|url=https://www.tsx.com/trading|title=Trading|work=TSX.com|access-date=2018-08-07|language=en}}</ref>
* The [[Korea Exchange]] (KRX) adopted electronic trading in 1997.<ref>{{Cite news|script-title=ko:딱딱이 없으면 주식거래 못했던 시절…전자시세판 등장은 '충격'이었다|url=https://www.hankyung.com/finance/article/2018102693131|language=ko|access-date=2020-04-14}}</ref>
* [[International Petroleum Exchange]] (IPE) moved to electronic trading in 2005.<ref>{{cite news|url=https://www.independent.co.uk/news/business/news/petroleum-exchange-silences-open-outcry-527625.html|title=Petroleum exchange silences open outcry|date=8 March 2005|first=Rachel|last=Stevenson|publisher=Independent, The (London) |access-date=2008-12-13}}{{dead link|date=August 2021|bot=medic}}{{cbignore|bot=medic}}</ref>
* [[Minneapolis Grain Exchange]] (MGEX) moved to electronic trading in 2008.<ref>{{cite web
  | last = Kelsey
  | first = Eric
  | title = Grain Exchange to Stop Open Outcry
  | date = October 2008
  | url = http://www.tcbmag.com/dailydevelopments/dailydevelopments/106186p1.aspx
  | access-date = 2008-12-17
  | archive-url = https://web.archive.org/web/20110716194709/http://www.tcbmag.com/dailydevelopments/dailydevelopments/106186p1.aspx
  | archive-date = 16 July 2011
  | url-status = dead
  }}</ref>
* [[New York Stock Exchange]], 2006–2007, under [[John Thain]]<ref>[https://www.usatoday.com/money/markets/2007-07-11-nyse-traders_N.htm Technology squeezes out real, live traders], Adam Shell, USA Today, 2007 7 11</ref>
* [[New York Mercantile Exchange]] (Nymex), 2006.
* [[Frankfurt Stock Exchange]], 2011, all trading moved to [[Xetra (trading system)]], ending the possibility to execute orders via open outcry on the floor. Market makers, however, continue to operate on the floor as "Xetra-Specialists", providing liquidity.<ref>{{cite web
  | title = Frankfurter Börse: Klassischer Parketthandel endet
  | date = May 2011
  | url = https://www.fr.de/wirtschaft/frankfurter-boerse-klassischer-parketthandel-endet-11397224.html
  | access-date = 2022-05-18
  }}</ref>

Since the 1980s, Nymex had a virtual monopoly on 'open market' oil [[futures trading]], but the electronically based [[IntercontinentalExchange]] (ICE) began trading [[Futures contract|oil contracts]] that were extremely similar to Nymex's in the early 2000s and Nymex began to lose market share almost immediately. The pit-traders at Nymex had been resisting the electronic move for decades, but the executives believed the exchange had to move to the electronic format, or it would cease to exist as a viable business. The executives introduced CME's [[Globex]] system into Nymex in 2006.<ref>[https://www.amazon.com/Asylum-Renegades-Hijacked-Worlds-Market/dp/0061766275 The Asylum], Leah McGrath Goodman, 2011, Harper Collins</ref> In 2016, NYMEX ceased all open outcry trading, leaving only open outcry at its sister exchange the [[Chicago Board of Trade]].<ref name=Economist1/>

==Hand signals==
{{main|Hand signaling (open outcry)}}
[[File:Chinese Gold and Silver Exchange Society hand signals.jpg|thumb|Hand signalling on the floor of the [[Chinese Gold and Silver Exchange Society]] (2012)]]

Floor hand signals are used to communicate buy and sell information in an open outcry trading environment. The system is used at [[futures exchange]]s such as the [[Chicago Mercantile Exchange]].

Traders usually flash the signals quickly across a room to make a sale or a purchase. Signals that occur with palms facing out and hands away from the body are an indication the gesturer wishes to sell. When traders face their palms in and hold their hands up, they are gesturing to buy.

Numbers one through five are gestured on one hand, and six through ten are gestured in the same way only held sideways at a 90-degree angle (index finger out sideways is six, two fingers is seven, and so on). Numbers gestured from the forehead are blocks of ten, and blocks of hundreds and thousands can also be displayed. The signals can otherwise be used to indicate months, specific trade or option combinations, or additional market information.

These rules may vary among exchanges or even among floors within the same exchange; however, the purpose of the gestures remains the same.

==See also==
* [[Trading jacket]]

==References==
{{Reflist}}

==External links==
* [https://www.nytimes.com/interactive/2008/04/07/opinion/20080407_TRADING_GRAPHIC.html#step1 New York Times Open Outcry Table]
* [http://tradingpithistory.com/ TradingPitHistory.com - Trading Pit Hand Signals Gallery and Archive]

{{Stock market}}
{{Authority control}}

[[Category:Financial markets]]
[[Category:Nonverbal communication]]