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Tags: Computers | Chicago | Trading | Pits

The Computers Won: The End of Chicago's Trading Pits

By    |   Wednesday, 08 July 2015 09:23 PM EDT

If ever one could mark the final ascendancy of computers in our financial market, this is it.

The last of Chicago’s famous trading pits closed in the last few days. I remember the first time I visited one, in 1988. I was on my first visit to Chicago, and happened by the Chicago Board of Trade.

I don't recall now which of the CBOT futures areas I was watching from the gallery that day — in that cavernous space they traded wheat, corn, bonds and a myriad of other kinds of futures contracts.

But what stuck with me all these years was the sheer volume of humanity in that pit, shouting and gesturing seemingly to no one and everyone, all at the same time.

Then someone explained that the hand signals were a trading language all to itself, a way for the guys in the pit to silently, quickly, communicate with their counterparts manning the phones at the trading desks dozens of feet away.

On the other end of those phones, hundreds or thousands of miles away, was the customer, waiting to hear if his order to buy or sell was filled and at what price.

A half dozen years later, as a business news correspondent, I was interviewing a few of those same CBOT participants, as well as their compatriots at the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX) and other futures exchanges.

The futures industry's leading players would hold their own convention in Florida every winter to talk shop and plan for the future.

By then, everyone knew electronic trading was the coming thing. It was only a matter of time. But no one wanted the culture of live, person-to-person trading to end.

I remember asking a veteran trader about the advantages of trading in a pit, versus using a computer. His response was telling, because it was all about the study of human behavior.

"When you're in the pit trading against other men every day, you quickly get a sense of their market instincts, or lack of them. Some guys are patsies, buying at tops when they ought to be selling. At bottoms, they're selling when they ought to be buying. So you quickly learn to watch certain people in the pit and either do as they do, or do the opposite. You can't get that on a computer."

On a visit to Chicago in the mid-2000s, I took my wife to the CME so she could watch the final frenetic minutes of a trading session in the S&P 500 trading pit. By then, electronic trading of the index’s futures contracts were routine.

Afterwards, we wound up talking to one trader as everyone streamed out the doors to go home.

He had a trading partner, he told us, who did all the electronic trading for their little firm. "Why aren't you there with him?" I asked. "Why stand up in a crowded, noisy trading pit all day?”

"Look at me," he said. It then occurred to me that the guy was tall. He could have been a center on a college basketball team. "In a scrum full of screaming traders, I literally stand above most, so I can see the action better, not to mention being more visible to my brokerage clients outside the pit."

That, he said, was one physical advantage he had that few others did. And he intended on using that advantage for as long as "open outcry" trading lasted on the exchanges.

Looks like he got his wish.

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If ever one could mark the final ascendancy of computers in our financial market, this is it.
Computers, Chicago, Trading, Pits
Wednesday, 08 July 2015 09:23 PM
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