Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

Floor Traders and Hand Signals

1 min read

During the non-electronic market era more than 10,000 people traded on the floors(US Markets). Later then electronic trading emerged and that made the floor traders to transform and adopt slowly to the Electronic Markets (Computer Based Trading).

equities-trading-floor

At one time, there were only open-outcry exchanges. An open-outcry exchange is a public auction system that involves traders standing in a trading “pit” and calling out prices and quantities that indicate their willingness to buy or sell, so that the information is available to all traders.

Open-outcry traders use hand signals to convey the same information; otherwise, it would be difficult to hear with so many people shouting at the same time. The signals let traders and other floor employees know how much is being bid and asked, how many contracts are at stake, what the expiration months are, the types of orders and the status of the orders.

Open outcry is an efficient means of “price discovery,” allowing purchasers and sellers to arrive at the best prices given the supply and demand for a tradable object.

Hand signals are first adopted by Chicago Mercantile Exchange in the early 1970’s. Hand signals are better and faster than a verbal communication in a noisy trading floor environment. It also provides anonymity to big traders and also traders believed that this methodology is less prone to manipulation. Even though it looks chaotic to people, it’s actually very crystal clear what was going on to the people down on the floor.

Here is a simple video tutorial from CNN about how to use Hand Signals for Buy and Sell Transaction

httpv://www.youtube.com/watch?v=M6mWd3EjtsQ

Floored – Documentary on Floor Traders

This Floored Documentary talks lot about the open outcry and how professional traders behave in the floors and how they taken advantage of the public outcry. As the floor trading era is over, many traders find difficult to adapt to computer based trading and even the floor traders feared of Computer based algorithms eating their edge.

httpv://www.youtube.com/watch?v=Njoq3HDYwj0

It is a must watch video for any professional trader not only to understand the hand signals but also to understand how the public outcry functions.

Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

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