Uncovering V alue: Cedar Fair. Ok, fess up, did anyone of you "girlie-men" buy this morning's dip? I scream at the top of my lungs as well as hand signal, "Hey Dec calls, where are they" or something along those lines. My bet: By the end of september! NASDAQ "Power Line", Symbol DUG.

Rules FAQ This subreddit is for asking for objective explanations. It is not a repository for any question you may have. LI5 means friendly, simplified and layman-accessible explanations - not responses aimed at literal five-year-olds. Perform a keyword search, you may find good explanations in past threads. You of pits and puts the case for options algos health also consider looking for your question in the FAQ. Mathematics Economics Culture Biology Chemistry Physics Technology Engineering Explained ELI5: How does the infamous NYSE "pit" depicted in many movies actually function?

How can hundreds of people screaming and waving tickets actually work? Thank you all so much for the time you spent thoroughly explaining this to me. I now have a lot of reading to catch up on after I finish my homework and my paper! Source: i work in the pit as a broker. There are a lot of reasons that they are alive in well in the option pits, but mostly its because the option pits are a better system at the moment and have more liquidity then electronic trading.

If youd like to know details as to why and how it is better i can get into that but for now ill focus on your original question. In my pit there about guys on a given day depending on how busy it is. It may seem crazy but the pit is a very efficient system. It is controlled chaos, but it is transparent, there are checks and balances, etiquette and rules.

Much of what you can do trading electronically would be seen as criminal in the pit. Again if you have interest i can provide specific examples. In basics as others have said, there are 2 types of people in the pit. The brokers work with customer and the "locals" or market makers. The brokers will work with everyone from funds, to producers or users of a commodity and even other prop groups.

I scream at the top of my lungs as well as hand signal, "Hey Dec calls, where are they" or something along those lines The locals in the pit scream back and hand signal two prices. First what they are willing to Pay for the Dec calls or their Bid. And second what they are willing to sell the Dec calls at or their offer. As a broker i have to execute the order how the customer wants. Sometimes they will give me discretion to get the best price based on my feel of the market.

Sometimes they want it at a specific price. And the locals continue to respond if they are 1 bid. Of pits and puts the case for options algos health the futures market upticks and 4 traders in the pit simultaneously yell SOLD. I divide up the contracts and sell each guy who "hit me" 25 contracts. As a broker you try and be fair as possible and that definitely creates a reputation.

Now as I am handing out or dividing up the contracts, i double check that they have the right trade both verbally and with hand signals. Then i call the customer and give him his fill. Every trader in the pit has a letter acronym used to identify them. Some guys get clever with theirs and they make for good nicknames. Anyways next i hand my filled out trading cards to my clerk and i quote the trade to the market reporters who put it out to the world, which it also goes up on the board, Reviews of Argo Trading Platform us in the pit to double check it another time.

Meanwhile my clerk goes and finds each of the other traders clerks that i sold 25 contracts to and double checks all the details of the trade. There seems to be a lot of interest in an AMA. I might try and make it happen. These are seen on CNBC and in movies like the Dark Knight Rises. Each post is run by a specialist or at least they used to call them that and that is a company that has a handful of people down there that make sure their stocks are trading smoothly.

Each post probably has a couple hundred stocks that they deal with, so if you want to buy IBM it may be at a different post than Johnson and Johnson. The specialists will make sure the market is flowing by creating liquidity when needed so if there are a bunch of sellers and no buyers he will then step in and become a buyer to keep the stock from taking a drop too quickly.

This is what happened in and specialist were frantically trying to buy more to prevent the free fall Markets largely came back in just a week then. The traders now do not use open outcry which is the crazy yelling, they all have tablets and can run trades from there but are still on the floor as you can more easily communicate with others about what might be going on in the market or on a particular stock. The exchanges with "pits" are generally the commodities markets. In the movie Trading Of pits and puts the case for options algos health they go to the New York Mercantile Exchange, NYMEX.

The Chicago Mercantile Exchange, CME, and Chicago Board of Trade, CBOT, I know also have pits. They used hand signals as was linked to earlier to buy or sell. Hand facing away is sell and towards you buy, two fingers by your chin means 2 and by your forehead means Here they have traders from banks on the steps and the people at the top will be on the phone with all the banks making trades for them.

In the bottom of the pit is where the "market makers" are and they are generally just trading their own money trying to make small profits on trades to keep the market liquid. Open Outcry is mostly gone though I of pits and puts the case for options algos health visit the CME in and they were still doing a hybrid of open outcry and electronic trading.

I visited the NYSE floor in and I talked of pits and puts the case for options algos health a guy who said he used to have people from their bank on the floor and now there is only 4. There's a bunch I missed as I wasn't an actual trader but just visited the floors. Go look up open outcry, market makers, specialists, floor traders, etc. Most of it now is spent quietly at a computer. But, of you want to know what you're actually seeing then here goes. Essentially, you have two types of 'workers' there.

You have the traders and the brokers. The brokers offer prices to buy or sell a stock or share at, while the traders are looking for the best opportunity price to buy or sell at. They are practically in teams, representing different firms the different coloured jackets identify each team. The brokers take orders from hand signals normally. It's nothing like that scene in Trading Places any more. Ever since NYSE moved their trade execution platforms out of Broad St, and into data centers in North Jersey and east of London in Essex, that's where the actual trades take place.

The vast majority of trades on the exchange never see the inside of the building everyone thinks they happen in. Even those trades that happen "on the floor" still get executed in those 2 DCs. In those 2 facilities, there are co-location racks that firms install servers and comms gear in. Every co-lo rack has the same fiber distance to the distribution switches for fairness. Yes - the guy in the rack 10 feet away has the same fiber length as the guy feet away.

You might say that given the speed of light, that's irrelevant, but it's not. The vast majority of trades these days aren't done by humans - they're done by HFT firms and their algo trading systems, which often times live on an FPGA card in a system, or even more interesting is now you're starting to see FPGAs pop up inside switches - so your trade application now lives in the network, and is that much closer.

That last bit sounds like an arms race, and it for the most part is. In that world, microseconds, heck, nanoseconds matter. If you can match 1 microsecond before the other guys, you get the trade, and they get nothing. Also interesting to note that given the location and cost of real estate, NYSE has taken to renting out the floor of the exchange in the evenings for events. My company had a customer event there last year.

Cocktails, small plates spread around the floor, and you could go up and get your picture taken holding the gavel like you're ringing the bell. She was going to watch the news to see me ring the bell. Members of my family have been there for decades. I probably have entered trades in for some guys in this thread. To answer the bare bones of pit dynamics about getting orders through the chaos of everyone yelling at each other, everything is more orderly than it looks.

Brokers are typically the only people who do open outcry. The market makers stand and listen and try to make a market when a broken calls something out. A group of brokers work at a station with their clerks. These stations are positioned around the pit, market makers crowd around them. Most companies have a market maker in close proximity to each broker station. So the brokers are typically trading with a small group of market makers. If you want to trade with someone further away and it's is too loud, you use hand signals.

There's signs for puts and calls, the type of package they are being sold under fly, condorand for numbers going past five you turn your hand parallel to the ground and start over with your fingers so a 6 is one finger. As far as understandings everyone through all the chaos, you start to learn body languages quickly. Sometimes a glance is enough to signal yes I have traded with you. Though sometimes in the fighting and screaming it can be confusing, when that happens you wait to the deal is done and just ask if the broker got your order.

There's a custom set of hand signs, involving modified ASL alphabet for stock names and improved numbers, which are used to communicate orders to other folks from their company which stocks to buy or sell at what price who are, for some reason, a story up and behind a glass wall. The infinity paper comes from market research delivered to the traders. Also, he calls it the Floor, not the Pit. I worked at NYSE. NYSE still uses some traders at the floor as part of tradition. Those guys handle the very big trades.

They give the final OK. It is more a matter of tradition and a way to re-assure the investors that a human set of eyes is looking at their orders before the final OK goes through. However, the pit will go away. Once NYSE started going more and more towards HFT High Frequency Trading a lot of people at the pit lost their jobs. In few years there will be no need to have any of them at the floor. The floor at NYSE may turn into a museum or get "rented" out to financial shows.

However, there will be resistance to completely close the floor at NYSE simply because of the tradition it holds. There are 3 groups of people in the pit: brokers, traders, and clerks. Brokers receive orders from funds, banks, and off floor traders. The traders will make a market and arb trader sign language the order to their clerk outside the pit.

The clerk, on a headset, will relay the order to the managers upstairs. Based on positioning and their volatility models, the managers will tell the clerk to relay to the trader the quantity and price to buy or sell, or give a range how much "edge" is acceptable. This is how transactions happen in large trading groups, there are still guys down here that do everything themselves.

This is also an example of a large trade, traders in the pit do small trades throughout the day for edge to make small gains without upstairs approval. The of pits and puts the case for options algos health is executed and the clerk is notified in this case. The only instances where the floor is remotely close to what it once was is on the open and close of the markets, where the NYSE in particular does most of its volume.

The market also resembles the open outcry system during times of volatility when the market trades "slow", but I'll get to that after a quick breakdown of "the floor. The marketmakers facilitate trading on their electronic displaybooks, and are able to give the brokers information, or "looks," on the market for specific stocks i.

The brokers are agents for their customers, who communicate information from the "looks" to their customers and work to provide them with the best possible order executions. Regarding the process, brokers enter orders through their handhelds, which are sent to the marketmaker's displaybook. It is through the book that matching engines put trades together and excute them.

The marketmaker not only offers a point of sale for stocks to trade, but also utilizes his or her own capital to maximize liquidity the ability to trade easily and quickly in their stocks. The rest of the day on the floor is relatively quiet, as trading is executed automatically. The marketmakers also play a very important role in regulating volatility in the marketplace by trading "slow" when certain volatility thresholds are crossed.

When the market trades "slow", orders are executed manually by the marketmakers themselves on the displaybooks. In many of these instances, the floor resembles the open outcry model as brokers come out from their booths to make sure their interest is in the book and hopefully being executed. Hopefully that provides a decent enough explanation. Let me know if it's a little spotty in some places. Happy to answer questions.

The way it was explained to me is that generally the person they were all yelling at actually only dealt with three or four people, and they pretty quickly learned how to tell these voices apart. It looked like a mess but it is actually very structured. So here goes my ELI5 explanation of what goes on that makes it seem chaotic but works very well You are one of hundreds of kids out in the school playground at lunch and every kid as either a sandwich that are really tasty stock and kids with well-off parents that always give them lunch money investors.

Like your typical playground there are kids that are smaller that don't need many sandwiches to eat retail investors and the bigger kids that need a lot because they are really hungry institutional investors. For most of us, we know that there are trades between kids with lunches and those with money or better food I'll leave that out for now. Kids with food will want to sell their food for a high price so they can buy candy and those with money want to buy it at a low price so their parents won't get mad for spending all the money.

If this activity goes on, the kids with the most money will likely buy up all the sandwiches at an amazing price and wipe all the little kids out. But more importantly, the market won't work because of all the kids trading with each other and no one knows whats really going on. All of these micro transactions between private parties doesn't allow for a clear price to form.

Also, some of the bullies will force some of the little kids to sell at a really low price. There can also be liquidity problems such as kids flooding the sandwich market and all of the big kids have already eaten. So a really smart kid hes going places here, guys decides to climb to the top of the play structure and agrees to buy at the bid sandwiches for a "fair" market price and sell them at the ask to kids with lunch money.

This takes a lot of the inefficiencies out. Prices are discovered and now every kid can avoid the bullies and go straight to the smart kid on the play structure and negotiate how much they want to sell and the big kids have to wait to buy otherwise the price will sky-rocket. But more importantly is what happens when the market is not in equilibrium of kids with sandwiches does not equal of kids that want to buy them.

The smart kid will step in and keep buying or selling to make sure there are no major price swings so that liquidity remains. This way everyone gets a lunch. This is where you get the CHAOS. Kids with sandwiches are going to every kid with money trying to find the best price but more likely than not they are going to get ripped off by a devious tattle-tale kind of kid that exploits these inefficiencies.

Kids with the money are trying to get the best price and since there is no organization and free-flowing information, they don't have a problem waiting for a good price. The smart kid can get rid of all the chaos by acting as the market maker. It may look chaotic when kids have an exceptionally tasty sandwich one day hot stocks and really calm when every kid gets a boring ham and cheese.

The market maker can eliminate most inefficiencies and bullies that beat up the market by keeping liquidity and clear price information for all the kids on the playground. He will even buy sandwiches and sell sandwiches for himself to keep the market stable. Most big names have a market marker at the NYSE, especially those that have an IPO that say Hopefully this of pits and puts the case for options algos health up the chaotic part.

Its really not chaotic at all, just lots of grown-men screaming at each other. The person in the middle collects them and distributes them I forget if they go underneath or if they are given to someone else. I believe it was a commodities exchange. I can't find a picture of it. I visited this in NYC in Our firm was formerly based in the pit but since the early s has been converted to electronic trading.

These days trading is much more difficult and competitive due to improvements in HFT's. Our main edge as human traders comes in the form of unexpected global events eg earthquakes or political upheaval and data releases such as the unemployment report due to come out for the US in about 30 mins. Nearly everything is done electronically on the 'floor'.

You have a few DMM's, brokers, and guys working posts for various brokerage firms, but the old pit that you'd see in movies like Trading Places - doesn't exist anymore. You could wander around and see how things worked. It was pretty neat. It's pretty closed off now sadly. It's all electronically now. The thing that was really funny is when they 'occupy wallstreet' was going to take down trading, they protested, closed down streets, but trading was done with computers with the biggest center in a bunker in New Jersey.

There were 0 trades missed. I mean, common, you are protesting against something, do your research! By signing up, you agree to our Terms and that you have read our Privacy Policy and Content Policy. Log in or sign up in seconds. Have an idea to improve ELI5? Make sure to read the rules. This subreddit is for asking for objective explanations. E is for Explain - merely answering a question is not enough.

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This is an archived post. You won't be able to vote or comment. Explained ELI5: How does the infamous NYSE "pit" depicted in many movies actually function? So ill walk you through how a typical trade happens. I get a phone call. Customer wants me to "quote" the December calls. I scream at the top of my lungs as well as hand signal, "Hey Dec calls, where are they" or something along those lines.

The locals in the pit scream back and hand signal two prices. At this point a few different things can happen. Then i write out the trade or "card it up" and put down the time the trade was done, buying or selling, how many times, and price, as well as the Acronym of the traders who i sold it to. Then i wait for the phone to ring again and do it all over.

Hope that clears things up. Any questions just ask. The NYSE now actually has "Posts" instead of pits and have been that way for a while. Read this for more information on hand signals. But as I said, most of the work is done in offices now using high frequency trading programmes and a lot more algorithmic analysis than the crazy days of the 80s.

Source: work experience at a top brokerage in London. The phone goes to brokers, who quote current prices. So here goes my ELI5 explanation of what goes on that makes it seem chaotic but works very well. You are one of hundreds of kids out in the school playground at lunch and every kid as either a sandwich that are really tasty stock and kids with well-off parents that always give them lunch money investors. Now imagine a scenario when this smart kid decides to stay indoors and keeps working on his science project while all other kids are still trying to sell their sandwiches.

Most big names have a market marker at the NYSE, especially those that have an IPO that say. Hopefully this clears up the chaotic part. Then watch rogue trader. Really goes in depth in how the system works. I work for a proprietary trading firm prop firm trading mainly bond futures. These events can still prove problematic for algos to adjust to and trade accordingly. Will explain it all. And its a bloody hoot. Posts are automatically archived after 6 months.

The Leverage of Trading Options

How We Trade Options Building Wealth, Creating Income, and Reducing Risk Jon “DRJ” & Pete Najarian How We Trade Options: Building Wealth. Jun 19,  · they are using options markets to A Reminder Of What Happens When HFTs Decide To always be long a few puts on something, in case it. Now that nobody is left to trade except the Fed, the Primary Dealers and a few semi-sentient computers (and yes, be very afraid of Flash Crash like volatility to.