Open outcry

From Wikipedia, the free encyclopedia

Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange which involves shouting and the use of hand signals to transfer information primarily about buy and sell orders.^[1]

Examples of markets which use this system in the United States are the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, the Chicago Board Options Exchange, and the Minneapolis Grain Exchange (MGEX). In the United Kingdom, the London Metal Exchange still makes use of open outcry.

The open outcry system is being replaced by electronic systems (CATS and Globex). The supporters of electronic trading claim that they are faster, cheaper, more efficient for users, and less prone to manipulation by market makers and broker/dealers. However, many traders advocate for the open outcry system on the basis that the physical contact allows traders to speculate as to a buyer/seller's motives or intentions and adjust their positions accordingly.

[edit] Hand signals

The system of trading floor hand signals used in many North American trading exchanges is sometimes known as Arb, short for arbitrage. It is used to communicate buy and sell information in an open outcry trading environment. The system is used at securities exchanges 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.

[edit] References

This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (January 2008)