The futures market is a dynamic marketplace that currently conducts business via the trading floor or electronic trading. While trading has shifted to mostly electronic transactions, the trading pit still exists and maintains relevance in today’s marketplace.
Historically, all futures business was transacted on the trading floor. The trading floor was organized into segmented areas, called pits, where traders and floor brokers met face-to-face to buy and sell futures contracts.
Every one of those participants was a member, or associated with a member, of a specific exchange where they paid for the right to transact business on the floor. People who wanted to participate in the futures market, but were not a member of the respective commodity exchange, had to call a broker who would then place and order on their behalf.
The floor was a visually dynamic marketplace and the image of traders in colorful jackets shouting orders to each other accompanied by specific hand signals remains the image of futures trading. However, during the 1990’s, new technology allowed futures trading to transition to an electronic platform and online brokerages.
Access to trading platforms, lower commissions rates and sophisticated high-speed trade routing followed suit. The reduced costs of trading meant that more participants were drawn to the futures market, which in turn had a positive effect on the liquidity of each contract. Today any trader can transact with any other market participant.
Hours of operation for a pit trader versus a retail online trader are different. For example, the market hours for ES, which is traded online, is Sunday through Friday 5 p.m. to 4 p.m. Central Time (CT) while the SP pit session is Monday through Friday 8:30 a.m. to 3:15 p.m. CT.
The transaction of trades may have changed over the years but the core purpose of the futures market has remained the same. Whether on the trading floor or through the modern electronic markets, futures remain an excellent contract to trade and manage risk.