Today, the market is entirely electronic. You generate digital order tickets and route them to an electronic exchange that automatically matches your orders with corresponding orders, or it sits on the digital order book waiting for another trader to route an order that satisfies it. It\u2019s all so elegant and efficient, except for a few hiccups caused by high-frequency traders. But what about before everyone had computers? What was it like before? Floor traders were present. Let\u2019s take a look at what floor traders do in the stock market, as well as Wall Street and the New York Stock Exchange.<\/p>
An exchange member who executes transactions solely for their account from the exchange\u2019s floor is known as a floor trader. The open outcry method was once used by floor traders in the pit of a commodity or stock exchange; however, most of them now use electronic trading systems and do not appear in the pit.
By providing liquidity and reducing bid-ask spreads, floor traders play an important role in the commodity and stock markets. Floor traders are also known as individual liquidity providers and registered competitive traders.<\/p>
floor traders are typically depicted as traders When a scene of a securities exchange is shown in a film. Because they are trading with their own money, these traders are frequently depicted as being emotionally invested in the trades they execute. In reality, most traders are not floor traders, and floor traders are becoming increasingly rare because the majority of traders who use their own money have switched to electronic trading, which does not take place in the pit.<\/p>
Before trading on an exchange, a floor trader must go through a screening process. The National Futures Association requires floor trader applicants to submit the following documents: a completed Form 8-R online, fingerprint cards, proof of trading privileges from a contract market, and an $85. non-refundable application fee. Other exchanges have their screening requirements.<\/p>
In the pit, floor traders play distinct roles in addition to market makers and brokers. Brokers act on behalf of their clients, whereas market makers primarily provide liquidity. The primary motivation of floor traders, who also provide liquidity, is to make money with their own money. All parties, however, want the best order execution possible. A floor broker may be permitted to trade for their account in addition to the firm or client they represent, depending on the exchange\u2019s rules. A person can be a floor broker and a floor trader in this situation.<\/p>
American capitalism is symbolized by the storied New York Stock Exchange Floor Traders in Lower Manhattan. The trading floor\u2019s floor brokers, specialists, and designated market makers (DMMs) are the face of Wall Street, appearing in photographs, newspapers, and financial television.<\/p>
Despite their visibility, it\u2019s difficult to tell what they\u2019re doing down there. We asked a floor broker, who spoke only on the condition of anonymity, to describe his job and daily routine because we were curious.<\/p>
Simply put, according to our source, \u201cfloor traders are people who represent client orders at the point of sale on the New York Stock Exchange floor.\u201d Almost all New York Stock Exchange floor traders trade on an \u201cagency\u201d basis, which means they do not trade for themselves or their firms.<\/p>
Banks, broker-dealers, hedge funds, mutual funds, pension funds, day traders, and even some high-net-worth individuals are among the clients of a floor broker. Our source explained, \u201cWe are the \u2018eyes and ears\u2019 for our clients\u2019 stocks. We provide market color, inform them of market rumors, and locate liquidity from the other hundred or so floor brokerage shops.\u201d<\/p>