Although we do not know much about it, there are some images that we come across frequently. Wherever you look, the tension-filled footage of a large group of people waving their arms and shouting at each other like crazy in a large area on the ground floor of a stock exchange building is one of them. This image appears frequently, especially in movies and TV series. Sometimes in the news…
What we know about these people who seem quite stressed is the mundane things like dealing with money and stocks, buying and selling by looking at screens where the numbers turn green and red. If you’re more proficient in finance, that’s different, but I’ll explain by imagining you’re someone who doesn’t know much about these things.
First of all, who are these people?
The people you see in this photo who look a little nervous and agitated are interested in trading options, futures or stocks; It consists of traders and brokers who follow the markets and work on making the right trade at the right time.
Brokers make money with commission per transaction by following the market for their customers and executing their transactions, while traders are those who make direct buy and sell transactions and can earn profit or loss as a result of this transaction.
All together in a ‘pit’…
These people, while capturing images that make us feel like they are in a war, are actually doing their jobs normally. I’m assuming this is what you call normality; let me explain.
We can say that these images we see are actually a kind of special communication language adopted in stock exchanges since the 17th century. They manage the process by using certain hand signals for steps such as the type of transaction, price, amount, and supporting this with voice communication, which usually includes shouting. The gathering of a lot of people trying to do all these things in a momentary and correct way creates these images that seem chaotic to us.
In this system, which is known as ‘Open Outcry’ and translated as ‘open auction’ in our language, brokers and traders trade in areas called ‘pits’ in English on the trading floor of the stock market, create their offers and complete the process.
However, since these trading processes are carried out live and there are hundreds of people around for similar transactions, there is competition as you can imagine. This can cause loud noises and tension.
You can liken it to an auction run by auction. For example, after a trader declares that he wants to sell a certain stock at a certain price, another trader who says he will buy it at that price declares this and then these traders complete the process by making a contract. This process of declaring that it will sell and saying that it will take is also expressed with some hand signals that we have mentioned.
If there is an intention to sell, the gesture of showing the hands away from the body is made with the palms facing outward. This means that that person is open to offers for the stock to sell. If there is an intention to buy, on the contrary, the sign is made with the palms facing the body.
Where the fingers touch indicates the amount of the transaction. For numbers 1 to 9, the chin is touched, and when the amount is a multiple of 10, the forehead is touched. For multiples of 100, the forehead is touched with a fist. Many such hand signals are accompanied by voiced statements.
This system is actually like a ‘dying tradition’ now.
Although it is an iconic system that has been used for hundreds of years, now there are computers that do these operations much faster and cheaper than humans. With the digitization of transactions, the number of exchanges and companies that have made the open tender system in these ‘pits’ has been decreasing in the last few decades.
Today, many of the most important and iconic exchanges now run digitally and this chaotic environment no longer exists. In the 2010s, their numbers gradually decreased. But there are still places where the system continues. Moreover, there are those who argue that it should continue. It may sound a little crazy, but they have their own logical reasons.
They summarize the advantages of this extremely tiring and suffocating system as follows;
- Seeing each other, this group that carries out the transactions, enables them to obtain more ‘private’ information about the transaction through various data such as facial expressions, facial expressions and tone of voice. More specifically, traders and brokers seek out emotions such as greed and fear that cannot be seen in electronic trading, and make inferences about the transaction.
- It also offers advantages such as noise heard and movements seen in the ‘pits’, monitoring the movements of the market, calculating its volatility.
The disadvantages are more as you can understand from the system’s evolution to digital;
- Since there is no place restriction in e-commerce, there is access from anywhere.
- While transactions are completed with a few clicks in seconds in electronic commerce, communication efforts are in question between minutes and large crowds in open auctions.
- Finally, everything is recorded in electronic commerce. This is a great opportunity to avoid common problems such as incorrectly kept notes and lost papers.
As a result, I think it would not be wrong to say that it is a tradition that we do not have much chance to encounter anymore and that is about to be buried in the dusty pages of history with digitalization. Of course, if we consider that too much money has been earned from this tradition for hundreds of years, we can say that it is a tradition that will always be talked about…
Sources: Investopedia, Business Insider, Corporate Finance Institute, Information and Communication Technologies Glossary
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