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Futures Technology 1630A 30th St # 365 Boulder, Colorado 80301 1-800-878-6070 303-442-6543 |
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| FLOOR TRADING AND PRICE REPORTINGTHE TRADING FLOOR The trading floor of each futures exchange is the scene of the open outcry auction through which futures contracts are traded. While the size, arrangement, and facilities of the trading floor vary among the exchanges, certain features are common to all.
Futures trading is conducted in octagonal and polygonal pits or rings, with steps descending to the center of each pit. Generally, one pit or ring is devoted to each commodity traded on the exchange. Traders stand in groups on the steps or in the center of the pit or around the waist-high ring according to the contract month of the commodity which they are trading. Adjacent to the pit or ring, or sometimes in the center of the ring, are market reporters who are employed by the exchange to record price changes as they occur. The prices they record are displayed on computer-operated electronic display boards. Pertinent prices on other commodity exchanges are also displayed. Traders in the pits can keep informed about price movements on their own and other exchanges by glancing at these boards. Other sources of information on the floor are the ticker tapes from the major securities exchanges and teletypes from the major news wire services. These provide traders with a constant stream of commodity and business news and general developments which can influence commodity prices. A large map provides weather information about relevant agricultural areas. Cash prices and receipts and shipments of commodities at certain markets are also displayed. Orders are received on the floor by telephone or electronic transmission by the member firms who handle their own and customer accounts. Banks of telephones and computers printers are located close to the pits. Orders are rushed by runners from the individual receiving the orders for each member firm to traders in the pits or rings. TYPES OF TRADERS Floor traders fall into these general classifications:
Another group of speculators are the scalpers who trade for small, short-term profits during the course of each trading session, rarely carrying a position overnight. All these types of floor traders compete in the auction for sales and purchases of futures contracts. The day traders and scalpers, especially, help to create market liquidity and to minimize price fluctuations. THE AUCTION Offers to buy or sell are made by open outcry auction so that any trader in the pit who wishes to take the opposite side of the trade may do so. In addition to making their bids and offers vocally, pit traders also use a simple but highly efficient set of hand and finger signals. The position of the hands tells whether a trader is buying or selling a trader has the palm of his hand facing himself if he is buying and his palm facing outward if he is selling. Holding the arm and the fingers of the hand in a horizontal position, a trader shows with finger signals the fraction above or below the most recent price at which he is making his bid or offer. Vertical finger signals are used to indicate the number of contracts the trader wishes to buy or sell at the price indicated.
On certain exchanges, notably the Chicago Mercantile Exchanges, when trading is rather inactive, bids to buy and offers to sell are made by outcry on the trading floor and are recorded in order by market reporters on specially marked boards. This is called board trading. When the bids and offers reach the same level, sales are made on a priority basis. The information regarding the unit traded, names of buyer and seller, and the price are recorded on a sales board. The posting of a trade on the sales board constitutes a contract. Each trader lists all his completed transactions on a trading card or multiple-part order form. Any trade that has been carded for grains, for instance, shows the number of bushels involved, the grain, the contract month, the price, the name of the clearing firm on the opposite side of the trade, and the initials of the trader on the other side. These trading cards constitute original records, and from them the essential data is transferred to the offices of the clearing firms involved. Technical performance of trading obligations is assumed by the clearinghouse. PRICE REPORTING Transaction on the trading floor must be reported to the membership and the general public. This is accomplished through a variety of communications systems by the various commodity exchanges. The Chicago Board of Trade uses an advanced computer system called the Market Price Reporting and Information System (MPRIS), currently considered the most modern available. Several other exchanges have comparable computerized price reporting systems. While the Board of Trade’s system differs in some ways from systems used by other exchanges, it will be used here as an example of modern commodity price reporting. Operating "online in real-time," the MPRIS accepts transactions at the rate of four or five per second in a typical market situation, reformats the information, and in less than a second, sends it back onto the trading floor’s electronic wallboards, over the Exchange’s price reporting network, and through a private closed-circuit television network. In addition, price information is accessible at any time during trading hours if a floor trader wishes to find out something about a particular price. At each trading pit, the Exchange-employed market reporters enter the prices into the MPRIS through a cathode-ray (visual display) computer terminal. The terminal on the floor transmits the coded transaction to a large computer system that performs editing functions to validate the trade and to ensure that it adheres to trading regulations, such as those governing the minimum fluctuation and price limits for the commodity being traded. If the quote is valid, the computer sends a message back to the terminal operator in the pulpit (a raised desk area located in each pit), indicating the time the quote entered the system and simultaneously displays the information on the output media. Through centrally-located inquiry terminals, anyone on the trading floor may at any moment interrogate the system regarding information on any particular price, or open, high, low, or close on any commodity. The system’s response to each query is displayed back upon that terminal, while normal system operation continues on the other terminals. Master terminal operators communicate with the system to revise or cancel quotations if an error occurs during trading. The MPRIS is flexible and easy to use. The system involves multiple computers; if one fails the other automatically take over. Also, multiple controllers for the electronic board and television systems provide almost instant cut-over capability to keep the board running normally in emergencies. Additional computers can be added as the market expands. The electronic wallboards on each trading floor have been designed so that they are easily visible from any position on the trading floor. Prices are displayed on the boards on the walls of each floor. Virtually all needed price information on each of the most actively traded commodities is provided on the boards, including the opening range, the previous day’s closing price, the day’s price limits, the high and low quotes of the day, the three most recent quoted, and the net change from the settlement price. In addition, the high, low, last, and net change in prices on other exchanges are displayed. The closed-circuit television system disseminates similar information to monitors within the Chicago Board of Trade building. Televised information appears on at least 80 channels in several formats:
The Chicago Board of Trade provides similar types of price information to a nationwide network of subscribers. Information is transmitted in computer oriented form, making it simple for quotation vendors to transmit it to their subscribers. COMMODITY QUOTATIONS Commodity quotations are released by the Exchanges to the Press and over its own price-reporting networks. Most subscribers to the Exchange quotations service receive their information over computer terminals, although many of the larger offices of some commission houses also have electronic wall displays. In addition to commodity prices, commodity price-reporting networks from most exchanges carry much information relevant to trading. The following is a review of the kinds of information provided by the Chicago Board of Trade system. Each commodity traded on the different exchanges are identified on the system by a specific symbol, below is a list of a few:
Each month in the current year of trading is identified by these letter symbols:
Each month of the following year of trading is identified by these letters symbols:
Pre-Session Date: Line transmission begins each day at approximately 7:00 am with a test series. Interspersed with the test and at one-minute intervals throughout the trading session, the correct Chicago time is given as a permanent record of the approximate time at which prices occurred. Notices: The first information to appear before the opening of trading for the day includes any pertinent notices, such as the announcement of the last day of trading for expiring futures contracts, any changes in contract specifications, or any other similar information that would be of interest to traders. These notices are repeated following the close of trading for the day. Deliveries: During each month’s deliverable period, every day at approximately 8:10 am, the system lists full information on deliveries which will be made that day against futures contracts. Original delivery notices made the previous day are listed, as are the first notices of deliveries that will be made on the following day. Receipts and Shipments: The next report is the Chicago Daily Receipts and Shipments of grain. The first section of this report is the estimated railcars of grain in Chicago for that day, followed by the estimated Commodity Credit Corporation (CCC) railcars of grain in Chicago for that day. Following these estimates are the records from the previous day’s receipts and shipments, including the number of railcars loaded out, the receipts and shipments by truck and barge, and the lake shipments. By taking the weekend stocks-on-hand figures, adding the receipts, and deducting the shipments each day, it is possible for traders to maintain a very rough running inventory of supplies of grains in the Chicago market. The Receipts and Shipments figures may not be completely current every day. Mail delays occur, and some sources do not report all their outloadings and arrivals. Only shipments weighed by registered weighmen supervised by the Federal Grain Inspection Service of the U.S. Department of Agriculture are included in the figures that appear on the system. The figures provide a prediction of the near-term delivery situation, based on indicated net increase or decrease of available local stocks. Volume and Open Interest for Options: At about 6:30 am each day, the previous day’s volume and open interest of options puts and calls are listed. Previous Day’s Volume: At approximately 7:00 am daily, the previous day’s volume figures for all commodities are transmitted, based on the clearinghouse’s last turn. This report is prior to each day’s first trade-checking session. Data During the Trading Session: The current day’s trading session rarely opens precisely on the previous session’s closing prices. Opening prices are usually a little higher or lower, reflecting changes in available supplies and a host of other pertinent factors which affect decisions to buy and sell. Open: All trading on all futures contracts does not always begin after the opening bell. This is particularly true in far distant and, therefore, more inactive contracts. The first trade of the day in any contract which takes place after the market has opened, however, will carry an opening symbol (OPG) on the system, which alerts the reader that this is the day’s initial trade in that contract. Bids and Offers: Newcomers to commodity trading often think that the commodity system, like securities price-reporting systems, indicates price levels established in transaction only; this is incorrect. The prices which appear on the commodity price-reporting system may be the result of a trade, but they may also appear only as indications of bids or offers for which there were no takers. The appearance of a price on the system means only that a trade, a bid, or an offer was made at the level shown. When trading is at a pace which permits doing so, an offering or a bid above or below the market will often be identified by the symbols - A (ASKED) or B (BID) following the out-of-range price. Errors: Errors in transmission are usually corrected quickly by a notation on the line. Three standard formats are used: a quote might be revised, canceled completely, or a missed quote might be inserted. Spreads: Inter-delivery Spreading - the purchased of one contract month in a commodity and the sale of another contract month in the same commodity, is a practice often followed by both hedgers and speculators. The Rules and Regulations of the Chicago Board of Trade and most other commodity exchanges require that certain of these two-sided spreading transactions be reported as such on the price reporting system. The floor broker or trader who places a spread between contract months is required to advise the market reporters that he has done so. He must also advise the reporters of the price at which each side of the trade executed. One or both of the prices which appear on reported spreads will not be precisely in line with the price levels reflected in the pit at the moment the spread transaction appears on the line. The reason for this is that a broker who receives a spread order calling for the simultaneous sale of one contract and the purchase of another has a more complex trade than a straight buy or sell. He may find a fill at the right price difference of buy slightly higher or lower than the current market on one of the contracts. Unless reported as a spread, one or both of the prices might appear to be an error on the system. Two reasons, therefore, account for the difference which may exist between current market and spread quotes: first, the price difference is the major spread concern; second, it takes some time to execute and report the transaction with prices continue to move. Inter-commodity Spreads - the purchase of one commodity against the sale of another commodity, must also be reported by brokers so that these transactions may be shown as spreads on the system. Commodity-Product Spreads - such as a crush spread, the purchase of soybeans versus the sale of soybean meal, also must be reported as spreads and shown as spreads on the system. Options Spreads - must conform to one of the following definitions, any multiple or combination of these strategies, or any generally accepted relationship between options and the underlying futures, including but not limited to:
Only the futures which underlie the options may be included in spreads traded at price difference. Price Ranges: Trading ranges are usually reported twice during the session, reflecting the highest and lowest prices on traded contracts. The commodity and contract-month symbol for the nearby contract is the first to appear, along with applicable prices, the highest price is shown first, and the lowest price next. More distant contract months in the same commodity follow in sequence with the highest and lowest posted prices on each. High and low ranges on each commodity being traded are reported as rapidly as possible, but these ranges are often interspersed with current prices of the line for more than a few seconds at a time. Close: Five minutes before each close, a warning bell is sounded on the trading floor. The tempo of trading begins to increase as day traders close out the positions they took earlier and public customers place orders for execution at or near the close. Post-Session Data Settlement: At 2:00 pm, the settlement prices as released by the clearinghouse are reported on the line, as are the limits of price fluctuation for the following day’s trading. The first to appear are the grains settlement prices (these may appear even earlier than 2:00 pm. If the clearinghouses have them), followed by the prices for the non-grain commodities traded on the Chicago Board of Trade follow, along with the price limits for the next day’s trading in these commodities. Any errors in previous transmission, especially in closing prices and high and low prices, are then corrected and reported. Volume & Open Interest: At 2:15 pm the final Volume of trading and the Open Interest for the previous day’s trading are carried on the system. Volume and Open Interest data come from the clearinghouses and are officially reported to the public by the Commodity Futures Trading Commission daily. Volume figures for each contract month of each commodity are reported, as well as total trading Volume and Open Interest for each commodity. Master Reports-Visible Supply: On Monday of each week, figures on the U.S. visible supply of grains complied by the Chicago Board of Trade are released. The visible supply is the total stock of grain in storage in public elevators and some private elevators in the 22 terminal markets plus certain stocks afloat. This information is carried on the system at approximately 2:30 pm. The figures are reported in thousands of bushels with the last three digits omitted. The first information reported is the total U.S. visible supplies of each grain. Increases or decreases in visible supplies from the previous week are also given. Then figures representing stocks on hand at the various principal markets are given with corresponding figures for one week ago and one year ago. Crop Reports: Another group of important reports disseminated over the system originates in the Crop Reporting Board of the U.S. Department of Agriculture. These reports on grain production are compiled by the Crop Reporting Board and are released at 3:00 pm EST on the selected reporting day and reported over the Chicago Board of Trade system at approximately 2:30 pm CST. Planting intentions reports for the various grains are released from December through March. Following the planting of each of the grains, production reports are released. These crop reports include acreage, yield per acre, and expected production. The current figures represent revised production estimates as of the first of the month in which the report appears. Each crop report includes estimated production in the current crops and comparisons with the previous moth and the previous year. Marked increase or decrease in the anticipated crop size can exert profound influence on grain prices and prices of related commodities. As a consequence, the monthly government crop report is eagerly awaited by producers, commercial interests and speculators. NEWSPAPER QUOTATIONS Newspaper vary in the manner
in which they print futures and futures options quotations. The
quotations shown below are from The Wall Street Journal,
The Rules and Regulations of the different Commodity Exchange should be consulted as the authoritative source for information, rules and contract specifications. PLEASE NOTE THAT THERE IS AN INHERENT RISK OF LOSS ASSOCIATED WITH TRADING FUTURES AND OPTIONS CONTRACTS. EMPLOYEES OF FUTURES TECHNOLOGY, LLC PROVIDE INFORMATION BASED ON SOURCES WE CONSIDER RELIABLE, BUT THERE IS NO GUARANTEE THAT THE INFORMATION WE PROVIDE WILL RESULT IN PROFITABLE TRADES. PLEASE CAREFULLY CONSIDER YOUR FINANCIAL CONDITION BEFORE INVESTING IN FUTURES AND OPTIONS CONTRACTS. FUTURES TRADING IS NOT SUITABLE FOR ALL INVESTORS. PAST PERFORMANCE IS NOT NECESSARY INDICATIVE OF FUTURE RESULTS. This Site is Designed, Built and
Maintained by Jerry Hodges |
For several exchanges, the trading
floor is also the site of a cash market for spot or to-arrive
sales of certain commodities. Inspected samples are displayed on
the tables of the cash market area of the floor. Only members of
the exchange may conduct cash business or futures trading on the
floor.
which
publishes cash and futures commodity prices from many exchanges.
These quotations include the open-high-low-close, the net changes
from the previous day’s close, and the high-low range for
the season in each contract month traded for each commodity.
Prices are quoted for each commodity in units specific to that
commodity. For instance, grains are quoted in cent per bushel,
gold in dollars per troy ounce and hogs in cent per pound. Many
newspapers indicate the unit of quotations for each commodity.