In 1903, American author Frank Norris wrote a novel titled, The Pit. It was set in Chicago and one of the principal characters was a man who became obsessed with trading wheat in the wheat pit at the Chicago Board of Trade Building. Norris wrote a series of novels focused on the suffering caused by corrupt and greedy turn-of-the-century corporate monopolies.
Wheat continues to be traded today at the Chicago Board of Trade, but the methods of trading have changed.
One of the comments to a prior post mentioned open outcry trading on the commodities markets.
In the US, the largest examples of these were the commodities pits at the Chicago Mercantile Exchange were a great show, a bunch of sweaty guys (it was all guys until the last few years, sweating and jammed together, yelling, bumping, using obscure hand signals) creating a flow of billions of dollars in cattle, hogs, sheep, corn, wheat, dry whey, cheese, lumber, etc., etc.
Just a few blocks away, at the Chicago Board of Trade, traders used similar open outcry systems to trade options and futures contracts.
PG the pits largely gave way to computerized trading several years ago.
For those who have never seen what an open outcry market looks like, here’s a short video from a PBS program of some years ago:
Eurodollar Futures Trading Pit
The combination of hand signals and yelling was used to transmit bids and other information to and from the buyers, who were within visual range but outside the pits, to the selling brokers who were in the center of the pits. The noise level was high and fast-moving streams of information were coming into every buyer and seller. The only means of communicating quickly in such an environment was with hand signals.
Parker brothers still sells a card game named “Pit” that simulates trading commodities. With enough people it’s a lot of fun.
The pits were definitely a game. A trader could be very successful without knowing anything about what he was trading. He just played the order flow into the pit and the mood of the pit. Watch the broker for Goldman, see if the phones are going off on the desks, see if anyone was getting caught in a position. Is the spread tightening? Where are we to yesterday’s close? Is it too quiet?
When computer trading started, a trader could stand in the pit with a laptop around his neck, playing the pit off against the box. It was just numbers and flow.
Then computers took more and more volume, and we lost the edge that the pit offered. The pits ruled for 150 years, and fell in just a few.
God Bless the free market, for it’s a state of mind.
Or you could watch the end of Trading Places, with Dan Ackroyd and Eddie Murphy. 🙂