How Open Outcry Works in American Futures Trading

Around the world, most futures exchanges now use electronic trading. The United States still uses the open outcry system of futures trading for many physical commodities, such as agricultural and oil. However, most U.S. futures markets also offer electronic trading.

In the open outcry system, here’s how a trade takes place:

When you call your broker, he relays a message to the trading floor, where a runner relays the message to the floor broker, who then executes the trade. The runner then relays the trade confirmation back to your broker, who tells you how it went.

Trade reporters on the floor of the exchange watch for executed trades, record them, and transmit these transactions to the exchange, which, in turn, transmits the price to the entire world almost simultaneously.

The order of business is similar when you trade futures online, except that you receive a trade confirmation via an e-mail or other online communiqué.

One key difference between open outcry and electronic trading is the length of the trading day. Regular market hours usually run from 8:30 a.m. to 4:15 p.m. eastern time. Globex, the major electronic data and trading system, extends futures trading beyond the pits and into an electronic overnight session. Globex is active 23 hours per day.

When you turn to the financial news on CNBC before the stock market opens, you see quotes for the S&P 500 futures and others taken from Globex as traders from around the world make electronic trades. Globex quotes are real, meaning that if you keep a position open overnight, and you place a sell stop under it or you place a buy order with instructions to execute in Globex, you may wake up the next morning with a new position, or out of a position altogether.

Globex trading overnight tends to be thinner than trading during regular market hours. It’s also more volatile in some ways than trading during regular hours.

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