The Floor Trading

It was only a few years ago that most of the world top trading place introduced the electronic trading in their trading room, only 2 places in the worls now are still working with the floor trading, the real trading for someone, the London Metal Exchange and The Chicago Mercantile Exchange.

The London Metal Exchange (LME), located at 56 Leadenhall Street in the City of London, is the futures exchange with the world’s largest market in options and futures contracts on base and other metals. As the LME offers contracts with daily expiry dates of up to three months from trade date, along with longer-dated contracts up to 123 months, it also allows for cash trading. It offers hedging, worldwide reference pricing, and the option of physical delivery to settle contracts.

On this picture, we can see the floor of the LME, brokers and trader of differents firms are negociating each others every metals.

In the futures pits of the Chicago Mercantile Exchange (CME), tens of thousands of people crowd into 70,000 sq. ft. and trade in excess of 550,000 contracts a day by using their voices and hands. Even this volume is pale in comparison to the total dollar volume of all futures contracts worldwide, which are over $500 billion a day. In comparison, the electronic automated counterpart to the Exchange, the GLOBEX Trading System, trades only 6,000 contracts daily.

LME trades the equivalent of $7.41 trillion annually and $29bn on an average business day. More than 95pc of its business comes from overseas.

Compared to futures, options have been slow to transition to screen trading because they are inherently more complex. Not only do they come in a range of strike prices and expiration dates, but their prices depend on the volatility of the underlying futures contract, which can fluctuate sharply on a moment’s notice. On top of that, traders have a huge variety of strategies involving different combinations of puts and calls. In energy markets, it is often easier to execute such strategies through humans on the Nymex floor rather than through Globex, which is best used for plain-vanilla options with nearby expiration dates, according to market participants. That could keep the options pit humming for a while.

Does the « Trading on the floor » has a future in this world based on technology ? Still, others still believe there should be a role for both humans and machines. We’re in the 21st century and open outcry is being replaced by more machines ; but of course, If you’re just trying to do volume, if you’re just trying to do speed, the machine will be the preferred venue. Nobody will argue that. But there’s a place for both in some way, because sooner or later people will want to have more personal attention than a machine can provide. I mean, have you seen all the snafus that the machines have created? We’ve never had that kind of stuff in open outcry. That could keep the pit humming for a while.

Mekki Achraf

Achraf MEKKI

Achraf MEKKI


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