Floor trading, also known as open outcry trading, is a method of executing financial transactions on a physical exchange floor, where traders communicate buy and sell orders verbally and through hand signals in a designated area called a floor. Each floor corresponds to a specific product or group of products. From the 17th century until the late twentieth century, virtually all financial markets were a form of floor or open-outcry trading. It remained the dominant form of market making on options and futures exchanges for much of the twentieth century, and continues to be used today in specific segments, particularly for complex options structures and large institutional transactions in the United States.
The name comes from the physical design of the trading floor. A floor is typically tiered, with traders standing at different levels in a roughly circular or octagonal space. This layout allows participants to see and hear each other across the floor even when conditions are busy and noisy. Prices and sizes are agreed verbally, with hand signals reinforcing the details, and each leg of the trade is recorded immediately by both sides for confirmation and settlement.
