CHAPTER 1

Today's Trading Environment

Descent of the Pit and Ascent of the Screen

In the opening moments of Floored, James Allen Smith's incisive documentary about the decline of Chicago's trading pits, two telling statistics flash across the screen:

  • In 1997, more than 10,000 traders traded on pit floors.
  • In 2009, approximately 1,000 pit traders remained.

What happened? In a word, computers. In a phrase, computers replaced people. Actually, it's not quite that simple. Like most sea changes in human activities, the change from open outcry trading to a fully electronic, often automated, trading environment has been a gradual one. What was once a cacophonous scene of sweaty humans bellowing buy and sell orders while avoiding the elbows of other traders packed into the pit like sardines in a can has been transformed into a market dominated by the cleanly efficient hum of rack upon rack of digital servers placing millions of orders per second. Since Nasdaq emerged in 1971 as the world's first electronic stock market, the use of computers in trading has marched forward with the crushing momentum of an advancing army passing milestone after milestone:

  • 1992: The Chicago Mercantile Exchange (CME), founded in 1898, opened Globex, a 24-hour market for trading futures.
  • 1997: The London Stock Exchange (LSE), founded in 1801, opened an electronic trading market. The same year, the Toronto Stock Exchange (then TSE, now TSX), founded in 1861, did the same.
  • 2000: New York's International Securities ...

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