ON-LINE TRADING LESSON
Trading futures and options involves risk and is not suitable for everyone. 

On-Line Trading Lessons

    Courtesy of the Chicago Mercantile Exchange

Lesson 8 -- The Trading Pit

This is where it all happens. Futures contracts are traded in trading pits at the Chicago Mercantile Exchange (CME) and other exchanges. That’s where traders determine futures prices, which change from minute to minute as trading goes on.

What is trading?

In the futures industry, trading means buying and selling futures contracts. If you buy a futures contract at one price and sell it at a higher price, you make money. If you sell it at a lower price than what you paid for it, you lose money. Some people who trade futures are in it to make a profit by trading. Others are producers or users of commodities who are trading futures to protect a sale or purchase price.

The highest bid or lowest offer (the most competitive price) sets the true market value. A trader must "best" or beat that price in order to set a new "best" bid or offer. The seemingly frantic nature of the open outcry system is really about brokers and traders constantly bidding or offering prices that the market will perceive as the true value; and trades will then occur.

Hand signals, as well as vocal open outcry, relay quantity and price information between traders and brokers across the pit. As in any auction situation, a trader’s action or word is a bond. With billions of dollars at stake, each action in the pits is actually a carefully recorded and executed trade agreement. Though seemingly chaotic, what you are witnessing in a futures trading pit are market professionals conducting business at lightning speed for either customers or for personal profit. In markets where prices move rapidly within short periods of time, the speed of trade execution and timely delivery of orders to customers is essential.

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