What exactly is a floor trader?
Floor traders make deals purely for their accounts on the trading floor. Since most floor traders now utilize computerized trading systems, they no longer employ the open-outcry approach in the commodities or stock market pit.
Floor traders reduce bid-ask spreads and provide liquidity in commodities and equity markets. Floor traders might be registered competitive traders or independent liquidity providers.
Understanding Floor Trader
Movies often depict floor traders in scenes of financial exchanges. Since they trade with their own money, these traders are generally shown as emotionally committed. Most traders who use their money have migrated to computerized trading, which is not done in the pit, making floor traders rare.
A floor trader must undergo screening before trading on an exchange. Applicants for positions as floor traders must provide the National Futures Association with the following information: Online completion of Form 8-R, submission of fingerprint cards, verification of trading credentials obtained from a contract market, and payment of the non-refundable fee of $85 are required. The screening requirements for the various exchanges vary.
Floor traders, market makers, and brokers
Floor traders work in the pit alongside market makers and brokers but have separate functions. Brokers represent clients, whereas market makers primarily supply liquidity. Floor traders offer liquidity but focus on generating money. All stakeholders want the finest order execution. Depending on exchange restrictions, floor brokers may be allowed to trade for their account and represent their business or customer. Here, a person can be a floor broker and trader.
Floor Trading Future
Electronic trading is faster and cheaper; thus, several exchanges have closed their trading floors. Floor trading is more unpredictable after the 2020 crisis. The epidemic temporarily forced the New York Stock Exchange and others to halt their trading floors in March 2020. Many exchanges restart floor trading in phases, but the job’s future remains uncertain.
Conclusion
- Floor traders make deals purely for their accounts on the trading floor.
- Electronic trading is faster and cheaper; thus, several exchanges have closed their trading floors.
