April 7

Floor traders: who are they, and do they still exist?

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Last Updated on 7 April, 2022 by Samuelsson

Floor traders: who are they, and do they still exist?

 

Before the advent of the internet and online trading, trades were executed by floor traders on the trading floors. However, with electronic communication networks (ECN), you may be wondering whether there are still floor traders.

Floor traders are members of a stock or commodities exchange who conduct transactions on the floor of that exchange for their own accounts. Yes, floor traders still exist, but while most have left the exchange floors to trade online, a few still trade on exchange floors.

In this post, we will answer the following questions:

  • Do floor traders still exist?
  • How many floor traders are left?
  • What does a floor trader actually do?
  • How does the trading floor work?
  • How much money does a floor trader make?
  • How do I become a floor trader?
  • What is a $2 broker?
  • Floor trader vs. floor broker
  • Who owns floor trader?
  • Do stock traders wear jackets?
  • Who is the best investor alive?

Do floor traders still exist?

Yes, floor traders still exist. While most have left the exchange floors to trade online, a few still trade on exchange floors. Nevertheless, since the 1980s and 1990s, phone and electronic trading have significantly replaced physical floor trading in most exchanges around the world. But a few exchanges still have floor traders on their trading floors. An example of such an exchange is the New York Stock Exchange (NYSE), which still executes a small percentage of its trades on the floor.

How many floor traders are left?

Not much. With the advent of the internet and ECN, most floor traders left the trading floor and started trading online via their computers. Only a few traders still trade on the floor of the exchanges, but it is difficult to put a figure on the actual number.

Thus, while floor trading still exists, it only accounts for a rapidly diminishing share of market activity. According to a CNBC report, floor trading accounted for just 10% in 2017.

What does a floor trader actually do?

A floor trader executes transactions exclusively for their own account. They stay in the trading pits of the exchanges and trade with other traders via the open outcry system. However, with the emergence of the electronic trading system and order book, the open outcry system is dying, and even on the trading floor of those exchanges that allow it, many traders monitor the electronic order flow to execute their trades.  

How does the trading floor work?

A trading floor refers to a hall in the exchange building where traders buy and sell securities. The general purpose of a trading floor is to give traders a specific place where they can buy and sell stocks and options.

With its open outcry system, the trading floor setup is like an auction house: the sellers scream their ask prices, and potential buys shout their bids until a match is found and a trade occurs.

How much money does a floor trader make?

According to Slary.com, the average salary of a floor trader in the United States is $165,590 as of February 25, 2022, but the range typically falls between $125,490 and $193,690. However, salary ranges can vary widely depending on certain factors, such as education, certifications, additional skills, the number of years you have spent in your profession.

How do I become a floor trader?

To start trading on any exchange, you will be required to pass a screening process. The requirement outlined by the National Futures Association (NFA) include the following:

  • A completed Form 8-R
  • Fingerprint cards
  • Proof that trading privileges have been granted to the individual obtained from an exchange
  • An $85 application fee (non-refundable)

In addition to the above, some exchanges may require additional screening and training on the regulations and rules a floor trader must abide by.

Floor trader vs. floor broker

Both the floor trader and floor broker bid against other traders to get the best terms possible for every sale or purchase, but while a floor trader trades for his/her own account, a floor broker executes trades for their clients. A floor trader is called a local, whereas a floor broker is referred to as a pit broker.

Sometimes, investors hire trading firms for the execution of their investments. Most of such trading firms employ floor brokers of their own who make investments according to the desires of their clients or investors.

What is a $2 broker?

A $2 broker is a broker who executes orders for other exchange members on the floor for a commission. The two-dollar broker name originated because, historically, these brokers were paid $2.00 for a round lot trade of 100 shares. But later on, the broker would negotiate their commission and could make more or less than $2 per $100 trade. In fact, the fee the two-dollar broker typically received was much higher than two dollars per trade, but the name two-dollar broker remained.

Who owns floor trader?

A floor trader is an individual member of a stock or commodities exchange who trades on the floor of that exchange for his or her own account. In other words, a floor trader owns his or her own space on the trading floor.

However, there can be proprietary trading firms that have their own floor traders trading for them from the exchange trading pits.

Do stock traders wear jackets?

Yes, stock market traders inside the trading pits of various financial exchanges wear vibrant trading jackets to help in recognizing the team in a crowd. Since communication has to be rapid while trading in open outcry, the trading jacket helps for easy recognition and improves efficiency.

Who is the best investor alive?

Known as the “Oracle of Omaha,” Warren Buffett is regarded as the most famous investor of all. Warren Buffett was born in Omaha in 1930. As a child, he developed an interest in the business world, including the stock market, and started investing at an early age.

Currently the chairman and CEO of Berkshire Hathaway, he is considered one of the most successful investors alive. Despite the tens of billions, he has given out in charity, he currently has a net worth of over $117 billion as of March 2022, making him the world’s sixth-wealthiest person.


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