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What is a Hybrid Market?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 28 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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A hybrid market is a securities exchange that makes use of both a traditional trading floor and some type of electronic trading program to allow buying and selling activity to take place. Markets of this type provide investors with alternatives to trading, and can be used interchangeably with relative ease. Today, many brokerage houses are structured to allow brokers to make use of both approaches, thus ensuring their ability to execute customer orders as quickly as possible.

With the floor system aspect of the hybrid market, the brokerage makes use of a floor broker to handle transactions on behalf of clients. This broker is situated on the actual trading floor and has immediate access to what is happening with all investments traded on the exchange. In situations where clients have placed some type of standing trade order, the floor broker can assess the current situations, determine if the time is right to execute the order, and place it within a matter of seconds.

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An electronic communication network helps make it possible to participate in a hybrid market without being physically present on the trading floor. While it may take a few more seconds to receive updates on the current movement of various investments on the exchange, the faster process of executing an order offsets this slight loss of time. With some brokerage houses, the expense involved with utilizing the electronic access to the exchange is also minimized. This fact also allows the broker to still earn a profit for his or her efforts while also sometimes providing clients with a more cost-efficient way to buy and sell on the exchange.

For some investors and brokers, the use of the more traditional option with the hybrid market is preferred, simply because of the interaction and the ability of a savvy floor broker to quickly identify opportunities that may be overlooked otherwise. Other investors and brokers prefer the electronic access because of the speed factor. Speed can be especially important when the broker is utilizing a specific strategy that relates to particular securities identified by the investor, and is less focused on looking for emerging opportunities for his or her clients.

It is important to note that there may be some limitations on the range of stocks that can be traded using both approaches in a hybrid market. While all stocks traded on the exchange can be traded using the traditional trading floor, a few may be excluded from trading using an electronic communications system. Over time, this has become less of an issue as the electronic approach has gained in popularity and more stock options are allowed to be traded using both means.

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