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A trading room refers to office space where buy and sell orders are carried out in the financial markets. The professionals that carry out those orders are called traders, and their job is to attempt to profit by short-term changes in market prices. A trading room may also be referred to as a trading floor, and many of these offices are contained within brokerage houses, some of which are part of the largest investment banks located in major cities around the world. Electronic trading, which relies on the use of computers and other technological devices, has also made it possible for some trading rooms to flourish outside of major cities.
A robust trading floor is often filled with hundreds or thousands of individual traders, each of whom have multiple computer screens on their desks to monitor trading activity in the financial markets. Trades are either carried out electronically, such as over the computer, or verbally and over the telephone. Typically, a trading room is a loud office space with television screens positioned for traders to hear the latest broadcasts about the financial markets on business channels. When a stock is mentioned on business television, there is usually immediate buying or selling activity in that security, which traders will then try and capitalize on.
Exchanges are where buy and sell orders are actually executed, and they contain a trading room where either live specialists and brokers carry out trades or where electronics are used to facilitate orders. A trading room filled with live specialists is known as an open-outcry system. In this system, traders rely on hand signals to communicate trade details, such as how much of which security to buy or sell, with one another.
Some exchanges, including Nasdaq in New York, are entirely electronic and depend almost completely on computers to execute trades. Electronic trading has eliminated some of the human element involved in trading. As brokerage firms and stock exchanges adopted this faster trading method, thousands of traders lost their jobs. Hybrid exchanges, including the New York Stock Exchange Euronext, a merger between two of the largest exchanges in New York and in Paris, have a combination of both an electronic and an open-outcry system.
The trading rooms at large exchanges might be devoted to a particular asset class, such as equities, bonds, or commodities. Financial transactions are monitored by the regulatory agency for the financial markets in a particular region. Traders often earn fees and compensation based on the number of trades they carry out, and also based on the price for which securities are bought and sold.
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