So Long, Farewell: The End of Futures Trading as We Know It

I’m a little nostalgic this week. That’s because, as of Monday, futures trading will never be the same.

One of the things that first got me into the commodity futures markets was one of my all-time favorite movies: Trading Places with Eddie Murphy. Yes, I know it’s a comedy – but it depicts some of the elements of trading with stark accuracy.

Take my favorite scene at the end of the movie, when Billy Ray Valentine (Eddie Murphy) and Louis Winthorpe III (Dan Ackroyd) took their bundle of money to the frozen orange juice futures trading pit to get back at Mortimer and Randolph Duke.

It got everything right: The chaos of screaming brokers… order takers and pit traders pushing and shoving for their position… the hand signals marking order price and size to buyers and sellers… the acknowledgement of filled orders…

Now, that’s all over. On Monday, most of the futures trading pits officially closed. The bright jackets, pushing, shoving, yelling, and fierce competition have given way to the silent (and less expensive) form of trading on computers. The last one standing: The S&P 500 futures and options pit. That’s it.

It’s a big deal to some. People have made – and lost – fortunes in these pits. With everyone thrown into the mix, traders used to place orders based on the tone set in the room by their fellow traders. They read the crowd, and acted.

Now, the pits are all silent. Trades are processed electronically without the fuss. From Chicago to New York, grains to gold, Treasury bonds to federal funds – even the frozen orange juice pits – they’ve all conceded to computers.

It might have the pit traders bent out of shape, but the good news is this: The cost to trade futures is down dramatically. Not only are commissions and fees much lower with electronic trading, but trades will now be reported instantaneously. Better yet, human error is history!

So while I enjoyed watching Billy Ray Donavan and Louis Winthorpe III take down the Duke brothers, as well as the real action in the Chicago and New York futures pits, you can’t deny it’s a change for the best. Even if we’ll miss the good ol’ push and shove.

Lance Gaitan

Lance Gaitan
Editor, Dent Digest Trader

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Categories: Investing

About Author

Lance Gaitan graduated from Franklin University in Columbus, OH with a degree in Finance. After graduating and working as an auditor for an insurance administrator as a number of years, he attained his securities license. He then went to work as a broker for a small firm and during the mid-1990’s Lance managed the futures trading desk for Piper Jaffray, a large regional brokerage firm based in Minneapolis. After migrating to Florida in early 2000, Lance founded a futures trading firm, GSV Futures, specializing in retail commodity trading strategies. Lance sold that business in 2006 and joined Harry Dent, Jr. and Rodney Johnson at Dent Research shortly thereafter.