Stocks and Commodities Magazine

CME Commodity Pit Closures Causing Concern for the Average Retail Trader

What impact will the CME’s pit closure have on the average trader?

In early 2015 the Chicago Mercantile Exchange announced that it would be closing pit trading for all futures contracts in both its Chicago and New York operations, with the exception of the full-sized S&P 500 and most option pits.

The S&P 500 futures contract was the only product that had never been moved to “the screen”. While all other CME futures products traded in both an electronic version, and open outcry version, side-by-side, execution in the “big” S&P has always been strictly open outcry. Because of this, many traders moved their speculation from the original S&P contract, into the electronically executed e-mini S&P 500 futures (symbol ES) to avoid the delays and slippage that sometimes came with pit traded execution.

If you are young, and new to the trading community, you might not be aware of what trading pits are, and the practice of open outcry execution. In short, the pits are designated circular areas in which exchange members buy and sell futures contracts through hand gestures known as arb. Although the transactions are dictated by hand movements, they are accompanied by aggressive voices, and, in some cases, a degree of physicality. The process of open outcry trade execution is often referred to as “organized chaos”. If you haven’t seen Trading Places starring Eddie Murphy and Dan Aykroyd (one of the greatest movies of all time), you should; it manages to capture the essence of pit trading in all of its glory. Further, the documentary “Floored”, directed by James Allen Smith, depicts a candid story of the ups and downs experienced by those on the CME trading floors in Chicago.

As mentioned, along with the “big” S&P 500 futures, the option pits will resume operation. This is because the complexity of option trading hasn’t translated to the “screens” as well as futures contracts have. Simple long and short calls and puts can easily be executed via an electronic platform, but in some circumstances those trading multi-leg option spreads in high volume still find benefits of using an open outcry execution broker. This is expected to be the case for the foreseeable future. Nonetheless, the writing is on the wall…eventually, the option pits will likely go the way of the futures pits.


Read more about potential changes for the retail trader from the recent CME Commodity pit closures in the May 2015 issue of Stocks & Commodities Magazine


DeCarley Trading on Twitter

Carley Garner Trading Books

  • Higher Probability Commodity Trading, new Carley Garner book

    Higher Probability Commodity Trading, new Carley Garner book

    According to Phil Flynn, Fox Business News contributor, this is Carley Garner's "masterpiece"! Order from Amazon today! "A great read for both beginner and advanced commodity traders. Carley nails the seemingly impossible task of leveling the playing field by imparting vital concepts in easy to digest bites ...she doesn't leave out the harsh realities and heartbreak many overzealous speculators face." -- JON NAJARIAN, co-founder "I love the book... it's an MBA in trading for the
    Read More
  • Commodity Options the Book

    Commodity Options the Book

    It isn't free, but it's close! If this book saves you 2 ticks, you've recouped your investment.   Commodities are hot, as Jim Rogers would say.  Stagnant stocks and the massive bull rally in raw commodities have lured much of the attention away from Wall Street and toward down-town Chicago.  It is difficult to turn on the television or open the newspaper without being reminded of the impact that commodity prices have on our daily lives.   Traders
    Read More
  • A Trader's First Book on Commodities

    A Trader's First Book on Commodities

    The Simple, Practical, 100% Useful How-To Guide for New Commodities Traders   Before you trade commodities, you'll need significant practical knowledge of the associated risks and market characteristics. That's where this book comes in. You won't find boring theory or bewilderingly complex trading strategies here. Instead, you will find specific guidance on accessing commodity markets cost-effectively, avoiding common beginners' mistakes, and improving the odds of successful trades. Drawing on her extensive experience teaching traders, Garner shows how to
    Read More
  • Currency Trading in the FOREX and Futures Markets

    Currency Trading in the FOREX and Futures Markets

    Get a copy of Carley Garner's latest book at, or any major outlet! "Once again, Carley Garner demonstrates her ability to boil down complex concepts for individual traders. Trading Currencies in the FOREX and Futures Market will put budding currency traders ahead of the curve with its unique blend of the basics and some refreshingly unexpected material." ~ Karris Golden, Traders Press® "Carley is a smart trader and broker; she understands the markets and the importance of
    Read More

Newsletter Trial