What will the future of the Chicago Board of Trade hold?
In the heyday of the Chicago Board of Trade, days were filled with traders in an orchestrated rainbow of jackets jockeying for a position in maxed-out pits. Open outcry was observed with loud screams and a tidal wave of energy.
"It was the wild, Wild West," says Gregg Hunt, commodity broker for Archer Financial Services, who moved to Chicago in 1984. "It was the modern-day Gold Rush. You had guys trading from all walks of life and endless ‘rags-to-riches’ stories."
Now when you watch the open or close from the viewing floor, they actually have to pipe in yelling and noise to force an environment of excitement. When the Chicago Board of Trade opened in 1848 as the world’s first futures exchange, all trading was done in the building. For the next 140-plus years, traders had to stand face-to-face, using complex hand signals to buy or sell contracts.
During the 1990s, electronic futures trading launched, causing a dramatic shift in how trading is done. Today, the vast majority (more than 80%) of trading through the Chicago Mercantile Exchange, which merged with the Chicago Board of Trade in 2007, is done electronically.
Of that huge portion, at least half of electronic trading is done by computers that have no idea what they are trading, says Tommy Grisafi, president of Trade the Farm. "When electronic trading started, the human element was affected," says Grisafi, who started at CBOT and CME in 1990. "But, when electronic trading started, there were tons of offices of humans trading electronically. Now even those offices have closed, as algorithms have replaced humans."
Hunt says trading is a totally different world. "Today, accountants pretty much run the show," Hunt explains. Before, when traders were crammed onto the floor, he says, you could just listen for a surge in noise. "When you heard more noise, you knew something was going on," Hunt shares. "That is how you gauged the market."
Now anyone can trade anywhere, as long as they have a strong Internet connection. Grisafi believes those on the floor are at a disadvantage when it comes to market information.
"I’m at home in front of eight computer screens, three TV screens, Twitter, Reuters, Bloomberg, etc.," he says. "I can see the whole world."
Grisafi says electronic trading has given farmers the opportunity to become their own brokers. "In the old days, someone called a broker and that broker wrote an order, which was sent to the pit," he explains. "Now you can open your laptop and sell contracts. A lot of people still use a broker, but it’s not a requirement."
- March 2014