Trading Futures Contracts: How Does it Work?

In this article, we will discuss in detail about how futures contracts are traded.

The futures contracts are traded on futures exchange, and the trading happens in to ways: 1) Pit trading, and 2) Electronic screen or terminal.

Pit Trading

Also known as floor-based trading, in this method, the traders stand in a pit (trading floor) and shout and place their orders. They make use of shouting and hand signals to buy and sell futures contracts. there are different hand signals to indicate things such as bid rate, offer rate, number of contracts, etc.

Pit trading is the traditional form of trading and is a physically and mentally strenuous activity.

Electronic screens or terminals

This is the newer form of trading where the traders/members of the exchange place their orders through a computer terminal, the orders are displayed and executed electronically.

In most countries electronic trading is completely replacing pit trading, for example, in france most trading happens electronically. In the United States, however, both pit trading and electronic trading are popular.

How a Trade Works?

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