Who are all these people on the floor of the stock market and what do they do? I’ve never seen it except on TV and in movies, but there’s always a crowd of people yelling at each other and waving paper around. It looks like complete chaos (if the images represent the reality of the stock market). I assume they’re buying and selling shares and commodities, but how do they do it in all that chaos? And how do they keep track of it all?
Another question about the stock market: how do the computers know the price of a share from moment to moment? People must be buying and selling the stock all the time, and they must be able to negotiate prices, but how does the computer know what the going price is for a stock at any given moment?
Those guys on the floor are called (surprise) Floor brokers.
They gather at kiosks run by people called Specialists. A specialist only trades one or two stocks. On the NYSE he is the one who “makes a market.” That is, he’s playing both sides of the street, being by law willing to both buy and sell stock at any given time, albeit at different prices, a bid and a ask.
He might bid 25.35 for ABC stock and offer it at 25.40. The difference is his profit or take.
He needs this because the life of a specialist is a dangerous one. He must sell stock to buyers even if he doesn’t have any. This is called going short, and is the origin of the phrase “don’t get caught short.” If the stock price goes up and he’s short, he’ll have to cover at that higher price.
Most of the time, your piddling 100 share trade escapes all human attention and is simply executed by computer. Those guys shouting and having hysterical fits are typically negotiating the sale of 10,000 share plus “block trades.” They do this in “relation” to the Specialists posted price of where the market is to a given a stock from moment to moment.
Like a master poker player, it’s the Specialist’s job to know what everybody in his area is trying to do, or looking to buy and sell, and he prices accordingly.
Contrary to the myth of these guys as sharks, they are scrupulously honest in their dealings with each other. This isn’t out of any comeraderie, but do to the fact that you can only get away with pulling a fast one once. Screw somebody once and the next time you try to sell stock, all anybody will ever give you is what is known as a “fuck you bid.”
NASDAQ doesn’t have a floor. Instead, they have people called “Market Makers” who perform about the same functions as the specialists, but they do it entirely online, and there is not a single specialist trading a given stock - multiple Market Makers compete for orders.
As to how the computer “knows”, I’m not sure what you are asking. What you are seeing is simply a report of the last trade made by human traders interacting through the system (probably delayed by 15 or 20 minutes if it’s a free service). Not that I mean to trivialize. Setting up real-time data feeds of that order of reliability, response time and sophistication is not easy. But in essence, you can think of electronic markets as an extremely complex and robust form of online chat with money changing hands. I’m sure I’m now going to get beaten up by somebody doing financial applications who wants to take exception with my gross simplifications.
Oh, and I was hoping this thread was something about using chaos theory for predicting financial markets. Tell me how to make a whole huge pot full of money, will ya?
I didn’t read the market lately so I thought something happened. whew Those floor people are talked about here a bit but anyway does anyone know how much it costs to be on the floor? Isn’t it very expensive?