Why do stock exchanges (still) have physical locations?

[Donnerwetter]

Why isn’t all stock trading done online and why are there still people in colorful jackets shouting and other people ringing bells? Other than providing a stage for networks like CNBC or Bloomberg, there doesn’t seem to be a compelling reason.

[yabob]

Most of it, of course, IS electronic. Open outcry still accounts for a small percentage of the NYSE, though, and is more prevalent for commodity exchanges. You may find this interesting:

http://www.investopedia.com/financial-edge/0511/the-death-of-the-trading-floor.aspx

It may seem intuitive or obvious that electronic trading is superior to open outcry. Certainly computers are faster, cheaper, more efficient and less error-prone with routine trades - though the error rate in open outcry trading is surprisingly low. What’s more, computers are at least theoretically better for regulators in creating data trails that can be followed when there are suspicions of illegal activity.

That said, electronic trading is not perfect and open outcry has some unique features. Because of the human element, traders who can “read” people may be at an advantage when it comes to picking up non-verbal cues on the motives and intentions of counter-parties. Perhaps analogous to the world of poker, there are some players who thrive as much on reading the players as playing the odds - and electronic trading removes those signals from the equation.

Basically, open outcry continues to exist because there are some traders who continue to prefer to operate this way, and think they can shave a fraction of a cent by yelling at the other guys.

[jbaker]

This is in fact a point of some controversy within the investment community, and most people think that at some point there will no longer be physical exchanges. For now, however, the larger physical exchanges continue to get enough business to survive.