CME and most other U.S. futures exchanges offer two venues for trading:   the traditional floor-trading venue and electronic trading. Broadly speaking, trading is essentially the same in either format:  Customers submit orders that are executed – filled – by other traders who take equal but opposite positions, selling at prices at which other customers buy or buying at prices at which other customers sell. This matching of buyers and sellers occurs in both open outcry and electronic trading, but there are some differences between the two processes.

In open outcry trading, orders are communicated to brokers in a trading pit, via requests that customers make to their brokerages by phone or computer. Customer bids and offers are presented by pit brokers to other brokers standing in the pit, and trades are “executed” – matches are made – when prices that are mutually acceptable to buyers and sellers are identified. Customers are notified of their trades, information about each trade is sent to the clearing house and brokerages, and prices are disseminated immediately throughout the world. The trade order is also time-stamped at both ends of the process.

In electronic or screen-based trading, customers send buy or sell orders directly from their computers to an electronic marketplace offered by the exchange. There is no need to have brokers submit and execute orders for customers, because the customers will have received brokerage approval to trade electronically, and the exchange computer system informs the brokerages of customer activity. In a sense, the trading screen replaces the trading pit, and the electronic market participants replace the brokers standing in the pit. There is greatly expanded price transparency because the top five current bids and offers are posted on the trading screen for all market participants to see – an advantage that even brokers in a pit don’t have.   The exchange computer system keeps track of all trading activity, and identifies matches of bids and offers, with fills generally made according to a first-in, first-out (FIFO) process, although some alternate allocation processes are used in particular markets. Trade information is sent to the clearing house and brokerage, and prices are also instantaneously broadcast to the public. Trades made on CME® Globex®, for instance, are typically completed in a fraction of a second. In open outcry trading, however, it can take from a few seconds to minutes to execute a trade, according to the complexity of the order.

For more information on electronic trading on CME Globex, please see the CME Globex Brochure (PDF).