Q&A On a Floor Broker

(Q)
Just curious: a floor broker??? I have heard that term many times, not knowing exactly what specific work they are doing. Are they the guys in those funny-colored jackets I can watch them on CNBC?

(A)
Yep. A floor broker, aka pit broker, is a member of the respective exchange who has a business relationship with (one or more) brokerage firms. Most of the trading he/she does during trading hrs is to fill orders that are brought into their pit by runners who work for them.

At any one time, a pit broker will have a stack of orders in his hand, arranged in order of price and divided into buy/sell types of orders.

Many brokers have so many orders to fill that they employ clerks, also called deck holders, to help hold the orders and keep them in order.

You can see these deck holders standing on the outside steps of the pit, with their backs to the inside of the pit. It is not uncommon for brokers who work the very busy contract months to have 3 or more clerks working for them.

Each of the pit brokers wears a distinctively colored jacket with his/her ID badge prominently displayed. On the badge are several large letters that identify the broker to other traders in the pit.

When a trade is completed, these ID letters appear on the filling form as an endorsement. Each set of letters is unique of course, so theres no chance to mistake who made that particular trade.

Most floor brokers handle orders for only one contract month, particularly if they work in one of the nearby contract months where volume is greatest.

In some of the very high-volume pits, a broker may handle only the buy orders, while another broker handles sell orders. Other brokers may handle only spread orders. By specializing in this manner, a broker ends up working in one particular spot in the pit day after day, making him/her easy to find when an order needs to be filled quickly.

Hope this helps.

Good trades,

Tom out

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