Commodities

It’s the Pits

dondawson
Don Dawson
Instructor

For many years the Futures markets only had a day session and all the transactions were conducted in trading pits on the floors of the Exchanges. The traders in the pits, known as locals, would act as market makers for when the paper (orders from off the trading floor) came into the pits. This paper originated at an order desk just off the edge of the trading pits where orders were phoned into a clerk working that order desk.  Once you contacted the clerk they would write out the order and if the order to buy or sell was far away from the current market price it would be placed in a stack of other orders to be sent in at a later time.  If the order was close to the current market price the clerk could either arb (use hand signals) to communicate with the broker filling orders in the pit or the clerk could hand the order to a runner (person who carried orders to the brokers in the pits and then returned the same orders to the clerk once filled).  The clerk would decide which way was the most efficient to get the order to the broker as quickly as possible.  Once the broker had the order he could then find a local standing near him to make a market to get the order filled.  Once the order was filled in the pits it was handed back to a runner who in turn would deliver the filled order back to the order desk.  Once there the order desk clerk would then contact the account holder and notify them of the filled market price.

As antiquated as this process sounds it has worked tremendously well for over 100 years at the Futures Exchanges.  I have to say with today’s electronic markets the playing field has been dramatically improved for the off the floor trader.  The time it takes to get orders filled and back to us is almost immediate compared to anywhere from 5 to 60 minutes or longer when trades only went through the pits.

The trading hours for Futures pits were only during the day session, there was no Globex session at this time.  All the volume for these contracts came to the pits to be traded.  For example the Bond market would open at 8:20 AM ET and close at 3:00 PM ET.  There was no more trading of the US Bond Futures until the next trading session at 8:20 AM ET.  Institutions could trade the US Bonds in London, but the liquidity was not very good.  Otherwise, they too had to wait until the next trading session to place trades.  One of the nice things about these hours was that all market participants only had 6 hours and 40 minutes to get their business done.  This created some great volatility for us traders back in the day.

If you notice many different Futures contracts open and close at different times of the day even during the days of pit only trading.  Some of the reasons for these staggered opens was to allow traders in one pit to make trades in other pits to Spread off positions or to just participate in the order flow (these traders are market makers) of market on close orders that would come in everyday.  Just to show what a passion these floor traders had for their jobs, many of the traders in the Bond pits would leave the Chicago Board of Trade (CBOT) once the Bond pits closed and go the Chicago Mercantile Exchange (CMEGroup) to trade the last hour and fifteen minutes of the S&P pits.

Futures Exchanges work closely with government agencies and commercial entities that use the Futures markets daily to make sure the contracts are available during times of day that is most convenient for these traders.  This is why even today with electronic trading around the clock the majority of volume still comes in during the regular trading hours (RTH) also known as the pit sessions.  As day trading speculators in the Futures markets we need these high volume periods of the day to provide us liquidity to get in and out of our trades.

In the following table I am going to list the most popular Futures contracts and their respective regular trading and all session trading hours.  As a suggestion I would recommend that traders looking for good liquidity and less risk of stop running to have their orders executed during the regular trading hours.

Market             

Exchange

RTH Session

All Session

Stock Indexes

S&P

CME Group

9:30 – 16:15

 18:00 – 17:15

Nasdaq

CME Group

9:30 – 16:15

 18:00 – 17:15

Russell

CME Group

9:30 – 16:15

20:00 – 18:00

Dow

CME Group

9:30 – 16:15

 18:00 – 17:15

Treasuries

30 Year Bonds

CME Group

8:20 – 15:00

18:00 – 17:00

10 Year Notes

CME Group

8:20 – 15:00

18:00 – 17:00

5 Year Notes

CME Group

8:20 – 15:00

18:00 – 17:00

Currencies

Euro

CME Group

8:20 – 15:00

18:00 – 17:00

Yen

CME Group

8:20 – 15:00

18:00 – 17:00

Canadian Dollar

CME Group

8:20 – 15:00

18:00 – 17:00

British Pound

CME Group

8:20 – 15:00

18:00 – 17:00

Australian

CME Group

8:20 – 15:00

18:00 – 17:00

Swiss Franc

CME Group

8:20 – 15:00

18:00 – 17:00

US Dollar

ICE

None

20:00 – 17:00

Metals

Gold

CME Group

8:20 – 13:30

18:00 – 17:15

Silver

CME Group

8:25 – 13:25

18:00 – 17:15

Copper

CME Group

8:10 – 13:00

18:00 – 17:15

Platinum

CME Group

8:20 – 13:05

18:00 – 17:15

Energy

Crude Oil

CME Group

9:00 – 14:30

18:00 – 17:15

Natural gas

CME Group

9:00 – 14:30

18:00 – 17:15

Heating Oil

CME Group

9:00 – 14:30

18:00 – 17:15

Gasoline

CME Group

9:00 – 14:30

18:00 – 17:15

Grains

Wheat

CME Group

 10:30 – 15:00

18:00 – 15:00

Corn

CME Group

 10:30 – 15:00

18:00 – 15:00

Soybeans

CME Group

 10:30 – 15:00

18:00 – 15:00

Soybean Oil

CME Group

 10:30 – 15:00

18:00 – 15:00

Soybean Meal

CME Group

 10:30 – 15:00

18:00 – 15:00

Softs

Cotton

ICE

None

21:00 – 14:30

Orange Juice

ICE

None

08:00 – 14:00

Coffee

ICE

None

03:30 – 14:00

Sugar

ICE

None

02:30 – 14:00

Cocoa

ICE

None

04:00 – 14:00

Lumber

CME Group

10:00 -14:05

10:00 – 14:55

Meats

Live Cattle

CME Group

10:05 – 14:00

18:00 – 17:00

Feeder Cattle

CME Group

10:05 – 14:00

18:00 – 17:00

Lean Hogs

CME Group

10:05 – 14:00

18:00 – 17:00

Notice the products that trade on the ICE Exchange do not have an RTH session.  This is because the ICE Exchange is purely electronic and there are no pit trading sessions.  This includes the Soft products and the Dollar Index.

Some traders only chart the all session hours or just the regular trading hours while some chart both.  I would recommend that you look at both charts when you get ready to create your levels.  Today the bulk of the daily trading volume (80 – 90%) is still traded during the regular trading hours; this makes the supply/demand levels created during this session worth watching as well.

“This is a new year.  A new beginning. And things will change.”  Taylor Swift

– Don Dawson

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.