Oh yeah, the New York Stock Exchange, while the epicenter of the trading universe, is a little more like an amusement park or playground, isn’t it? Close your eyes and you can imagine it, the hustle, the bustle, the shopkeepers screaming on the floor, the grown men sweating through their suits and button-down shirts gesturing like a wild bunch of kids playing football in an open field.
But why, in this modern age, do traders and brokers still act like an angry mob? Don’t we use computers for most trades these days anyway? Isn’t this the information age, an age dominated by instant and sterile communication? How did this madness start? Why is it still going on? This article will examine and explain why Wall Street and many other trading grounds look more like a riot after a football game than a gathering of big business trying to make a fortune for themselves and their clients.
First of all, there are a number of stock exchanges and trading pits, from the bond pits in Chicago to the Nikkei in faraway Japan, but the most famous trading stock in the world, without a doubt, exists at the intersection of Wall Street. and Broad Street in Manhattan. The New York Stock Exchange (NYSE) had been around since 1792 when the famous Buttonwood Agreement was signed by 24 New York brokers and businessmen. Most people think of the Dow-Jones Exchange when they think of the stock market. This consists of thirty of the largest companies in the United States, from GE and McDonald’s to Walmart.
The principle is simple; People use stockbrokers to buy shares or ownership percentages of a company (and its profits or losses) in exchange for cash. Money has always flown across the room at a fast and breakneck pace, as has stocks, hence the utter hoopla. Essentially, these shares are “auctioned off” to the highest bidder who accepts a purchase price, so each broker tries to get their offer accepted before the price of a share rises. This is where the shouting originated, with brokers trying to shout their price and acceptance as loud as possible in an attempt to drown out and beat competing brokers to the purchase price they want. Getting a split-second offer early at pennies a share can mean the difference between millions of dollars of profit on a big stock purchase, so the immediacy and force used can be understandable when the stakes are so high.
Originally, the tenor of the room was more chivalrous, as respected businessmen and brokers traded stocks at a reasonable rate and wealth simply moved between wealthy individuals, from one family to another. A Rockefeller could buy a share of the interests of Ford or Vanderbilt, knowing that these rich and successful men would generate more wealth.
However, as America grew and the American Dream was born, ordinary people wanted to get in on the action. After the Industrial Revolution took place in America in the late 1800s, a middle class emerged, as factory workers fought for a bigger share of the company pie and ultimately won better wages and working conditions. The idea that any American could get rich and get rich quick took hold, and what better way than through the New York Stock Exchange.
By the 1920s, many Americans were investing in the stock market. The New York Stock Exchange was booming. Instant millionaires were everywhere. There was a whole new level of wealthy Americans with ticker machines in their living rooms giving them instant market price updates. That’s when the shouting and gesturing began in earnest, as brokers were overwhelmed with buyers, new customers, and buy orders. They yelled and yelled and waved their arms to receive their orders first. The country’s position was positive. The era was known as the Roaring Twenties, and its theme song was Blue Skies because everything was going rosy for most Americans. Consumer credit was born to help sell products that were produced in excess thanks to massive investments in stocks. The only problem was that this whole explosion of wealth was built on a house of cards almost like a Ponzi scheme. There were shares being sold in startups that weren’t making a profit, just filling their coffers with investment cash, and too many people were fully leveraged in the stock market. For 9 years, from 1920 to 1929, stock prices rose with no end in sight.
That is until October 24, 1929, better known as Black Thursday. That was the day of the Great Stock Market Crash that ushered in the Great Depression, the greatest economic catastrophe the United States has ever faced. The pots erupted with noise as traders yelled “sell, sell, sell”, trying to cut losses before it was too late, but there were no buyers. Investors fled in droves, most of them bankrupt, broke and penniless.
However, the New York Stock Exchange persevered and, like any stock or market, has had its turbulent ups and downs ever since. There have been a number of peaks and troughs on the New York Stock Exchange over the years. The most recent collapse occurred in 2008 after the housing bubble burst. The market is still recovering. Numerous regulations have been put in place to make trading more fair and acceptable. Day traders trades from your home computer indicate buys and sells in an instant. In fact, most transactions are done through computers these days.
So why do grown men in suits keep yelling and gesturing like a five year old throwing a tantrum? That’s the one thing that never seems to change.
Because at heart, the New York Stock Exchange is still an auction house system, and all DOW transactions happen on that famous floor at the end. Even if you make a purchase on E*Trade, the trade is accepted and consumed on the floor of the New York Stock Exchange, facilitated by a broker. Yelling isn’t as necessary or as frequent as it was in the past, thanks to computers and technological advances in communication systems, but there are still runners on the floor who have to out-punch the competition. In fact, hand signals are more important now for stockbrokers, so they can quickly signal the floor specialists placing the actual buy or sell order. That explains all the crazy gesticulating..
“Orders come in through brokerage firms that are members of the exchange and flow to floor brokers who go to a specific place on the floor where shares are traded. In this place, known as the trading post, there are a specific person known as the specialist whose job it is to match buyers and sellers.
By using obvious and wild gestures and yelling when necessary, so the order can be heard, brokers communicate with their own partners these days, not so much with the auctioneer. The noise and fury becomes so loud as the old mass chaos rears its ugly head and to an outsider it looks as if a rugby scrum has broken out. In fact, it simply means that a large number of operations are sweating before his eyes and to his ears.
There will probably come a day when all is quiet on the New York Stock Exchange, but it certainly wouldn’t be as entertaining. However, in all likelihood, there will always be human traders on the floor making sure your trade goes through, and that will always mean yelling and hand signals. So you know, the next time you watch a frenetic video clip from the New York Stock Exchange, the brokers aren’t practicing to become professional wrestlers or politicians. They’re not learning how to guide a plane down the runway or imitate their favorite NFL head coach on the sidelines of a hard-fought football game. They are just trying to make money or save money for their customers. If you happen to be one of those customers and it’s your money that’s at stake, even if you only have a 401K or retirement fund, you might think these transactions are worth it.