How a Trading Floor Works

Imagine standing up to a sea of computer monitors and more than 1500 individuals fixated on the at least three screens in front of them. Add to that sales people standing and shouting at traders across the floor, as well as the incessant ringing of phones and never ending chatter of people talking to clients, each other and anyone else. What never fails to amaze the passive observer is the fact that all that activity is driven by a single entity - the market. Its millisecond changes in price and information sends ripples through the trading floor, bringing together activity from all around the country, and even from across the oceans into a single location.

But one has to wonder how all the chaos is controlled and packed into a neat organization, much less a global financial institution. First, consider the seating arrangements on the floor. Space is allocated to individual desks, which have their sales people and traders sit at most an aisle away. These desks deal in their own individual markets, with sales people either getting orders for traders to execute, or moving securities off the traders’ books. Now, consider the synergy available to the investment bank from having the bulk of its trading operations in a single location. Traders and sales people do not confine themselves to their desks; they move around, call, or simply stand up and shout across desks to get the pulse of other markets. These extra bits of information, cheaply and efficiently gathered, allow traders/sales people to form a much better picture of how markets are moving, what they term "color".

Color is the trading floor's edge. Sales people call their clients to update them on market color gotten from traders or other clients. This in turn allows them to get their client's perspective on markets, thus giving them an even clearer picture of the forces driving the markets. This process continues, and the trading floor that gives the best color, thus enabling its clients to make the most money, ultimately takes home the biggest share of the pot.