Unveiling the Mystery of Trading Hand Gestures

Ryan Carlson

August 10, 2010

The continued decline of open outcry trading has lead Ryan Carlson, a former floor and current electronic trader at the CME, on an endeavor to document the use of trading floor hand signals.  This unique project aims to record not just signals used in the Chicago futures pits but across every trading floor worldwide.  For those who have always wanted to decipher activity in the trading pits, Carlson has provided a brief explanation to unveil the mystery.  A full gallery and listing of hand gestures is available at tradingpithistory.com and the project welcomes any submissions which aren’t already recorded. 

There are many intriguing mechanics to the function of open outcry trading but none as fascinating as the use and language of the hand signals utilized throughout the trading floors.  Such gestures coupled with the imagery of vivid trading jackets, manic screams and the density of the floor population lead many, including myself, to be drawn to the futures market upon first sight.  Underlying what looks like absolute chaos in the trading pit is actually an organized system of official and unofficial hand signals used to efficiently transact and communicate information.

Although many signals evolved throughout different eras with the trend being towards simplicity and using only a single hand, the principles are largely unchanged from those developed in the late 19th century.  A palm facing toward the body indicates one is a buyer and a palm away from the body represents a seller.  

Extending a hand at arm’s length signals the price and a hand near the face displays the quantity.  Vertical fingers are used for numbers 1-5 and once turned horizontal, those fingers would display 6-9 with 0 shown by a closed fist.  Single digit quantities are shown with fingers near the chin while the same fingers shown on the forehead would indicate increments of 10.  To further avoid confusion, price is indicated first and then quantity for a buyer (“price on quantity”) and vice versa for a seller (“quantity at price”).   

The monthly expiration cycles of futures require hand signals but initially they were limited to less than half of the months as grain contracts had infrequent expirations.  It wasn’t until the launch of the Fed Funds contract in 1988 that gestures were needed for all twelve months at the CBOT as an example.  Signals for expiration months often fall into a few categories such as mimicking the name of the month, a characteristic of that time of year or for the hand to display the particular letter code used to designate that month.  For instance at the CME, March is represented by marching fingers, August is represented by wiping the sweat off the brow and November is shown by drawing an X in the air to symbolize the month code.   Hand signals for months often transferred to different trading floors but frequently did not so new signals were created such as on the SIMEX floor, a fist with a thumb sticking out horizontally represented a Q, the month code for August.  

When futures started to be listed with expirations beyond the next twelve months, hand signals developed to indicate which particular year or series the contract belonged to.  Generally the next year’s expirations are referred to “Red” (i.e. Red March) and if the story I heard from an old timer is true, the moniker came from the quotations being written in red chalk back in the days before digital wallboards were installed.  It is quite rare for listings to extend beyond the next year although short term interest rate contracts such as Eurodollar futures have expirations up to ten years forward.  As some examples from the CME Eurodollar pit, year 5 is listed as the “Golds” and the hand signal is the thumb touching the base of the ring finger to indicate where a wedding band is worn while year 7 is “Orange” and it’s simply shown with a hand juicing an invisible orange.  

The options pits still thrive as their electronic migration has been much slower than outright futures and any sight of a fully populated pit today is almost always filled with options traders.   For these contracts, it is always very intensive to communicate with hands to signal strike prices, months, spreads and activity.  In the Chicago options pits, strangles are shown by an open hand to the throat, a straddle is the thumb and pinky extended out from the other closed fingers while a “Stupid” (buy or sell Calls/Puts with two different strikes, aka a Double) is shown by pointing an imaginary gun at head.  

Easily the most colorful aspect to the gestures is for indicating participants and because open outcry trading is observable to everyone on the floor, the information of who did particular trades is quite useful.  Brokerages are most importantly indicated but signals developed for large independent traders and collectively the group of individuals who trade for their own account known as “locals.”  Participant signals are unofficially recognized and originated without any direction from the exchanges, hence the creativity and occasional lewdness.  

The formal way to recognize a brokerage is through their particular three digit clearing firm code but it is much easier to do one unofficial signal rather than the movements for three different numbers to indicate which brokerage.  An example from the CME for Merrill Lynch was to extend upward the pinky and index finger to represent bullhorns, in reference to the company mascot, rather than signal 5-6-0 which is the firm’s clearing code.  Also to illustrate divergent signals, just blocks away at the CBOT the same firm was shown with an index finger trying to pierce the other palm in a reference to the original full name of the firm, Merrill Lynch Pierce Fenner & Smith.  Of all the hand signals, participants are most easily lost to history as brokerages merge or leave the business and once gone are often forgotten.  

Inevitably, open outcry hand signals developed at the CBOT in the late 19th century will be used for the final time in the same pits where it all began.  The KCBT and NYMEX are the only other futures exchanges in the world which continue to maintain trading floors although the London Metals Exchange operates on a floor but the trading is done through a vastly different style in their dealing ring than a standard trading pit.  Healthy floor populations existed in Sydney, Paris, Sao Paulo, Singapore, London, Montreal, Minneapolis and other cities just over a decade ago but open outcry is now making its last stand at three venues in the US.  For anyone who hasn’t seen the trading pits in person, the excitement and activity will only continue to decay so a visit would be enlightening for any market participants before it disappears forever.  

Ryan Carlson’s last trade in the pit was in 2005 but he remains an independent member at CME Group and trades interest rate futures electronically. Visit www.tradingpithistory.com for even more on hand signals and trading pit history.