For many years, when I have told people I'm
involved in futures trading, a common response has been "Oh, that's where they
do those hand signal things. What does all that mean?". If you've ever wondered what they all mean, here is the answer.
Warning:Many old school traders still use
these hand signals in an attempt to order drinks and impress girls. It doesn't
work for either.
About Hand
Signals
Hand signals
- the sign language of futures trading -- represent a unique system of
communication that effectively conveys the basic information needed to conduct
business on the trading floor. The signals let traders and other floor
employees know how much is being bid and asked, how many contracts are at
stake, what the expiration months are, the types of orders and the status of
the orders. The signals are the favoured form of floor communication, especially
in the financial futures pits, for three main reasons:
Speed and
efficiency.
Hand signals enable fast communication over what can be long distances (as
much as 30 or 40 yards) between the pits and order desks and within the
pits themselves.
Practicality. Hand signals
are more practical than voice communication because of the number of
persons on the floor and the general noise level.
Confidentiality. Hand signals
make it easier for customers to remain anonymous, because large orders do
not sit on a desk, subject to accidental disclosure.
Hand Signal
Development
Hand signals
began being used extensively at CME in the early 1970s, after the Exchange
created the International Monetary Market (IMM) and became the first US futures
exchange to offer financial (rather than commodity-based) futures.
Although
speed had long been a key element in futures trading, it became even more
important when financial futures entered the trading scene. Why? Because
traders discovered they could take advantage of arbitrage* opportunities
between CME and other markets if they could trade quickly enough.
Hand signals
met the need to speed up communication in the fast-moving financial futures
pits.
This
presents the signals most commonly used at CME. Some are unique to particular
pits on the CME floors. But take note: Some signals may mean one thing in a
certain pit, while a similar signal may mean something entirely different in
another pit.
Buy / Sell
When
indicating you want an offer to buy (signalling a bid), the palm of the hand
always faces toward you. You can remember this by thinking that when you're
buying, you're bringing something in toward you. When making an offer to sell
(offering), the palm always faces away from you. Think of selling as pushing
something away from you.
Your
palms face you when you are signalling a "Buy", and face away from you when you
are signalling a "Sell."
Price
To signal
price, extend the hand in front of and away from the body. For the numbers one
to five, hold your fingers straight up. For six through nine, hold them
sideways. A clenched fist shows a zero or "even."
Note: Price
signals indicate only the last digit of a bid or offer. For example, a "0"
signal may refer to a "40" bid.
Quantity
To indicate
quantity, the number of contracts being bid or offered, touch your face.
To signal
quantities one through nine, touch your chin.
To show
quantities in multiples of 10, touch the forehead.
To show
quantities in multiples of 100, make a fist and touch the forehead.
Source: CME
* Footnote: Arbitrage
refers to the simultaneous purchase and sale of the same or an equivalent
commodity or security to profit from price discrepancies. When price
discrepancies emerge in the marketplace, the arbitrageur buys/sells until it is
no longer profitable, or until prices are back in equilibrium.
