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well..in any exchange whether outcry or computerize,there will always be some
illiquid instruments and definitely the price quotes for bids and ask are at a
distance,even in our electronic exchange there are these illiquid shares too!
there's no advantage/disadvantage whether it is outcry or computer
terminals..the quotes are far..well put it like this..in the zoo....if peepol
wants to hand feed the monkeys,deer (meaning more liquid) its safer,if they
wanna feed tigers,sharks,alligatos and lions cages (meaning less liquid
instruments) definitely there is more danger/bigger risk..its their fault they
wanna feed (trade) the dangerous cages. so whether its outcry or computer they
sharks still bite the same and naughty people do gets to be biten.
About risk by floortraders.yeah.....the risk of getting caught in the act!
Anthony Denis Cattani wrote:
> The real justification for open outcry is liquidity and having risk capital
> instantly available to moderate market moves and price shocks. Many markets
> work well as strictly 'electronic', for others it is the reverse. For
> moderately traded markets, electronic trading is bad for most participants
> with the exception sometimes being the commercial element.
> Electronic markets need several key ingredients to succeed.
> First, a widely diversified, large crowd of participants. If a market
> operates within a specialized crowd, then having risk capital in the pit
> makes all the difference. For such markets to migrate to electronic trading,
> they would in all probability loose such risk capital to other more liquid
> markets.
> Second, markets need a critical mass to generate the following needed to
> succeed in the 'E' environment.
> Third, markets need some sort of volatility to entice their 'crowd' to
> stay.
> That the role of floor traders has been given a bad name is an
> understatement. But like all professions, it applies to a very few.
> Surveillance systems in place at all exchanges guard against almost all of
> the past abuses.
> For the vast majority of floor traders, the service provided by accepting
> risk and providing liquidity is the grease that keeps the wheels turning.
> The fact that the 'grease' is available on a split seconds notice in the pit
> makes a huge difference over the course of a year in money saved, for all
> involved.
> To assume that floor traders assume no risk is a grossly uneducated
> statement. All market involvement comes with attached risk. I could go on
> for several pages on this one topic alone. Suffice to say that floor traders
> and locals frequently take it on the chin along with the 'others'. The
> difference is that they are 'there' making a market and are able to act on a
> moments notice, something that is difficult if not impossible to do when
> trading off of a 'box'. This combined with much lower transaction costs
> justifies many traders to pursue the life of a local.
> The big push for electronic trading is a push originated by both
> regulating bodies (for the audit trail), and in many cases by the exchanges
> themselves. You see, when an order is traded on an electronic exchange, the
> exchange can charge a higher fee. Think this one through. Initially you
> would think that reverse would be true, but here is the reasoning. The
> market participants save bundles on fixed costs (floor staff, brokerage,
> booth rentals and all the related expenses of a floor operation) and it is
> these savings that the exchanges try in part to capture.
> My conclusion to this is that for some markets, electronic trading is
> both a boon and a blessing, for others it is a death knell, and a window to
> exploitation.
> Have a great day all. Here in the high planes, the mercury is soaring, the
> geese are back (two months early) and I'm heading out for a nice brunch with
> the family.
>
> Anthony Denis Cattani
>
>
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