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If someone were to take you to an observation gallery on a commodity exchange for the first time in you life and you didn’t know beforehand were you were going you might think, once you arrived, the individuals before your eyes were engaged in some type of mystic ritual. Brightly colored coats, bells ringing, and individuals standing in groups yelling and making weird hand jesters at one another. To the novice it may appear as total chaos, however, the trading pits of commodity exchanges are a very organized method of madness.
The typical commodity exchange floor is divided into trading pits where traders stand facing one another acting as their own auctioneer. Each trading pit is designated for trading one or more specific type of commodity futures or options contract. However, the size of a trading pit is determined by the volume of a market. For example, the T-bond pit at the Chicago Board of Trade (CBOT) is considerable larger then the coffee pit on the New York Board of Trade (NYBOT)
Every futures exchange is set up generally the same way. Like stock exchanges, the individuals on the floor must be members of the exchange. The members support the operation of the exchange by dues and other fees. Non-members such as traders and investors trade through brokerage firms whose officers or partners hold memberships.
The exchange provides the place to trade and support facilities, such as phones and price-reporting and dissemination systems. However, the exchange itself does not set prices or buy or sell for itself.
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