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Trading Pit Hand Signals book notes

Last updated 6/16/2014
This is a supplement to the book further explaining or updating information. Some notes I didn’t want
to clutter the book with originally and others are a response to questions by readers who sought further
clarity on additional points.
The print book is available at Amazon:
www.amazon.com/Trading-Hand-Signals-Ryan-Carlson/dp/0988613182
The e-book version is available via Apple’s Ibook store:
https://itunes.apple.com/us/book/trading-pit-hand-signals/id639785084
My vision for the book was to provide all the necessary information but not to overdo it and bog down
the general reader who most likely isn’t looking for every tiny detail. As I read an enormous amount of
books and assorted media daily, I wanted to keep the book approachable and balanced for the reader
just as I appreciate brevity when reading other books myself. However, there are additional details
which I felt were appropriate to note for those with a deep interest, particularly in a fluid manner, so
this is the space for that. Any additional updates will be noted with a date and asterisk.
The following information is subdivided into corresponding chapters and page numbers as appropriate.
Any reader who has further questions or notes can reach me at tradingpithistory@gmail.com
INTRODUCTION
A note about my experience working for 8 years on various trading floors:
KCBT: Like most on the floor there, I began as a pit reporter for the exchange as most clerks are
subsequently poached by firms/traders to change jobs. After 4 ½ months as a pit reporter in the
Western Natural Gas and Value Line pits, I went to work for a wheat options local who also had to
oversee a small desk brokerage operation primarily dealing w/locals at the MGEX. For the options local,
I committed to a year working for him and left after that to move to Chicago. Since my time working
there, I returned annually including for the close of the trading floor in 2013. Years: 1998/1999
CBOT: At the CBOT I worked as a desk clerk for Nomura on the phones and signaling orders, primarily at
the Dow futures pit but also occasionally on the Treasury desk at the 30 yr bond pit from which all the
firm’s CBOT fixed income orders were executed from. My time at Nomura was less than a year before I
left to clerk for locals at the CME and get on the path to becoming one myself. Years: 1999/2000
CME: While at Nomura initially, I worked at the equity index desk which was right below the NASDAQ
100 pit, between it and the S&P 500 pit, flashing in orders although the desk’s primary focus was in the
Nikkei 225 contract. Generally I’d continue to show up before equities opened to spend time at the
firm’s Eurodollar desk to be proficient in that market. After leaving Nomura in under a year, I clerked for
a small group of locals who primarily traded 1 month LIBOR and serial Eurodollars before they backed
me to trade. In 2002 I got on membership and have been trading as a member ever since, first for the
locals who backed me and then still continue on my own independently today. My pit trading
experience was initially in the 1 month LIBOR/serial Eurodollars and then I moved down the spreaders
section of the Eurodollar pit. Since 2005 I’ve been on the screen full time and transitioned as it was in
the early stages of liquidity shifting to the screen. Years: clerk 1999/2002, member 2002/currently
today
NYMEX: My exposure to NYMEX was brief but very educational, the owner of the hockey team in my
hometown was a natural gas trader there so on a rare occasion I returned to watch a hockey game he
was there and we spoke briefly. I followed up to ask if I could spend some time with him and served as
an unpaid clerk (mostly tagging along with his primary clerk) at the natural gas pit in August 2001.
MGEX: Multiple visits throughout the years, first visit in 1998 and was there for the close of the floor in
2008.
MX: I only visited the trading floor in Montreal twice in 1999.
LME: A couple visits to observe around 2008 and while it is a trading floor, it’s not a standard trading pit
type auction.
BM&F: I must’ve visited the floor in Sao Paulo 4 times in the early 2000s.
SIMEX: Twice I visited the floor in 2001 and had a good connection to it as the overnight market for
Eurodollars was at SIMEX so I had to deal frequently w/a couple desks there. Actually was going to
trade there as a local in 2001 but process was a bit bureaucratic so I didn’t and stayed at the CME
instead.
All this exposure to various trading floors allowed me to learn most signals firsthand and also call upon a
network of those within the industry to source various hand signals I wasn’t exposed to. This path was
incredibly unique because the vast majority of those who worked in the trading pits stuck to one section
at one exchange, for instance the grain room at the CBOT, throughout their entire career.
Most exchanges created a listing of standard hand signals for general explanation but lacked the full
scale of hand signals which were utilized, along with neglecting to describe the origins and
representations. The dissatisfaction with how little was told in comparison with how much there was to
record initiated the desire to create a comprehensive historical record of these hand signals.
Chapter 1 - HISTORY
This chapter I generally was vague about historical points as the specific details are better noted
elsewhere and its purpose was to serve as an overview.
The Dojima Rice Exchange had origins well over a century prior to receiving it’s official charter and for
further reading, I highly suggest the paper The Dojima Rice Market and the Origins of Futures Trading by
David Moss and Eugene Kintgen.
The official origin of the trading pit is up to debate and a big part of that is how ‘trading pit’ is defined in
the first place. The CBOT had clearly begun to use tiered platforms around 1870 but not from what we
imagine as a standard trading pit. From all my research, I felt it was appropriate to notate that it was in
Milwaukee where the first trading pit was created but this debate can never fully be settled. The
excellent William Falloon book Market Maker, which was commissioned by the CBOT in recognition of
the exchange’s 150
th
anniversary, provides further background on this debate.
Just as I could never find specific citations of when exactly hand signals originated at the CBOT beyond
frantic gestures, I have yet to find credible evidence of which specific trading pit began the use of arb
signals.
I neglected to list the specific dates of major exchanges opening and closing their trading floor, if anyone
needs those I can cite the details but it’s generally superfluous as many pits were in decline as the
electronic market place drew liquidity away from the pit prior to the floor closing.
The text of the book was finished in late 2012 and noted that the KCBT floor was still open but it
subsequently closed in summer 2013. Although the London Metals Exchange maintains a floor based
auction, I don’t consider it a standard trading floor for many reasons and as a result is omitted from the
book’s focus on trading pits.
Chapter 2 – Trades, Traders and the Trading Floor
The chapter heading photo, page 12, was of the Dow pit in early 2000 and in the full photo I was in a
light blue jacket on the Nomura desk in the upper right, however we cropped the photo to not include
me as it would’ve involved too much empty space.
The book’s cover photo, which was also used on page 15, is of part of the Eurodollar pit along w/the
bulk of the Eurodollar options pit and then the 1 month LIBOR/serial Eurodollars up top.
I noted that there are over 40 different Eurodollar contract expirations and those could be packaged
into an almost infinite amount of spread combinations: packs, bundles, spreads, ratio spreads,
butterflies, double butterflies, condors, etc….
Every trading floor had their own rules regarding trading jackets; the CME was much more defined in
who could wear what in comparison to most other exchanges like the CBOT which allowed clerks to also
wear whatever jacket colors they’d want.
A long time rule at many exchanges regarding decorum required that a tie be worn although this was
repealed in the late 1990s at some exchanges such as the CME and KCBT because of the sloppy manner
which made it virtually irrelevant. The CBOT continued to require ties and quite often a floor trader
would wear the same one day in and day out, just leaving it each day in the trading jacket pocket.
The photo spread across pages 18 and 19 was taken from the top of the back month section of the
Eurodollar pit.
As you might imagine, there were multiple kinds of locals and brokers which would take a full chapter to
explain. There is typically a generalization that those on the floor played the same role but it couldn’t be
further from the truth. Hopefully I can describe it in full when I have more time.
The PBS documentary Open Outcry was filmed during my first couple weeks at the CME and in it I’m in
the class learning hand signals. A bit ironic how everything has come full circle w/the book.

Chapter 3 – Prices & Quantities
Before the prices/quantities transitioned to being shown close to body or at arm’s length, the early
CBOT method to differentiate was to signal price with horizontal hand signals and quantity with vertical
hand signals.
The signals in the book went up in standard increments and it’s just a matter of combining these
increments to signal any number, for instance to signal a quantity of 25 is to first use the signal for 20
and then for 5 afterwards.

Chapter 4 - Months
I’ve only heard one story behind why the months were designated with certain letters and a long time
NY pit veteran noted the following: "In NY (COMEX) there were only 5 hours in the trading day (5 one
hour brackets) (A, B, C, D & E). The first available letter for month code is F." Additionally, the letters
were also selected to not confuse with any numbers which is why the letters I and O are amongst those
not utilized.
The month signal for May at the CBOT and CME likely had origins from the WW2 era aviator life
preserver which was nicknamed the Mae West vest.
The NYMEX month signals have very close similarities with some signals from American Sign Language
and I’ve wanted to work w/a sign language historian to explore this further. Rather than list origins
which I wasn’t absolutely certain of, I simply listed them as unknown.
MATIF wasn’t too particular about the serial month signals (Jan, Apr, etc…) because there were only one
or two being utilized at the same time.

Chapter 5 – Years
The chapter heading photo on page 74 was centered upon the spreaders section of the Eurodollar pit, in
the foreground is where the second most active month would trade, towards the back of the spreaders
section was where the expiring month and fourth front month would trade, at the rear of the photo is
the back months where everything after the front four quarterly contracts traded.
A long time trading floor veteran offered the following full explanation regarding why the months were
designated in various colors: "Red Sales were so called because the 13th month and forward were
written on the black board with red chalk - hence current color coding years in Chicago long-term fixed
income. The Coffee and Sugar Exchange used yellow chalk and they called these trades yellow, e.g.,
Yellow September."
At the CME, the color of the month was indicated before the month was signaled but for the Red
months it could also be shown by signaling the month with a motion to the upper shoulder, thus
eliminating an additional motion.
I believe that the hand signal for Blue at the CME, page 78, was based upon the shaka which is
commonly signaled in Hawaii. Elvis had a movie Blue Hawaii and that is the full connection which is the
only explanation I can come up with.

Chapter 6 - Functions

The Stupid signal on page 89 refers to an option strategy, not an adjective, which has legs that double
exposure instead of typically being hedging it.
There wasn’t strict enforcement regarding using one arm or two to indicate size but a general guideline,
page 91. If I remember correctly for instance, in the S&P 500 pit at the CME, a quantity of 10 or under
was generally implied with a single arm when indicating price bids/offers.
Using the Order Filled signal, page 93, was only used when the order was entirely filled. Partial fills were
indicated by signaling the total which has been filled thus far through the Quantity Total signals on the
same page.
To reduce an order quantity involved a “Shave” signal which isn’t included in the book. To shave an
order meant to reduce by X amount and then typically the correct quantity going forward would be
checked via hand signals to ensure no confusion.
Price Discretion, page 94, was also indicated with a flick of the ear lobe. Giving the broker discretion
could mean either complete discretion or simply “take a tick” which would allow only a single tick of
discretion.
Carnet Ouvert, page 100, is a signal which didn’t designate quantity but was a signal to the broker to
take all he can get.
Indicating a Hung signal, page 100, meant that there was a mistake and who was monetarily responsible
to fix the mistake.

Chapter 7 - Particpants
The chapter heading photo on page 108 is of the equity index quadrant at the CME, focused on the S&P
500 pit and separated by a few rows of desks up top is the NASDAQ 100 pit. We decided to crop the
photo so it neglects to show the Russell 2000/S&P Midcap and Nikkei pits.

Chapter 8 – Hand Signals in the Equity Markets
Like the NYMEX month signals, the origin of many AMEX hand signals are from American Sign Language.
This is something I continue to put off getting a full history of but hope to when time allows.
As I’ve always been focused on the futures markets, I will readily admit this chapter is a bit weak as
equities have never interested me. If any participants have additional insight or signals, please let me
know.