EXECUTION VS. CONFIRMATION

Though the futures industry continues to move toward more electronic trading, many important commodity futures continue to trade in the traditional, open-outcry pits. A few examples of hot commodities trading primarily – or even exclusively – in the old-fashioned pits include gold, crude oil, silver, copper, coffee, and sugar.

Happily, technology has helped improve the routing of orders to and from the trading pits – in fact, a good number of orders can be sent directly to electronic devices operated by floor brokers standing right smack in the middle of the action. But the inescapable fact is that human beings ultimately are executing the orders. And in periods of heavy volume or extreme volatility, these folks can quickly become overwhelmed. Whereas you might have a confirmed fill in a second or less when trading a fully-electronic product like the E-mini S&P, the process may take considerably longer in an open-outcry market. As a trader, you have to be aware of this and set your expectations accordingly.

Any good brokerage firm understands that few things in life are more agonizing for a trader than to wait for what seems like an eternity for a fill confirmation. This is just as frustrating for us as it is for you. We understand the importance of speed, we’re pushing as hard as we can for your fills, and we know that quicker confirmations make you more likely to trade more. I’m even aware of at least one futures broker that’s developed an automated system to continuously scan customer orders and market data. When it identifies any order in an open-outcry market that should have been executed, it mercilessly pesters the trading floors until a confirmed fill has been received.

So, why can’t this problem of slow fills in open-outcry markets be solved once and for all? The main reason is that this is a problem at the exchange level. Until the exchanges do away with hopelessly outdated pit-style trading, this will be a challenge with which every futures broker will have to struggle. The situation is exacerbated by the fact that in most cases, floor brokers don’t work for us – they’re independent contractors who handle orders from a number of brokerage companies – and in many pits, the truth of the matter is that there isn’t a particularly wide selection of floor brokers from whom to choose. Even if we spot a floor broker who appears to be consistently slow in reporting fills, we often have few alternatives.

There’s one bit of good news, however – which most traders don’t seem to realize – and this is the distinction that’s drawn between order execution and fill reporting. Even during the busiest market conditions, there's typically very little delay in getting your order to the trading pit and executing it in a timely manner. Floor brokers standing in the trading pits give their immediate attention to filling orders, and fills are reported as time allows. This is a crucial point worth repeating: Your orders in open-outcry pits are almost always executed in a very timely manner, even if the fill reports might occasionally be delayed.