Over the past year, two films have chronicled the historic transformation of the open-outcry trading floors of America s commodity exchanges into virtual planes of electronic transactions. Floored, directed by James Allen Smith, focuses on Chicago s futures pits, and The Pit, by Johanna Lee, profiles the floors at New York s Board of Trade.

Floored (2009)
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The Pit (2010)
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It s a change I saw unfolding when I started on the trading floor in the mid-1990s, initially as a clerk and then a local trader. As technology improved and competition between exchanges intensified, more volume was directed to electronic platforms.

The logic behind the change was simple. Instead of writing orders on slips of paper and walking them to a noisy trading pit, customers could use computerized trading to click and get those orders filled in milliseconds.

Now, over 80% of the Chicago Mercantile Exchange s volume is executed electronically. It s safe to say the trading floor is dead and will never return.

Part of what makes the documentaries so extraordinary is simply the access afforded to filmmakers. For decades, the members-only exchanges strictly prohibited recording devices, so only a modest amount of videotape exists of the old pit environment. During the 1980s and 1990s, news reports from market reporters were delivered from balconies overlooking the floor, not from the middle of the action.

The actual exchanges are generally just large open rooms with some risers, telephones and electronic wall displays. Yet it s nearly impossible to describe standing in the midst of a busy pit. It was an environment both frightening and fascinating. It seemed impossibility colorful, chaotic and nearly alive.

Leo Melamed, who started as a clerk at the Chicago Mercantile Exchange (CME) in the early 1960s and eventually became its chairman, recalls stepping on to the floor for the first time in his 1996 book Escape to the Futures:"

I was Alice stepping through the Looking Glass into a world of not just one Mad Hatter, but of hundreds. The shouting among the traders, the movement of their bodies and hands, captivated me like nothing before," he writes. There was a life force on the floor that was magical and exciting, and though I didn t understand what was going on, I wanted to be part of it.

That life force is readily apparent in some snippets of pit video that have popped up online over the years, which are exceedingly rare, considering that floor trading in that fashion no longer exists anywhere in the world. Presumably taken by clerks, many of these videos present an unusually intimate perspective; they show what standing in the middle of the market was actually like.

What Does That Have to Do With the Price of Beans?
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A clip from the Chicago Board of Trade s soybean pit in late 2006 opens with traders offering to sell contracts at four, or at a price of $6.64 (in the pit, only the last digit of a price was generally enunciated). At the 0:55 mark, after some trades volley back and forth, the market goes four bid, meaning the price of soybeans had gone from being offered at $6.64 to being bid at the same price. We can see the bald trader in the yellow and red coat holds up four fingers with his palms facing inward, indicating an interest in buying. More traders and orders from outside brokers pile in, and the price spikes. Bedlam erupts.

By the 3:05 mark, we hear traders offering to sell contracts at six and a half you see their palms facing out showing selling interest, meaning the price is $6.66 1/2, higher by two and a half cents from the beginning of the clip as the closing bells sounds.

Although the environment seems chaotic, there is an elegance and a justice to the free market. On the trading floor and within the economy at large, each individual makes their own self-interested decisions, yet in doing so, that person works collectively to produce a single price, which is immediately communicated to and used by the world. Unlike centrally planned economies controlled by edict in Washington, those in a free market actually reflect supply and demand, not political expediency.

The same process of price discovery still occurs, but it is now done electronically with thousands of locals, instead of just a group of burly Chicago guys. With instruments like the Chicago Mercantile Exchange s e-Mini contracts, or even ETFs like SPDRS or PowerShares QQQQ, a housewife in Peoria or college kid in San Francisco now has the same ability to make and move the market that only the screaming floor trader had just a few years ago.

For the new generation, the notion of building an octagonal pit to allow grown men to yell, scream and trade slips of paper back and forth seems as antiquated as starting a car with a hand crank. In just the past five years, trading floors have shut in Singapore (2005), at the New York Board of Trade (2007) and in Minneapolis, where the Grain Exchange closed its floor in December 2008 after 125 years.

Ryan Carlson is a CME member who maintains TradingPitHistory.com, a fascinating clearinghouse of trading floor images, memories and lore. The site should draw traders for a long time because although trading venues may change, the basics fear and greed never have and never will.