Trading Digits

OUT OF THE ­PITS: Traders and Technology From Chicago to ­London.

By Caitlin ­Zaloom. Univ. of Chicago Press. 224 pp. $­29

The trading floors of stock and commodities exchanges have been potent symbols of financial centers such as Chicago, London, and New York for a century. In these huge rooms, sometimes called pits, thousands of traders buy and sell their way to fortune or ruin. Now trades are often made electronically rather than through a combination of yells and gestures, and the frenzied pits are being replaced by rows of staid computer cubicles. What might this change mean for the breed of famously crass traders who have long been the lifeblood of the market?

To find out firsthand, New York University anthropologist Caitlin Zaloom worked as a clerk at the ­industry-­leading Chicago Board of Trade and as a trader in a recently established electronic trading office in London. The result is Out of the Pits, an examination of the culture of futures traders. These pit denizens make money or hedge against risk, for themselves or for clients, by betting on the ups and downs of contracts whose value is linked to the future price of everything from wheat to interest rates. Traders, especially the “locals” working for themselves, may buy and sell hundreds of times a day; they ­make—­or ­lose—­their money on the margins between the purchase and sale prices. Their presence in the pits has ensured the market’s liquidity, which rests on the presumption that for every buyer there is a seller, and for every seller, a ­buyer.

Unlike pedigreed financiers, futures traders are mostly ­working-­class men whom the pits have fashioned into a species Zaloom calls “economic man.” They often curse and sometimes drink on the job, exchange photos of women in sexual poses, wear bizarre clothing, and may, like superstitious ballplayers, refuse to change their socks or brush their teeth during winning streaks. These performances, Zaloom argues, help traders cast off the constraints of civility to become the risk takers they have to ­be.

Electronic trading, which began proliferating in the mid-1990s, was designed to “splinter this flesh and bone market into separate parts.” Online trading might have been expected to transform the culture of the traders as well, yet Out of the Pits concludes that it has not been as subversive as that. Absent the social cues of the pits’ ­open-­outcry system, traders must base their decisions to buy or sell on rows of numbers on screens, each signifying a price for a futures contract. Online trading’s innovators intended that the new market would rely on “pure” information, but traders assign names (e.g., Spoofer) and character traits to the other traders they discern in these numbers’ ­patterns.

Fewer traders are required, and some of the old guard can’t adapt to the new technology, but those who do carry their culture and their dedication to liquidity with them. One trader in Zaloom’s London office, where she arrived in 2000 and observed the transition, kept a baseball bat nearby, and would slap it into his palm when he was doing badly. Another, named Freddy, picked his nose and chanted his own version of a ­well-­known ­hip-­hop number, “Who let the Fred out? Woof, woof, woof.” “Freddy’s performances epitomize economic man, trader-style,” Zaloom writes in her formal, academic style. “His ratty ­self-­presentation and loutish deeds display the aggressive and naked desires of the debased market creature.”

Though insightful, Out of the Pits reveals more about yesterday’s market than it does about tomorrow’s. The conversion to electronic trading has untied the world’s great exchanges from the cities they have inhabited for so long, but Zaloom fails to explore the implications of this seismic shift. The once-teeming pits of the Chicago Board of Trade, which soon will merge with the more technologically advanced Chicago Mercantile Exchange, already stand half empty. If they disappear, what will the silence mean to ­Chicago?

—Elizabeth ­MacBride