For many years, participants in the futures industry have been debating whether electronic markets are superior to the old fashioned open-outcry pits. A lot of good questions have been raised in regards to both and I will address a few common ones.

Q: Do open-outcry markets have advantages over electronic markets?

A: Humans are arguably the most advanced computer systems in the world. Even though today's technology can respond in speeds far beyond the imagination, some problems still exist. First, technology has yet to master all of the complicated spread orders seen in certain options markets. Second, rare off-the-chart trades sometimes take place in electronic markets that typically don't occur in the open-outcry markets. While side-by-side electronic and open-outcry markets for the same futures contract (such as the Treasury bond or the S&P futures) tend to mirror each other closely in price, I have seen the electronic market trade significantly out of line with the open-outcry market. This type of spike is caused by a flood of market orders, stops and cancellations hitting the electronic system all at the same time. This usually happens during a highly charged market event, such as a key economic announcement.

Q: Who trades mainly open outcry, and why? What does that mean to me?

A: Pit traders, typically known as "locals" who trade for their own accounts, provide liquidity to the markets by buying or selling a commodity at a certain price. This is called the bid/offer or spread. They buy the bid and sell the offer, while traders off the floor do the exact opposite. This spread may not seem like much, but the money adds up when transactions are done hundreds or even thousands of times in a day. Many locals have developed a certain niche on the trading floor that they don't feel they can capture in a purely electronic environment, even though today they are often trading the dynamic between both markets. For all traders, technology has added a new layer of opportunities in sync with pit trading, even if you never place a trade in an open-outcry market. But if you do choose to trade a contract in an open-outcry market, locals are there to provide a steady source of liquidity.

Q: Why have electronically traded markets become so popular?

A: The majority of trading volume is done electronically in markets that trade side-by-side. With the increased use of computers, many of today's traders demand split-second fills and don't want to wait for reports from the pits. Some traders also feel they receive better executions with market and stop orders in an electronic environment.

Q: Will open outcry be completely eliminated one day?

A: Six years ago my response would have been to predict the pits drying up within 12 months. But open outcry still remains strong. I still feel the pits will cease to exist one day--but that time still seems years away.

If you'd like more information on which market is right for you, please don't hesitate to contact me.

Michael Hinman is a Senior Market Strategist at Lind Plus. If you would like more information about this topic or others, you can contact him at 866-471-2048 or via email at mhinman@lind-waldock.com.

You can hear market commentary from Lind-Waldock market strategists through our weekly Lind Plus Markets on the Move webinars, as well as webinars on other topics of interest to traders. These live, interactive webinars are free to attend. Go to www.lind-waldock.com/events to sign up.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

Futures trading involves substantial risk of loss and may not be suitable for all investors. © 2006 Lind-Waldock® a division of Man Financial Inc All Rights Reserved. Futures Brokers, Commodity Brokers and Online Futures Trading. 141 West Jackson Boulevard, Suite 1400-A, Chicago, IL 60604.