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If someone gestured to you on the freeway in the manner in which floor traders signal each other, you'd probably be insulted. According to a longtime stock broker, these maniacs are either floor traders (trading stock for themselves), floor brokers (trading stock for someone else), or specialists (trying to match a buyer with the seller on the trading floor). Investopedia says the specialist was introduced to the system in 1872. Prior to that, certain stocks could only be traded at a specific time of day. Along came the specialist, who is really a specialized floor broker. This individual stands at a specific spot on the floor of the stock exchange, buying
and selling a particular stock. Floor brokers and floor traders, veterans of the madness, know the location of the specialists. It's the specialist's job to keep track of the stock price. Again from Investopedia, we learned that the specialist has four functions: - Acts as a market maker or auctioneer for a particular stock.
- Keeps track of and informs the buyers and sellers of the stock price.
- Places orders for the clients electronically.
- Acts as a principal buyer or seller himself/herself.
Specialists are required to trade the client accounts before trading those they own personally. In buying or selling stock, the floor brokers, floor traders (PDF), and specialists recognize
hand-signal language only they know and we wish we could understand.
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