Posted in Finance, Accounting and Economics Terms, Total Reads: 325
Definition: Blackboard Trading
The practice of trading of commodities and futures contracts from a large blackboard present on the wall of a commodities exchange is called as Blackboard Trading. Trading specialists wrote bid and offer prices on the blackboards and those trades were executed when a matching trade came up. They are erased as and when they became insignificant.
For example, in case of the Chicago Mercantile Exchange (CME), Buyers wrote the bids on one of the boards and sellers wrote their offers on another board. The final transactions were listed on the Sales board. Traders used to work on the data present on the boards and negotiate transactions. When a deal is agreed to, it is a binding contract. Though this method was far from satisfactory as it was very inefficient at high volumes because it became difficult to install boards to speed up the transactions when there was an unexpected increase in the number of trades, it continued to be the standard for almost an entire generation.
Infact, for many traders who want to enter into the financial markets, writing trades on blackboards was the starting point at that time, as mentioned in the book “Reminiscences of a stock operator”. It is also mentioned that the traders who were required to update the blackboards wore fur sleeves so that they would not erase the prices accidentally.
As the Financial markets expanded and the number of trades became too high to be handled by such a method. It became too slow and ineffective and hence was replaced by automated boards in 1969. With the increase in technological development especially in the area of automation, automated quote boards took charge instead of Blackboards. Now a days, Blackboard trading is not seen in many places but is still in use at some small exchanges which handle very less volumes.