Why people bought stocks in open outcry?

External question — Economics Stack Exchange Author: al-harumi-jidan Original post: https://economics.stackexchange.com/questions/47899 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. The human nature is to hide business strategy from business rivals, so how come stock exchange brokers brokers bought and sold shareholdings in open outcry directly in front of their rivals? This is pretty much an historical question; I know that today shareholding deals are done with applications and not in open outcries.

External answer — Economics Stack Exchange Author: qxzsilver Original post: https://economics.stackexchange.com/a/55140 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. You have two big assumptions: it is human nature to hide business strategy from business rivals vs. open transactions that are available to all, and shareholdings (i.e., stocks) are done via applications and algorithms nowadays. Now, there is definitely much more equity trading done via algorithms. This has happened to other asset classes as well (fixed income, commodities, derivatives, etc.) due to better machines (hardware), better modeling capabilities, and better algorithms (software). However, as your point may make, these can be similar to open outcry (sometimes called quantitative outcry as with the Rotman International Trading Competition has a case for this). Thus, the two elements of hiding information as well as giving information through publicly announcing a price (although algorithmically) still exists today. There may be multiple reasons why someone may publicly announce a price that they want on the open market - to deceive others with prices that they know are unlikely to be taken by others, to add momentum and drive the price towards a certain direction, or to get fast/immediate execution. The open outcry may be prone to all three types. For someone with more information, this may be the case when they know that a) their price is either not marketable (no one will transact with them), or b) someone will take up on their offer. If I am trying to sell something quickly (because I think it is overpriced) or buy something quickly (because it is underpriced), then I may give some information to others by announcing this price. However, it might be worthwhile for me to get the transaction done as quickly as possible before others catch on (in order to profit), with the potential it may affect future prices. Given that others know (and perhaps they give more credibility to my price), this may move the market towards a certain direction. Others may think I'm bluffing or I'm an idiot. This is where various game theory principles may come into play. See the 1983 movie "Trading Places" with Eddie Murphy & Dan Aykroyd on a good example of this application in an open outcry scenario, where prices are manipulated in a certain direction (it also happens to be the highlight of the movie!) In the algorithmic trading world of nowadays, this still exists today. In the nomenclature of high frequency trading, this is called "liquidity impact" and "alpha decay". There is a price impact by me if I transact - this will move the market a certain direction if I take an offer (bringing the price up) or hit the bid (bringing the price down). Therefore, there is liquidity impact by showing how price moves away from the current market. The larger the volume of order put in, the larger the impact. However, the other side is the alpha decay. As time passes, the opportunity to capitalize on "alpha" (the profitable portion of a strategy) goes away. Therefore, working as quickly as possible to put out a price and execute is also important. Therefore, there is a bit of tradeoff in making little impact on the price vs. capitalizing as quickly as possible, and this is an optimization problem. One way trading firms control the problem of price impact is through different types of asset pools. One are "lit pools", which are visible by everyone (think a limit order book, where all prices of bid-ask of a particular asset, as well as their position size, are shown). However, dark pools allow for firms to "hide" some of their orders under smaller size orders (in order to hide their intentions as well as minimize price impact). For most retail traders, this doesn't really matter; for firms trading at below millisecond range, this is important since even small price increases/decreases may mean millions of dollars given the trading volume. Examples of these types of trades include iceberg orders, where a small portion of the "iceberg" order is visible, with the larger portion underneath being executed once top part is filled. I hope this was insightful - there is a good amount of intricacies that are left out in today's securities trading, but the basic principle is the same - know how to relay information to others for the purpose that you want. Thus, some information may be published publicly (via algorithms) or in an open outcry market, but there may be different intentions for publishing that particular outcome given some information that the person has.

External answer — Economics Stack Exchange Author: dm63 Original post: https://economics.stackexchange.com/a/56384 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. There might be a misconception here. Open outcry is a system where physical human beings trade with each other on behalf of their clients. This system was developed hundreds of years ago prior to the availability of computers. The idea was to achieve a centralized marketplace so that maximum liquidity could be obtained. Notably, some of the strategies used in todays world of electronic trading, were achievable in open outcry. For example, in open outcry you can trade small lots so as not to show your full size; or, you can disguise your identity by operating through a broker.