Ring Trading Definition

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Ring Trading Definition

What Is Ring Trading?

Ring trading is a method of conducting certain types of investment business at the London Metal Exchange (LME), where trading activity takes place in five-minute intervals known as “rings” within a six-meter diameter circle (a type of trading pit) with two large display boards that show current prices. Each ring-dealing member has a set seat inside the ring, behind which an assistant may stand to transmit orders to the ring dealing member and to communicate with consumers about market circumstances.

Ring trading, in a broader sense, may apply to any form of trading pit.

Key Takeaways

  • Ring trading is a means of doing certain sorts of financial transactions at the London Metal Exchange.
  • Trading takes place at five-minute intervals inside a six-meter-diameter circular ring with two enormous display boards displaying current prices.
  • Ring trading may also refer to the activity of open outcry floor trading that takes place in trading pits more broadly.

How Ring Trading Works

Trading activity on the London Metals Exchange occurs in predetermined five-minute times known as “rings,” during which dealers and floor brokers participate in open outcry trading in a six-meter ring-shaped trading pit.

Steel trade, for example, takes place during the first session from 11:40 am-11:45 am (local time) and 1:10 pm-1:15 pm (local time), and it closes trading at 4:20 pm. The LME’s ring trading hours are 11:40 a.m. to 5:00 p.m., with inter-office telephone trading accessible 24 hours a day.

Each ring dealing member has a set seat inside the ring, behind which an assistant may stand to transmit orders to the ring dealing member and to communicate with consumers about market circumstances.

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Rings as Floor Trading Pits

In general, a ring is an area on the floor of an exchange where deals are performed, sometimes known as a trading pit. A pit, which is the usual word for commodities markets, is a circular or hexagonal structure (thus, ring) where traders may deal with a counterparty.

The trading ring is critical in supporting the price discovery process for open-outcry trading floors and procedures. Price discovery refers to the total process of determining the spot price of an object or service, whether explicit or implicit. When done correctly, it determines the fair price of a security, commodity, or currency based on a number of parameters, most notably supply and demand levels.

However, in most contemporary financial markets, electronic techniques of price discovery coordinated via computerized exchanges and matching systems have supplanted open-outcry. Rings, pits, and the colorful individuals that used to populate trading arenas are a sentimental heritage in many financial markets.

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