What it is:
How it works (Example):
A pit broker receives an order from a client through the brokerage firm and trades the security with other brokers on the exchange floor. Based on interactions on the exchange floor with specialists in the specific securities being traded and bidding with other brokers or traders, the pit broker attempts to get the most competitive market rates available for his or her client. When the pit broker executes a transaction on behalf of the client, he or she notifies the client through the client's registered representative at the brokerage firm.
A pit broker is different than a "floor trader" who, although he or she also works on the floor of the exchange, makes trades as a principal for his or her own account. However, at times, pit brokers also handle large volume trades on behalf of floor traders. The pit broker is licensed by the relevant state authority and the US Securities and Exchange Commission (SEC); The pit broker receives a fee for each securities trade.
Why it Matters:
Pit brokers are agents for investor clients, giving them the closest access possible to the exchange floor. Pit brokers are responsible for assessing market information, prices, competition, and using this information, making the best possible trades for their clients.