The key to any successful floor trade at the many mercantile and stock exchanges is speed. The delay between one market or particularly influential trader's changing the value of a product and the price of that product returning to equiliibrium based on that change is called arbitrage, and to exploit it requires not only quick thinking, but quick action as well.
Enter the hand signal.
The history of hand signals on the trading floor begins around the middle of the 19th century. Brokers and traders found themselves unable to reconcile the distance between their personal staffs working feverishly in offices high above the pit and the pit itself. Facing increasing competition for real estate on the trading floor, fights broke out over positions in the pit which afforded better views of some trading board or brokerage service window, from which information could be retrieved, interpreted, and acted upon. Some brokers even began looking into hiring exceptionally tall men, to gain the literal advantage of foresight!
To combat this, a number of systems began coming into place. The chief concern, of course, was how to pass information quickly and directly to a trader on the floor without revealing the information to all. Simply shouting out orders would've been useless anyway, considering the noisy hubbub of the marketplace, but would also have defeated the purpose of subterfuge and advantage that arbitrage provided. Elaborate riggings of semaphore, ciphers, and note-passing systems were devised, but the hand signal system proved to be so efficient and practical that it became the system de rigeur within a matter of years.
The use of hand signals was primarily seen as a way to keep amateur investors out - some firms used proprietary hand signals, passing out instructional booklets to their junior traders and changing them frequently to prevent industrial sabotage. Eventually, though, the confusion was eased by the rise of specialists, who served one security and one security alone. All orders were to be passed through the specialists, and thus a universal language of hand signals was invented. Although specialists are still in use, their necessity has declined as of late due to the Internet and other electronic advancements, but the hand signal language remains the most popular and efficient way to trade in the pit.
Currently, hand signals are used to convey the three essential elements of a futures or options trade:
Whether one is buying or selling. This is a simple gesture. If you are buying, put your hands out in front of you, palms facing in, and pull your hands towards you (as if you were pulling the shares you want into your chest.) For selling, do the opposite: place your hands in front of you palms out, and push your hands away from you (as if discarding of your shares.) For options: The universal "okay" signal (index finger to thumb, other fingers outstretched) is used to place put orders, while making a letter "C" with your hand indicates a call.
The price at which to buy or sell. The signal is simple; the interpretation, less so. Options, securities, and futures generally trade at prices in the double digits: 61, 73, 19, etc, and a one or two point shift can be considered a major move. Thus, traders only indicate the last digit of the sale price, and the broker extrapolates this to the actual price. To indicate this digit, the trader puts his hand out in front of him, palm in. For a 1, simply hold up the index finger straight into the air. For 2, add the middle finger, for 3, the ring, 4, the pinky, and 5 is all fingers. For 6 through 9, the hand is turned sideways so that the fingers go across your body horizontally. Thus with the right hand, a 7 would be the index and middle fingers pointing to one's left. For 0, a fist is used.
The amount of shares to be bought or sold. This is done by touching the face. Multiples of 100 are indicated by a fist to the forehead; Multiples of 10 by a mere finger to the forehead; and individual units by a finger to the chin. These are preceded by the same indicators as the pricing digits listed above. So for a sale of 330 options, a trader would first indicate a "3" by holding up 3 fingers, then touch his fist to his forehead (as a general rule, the "3" is also done near the forehead for clarity's sake). He would then indicate a second "3" and touch one finger to his forehead (thus representing 30.)
Additionally, most options and futures have an expiration month; each month is represented by a unique hand signal (October, for example, is the "V for victory" / peace symbol, while April involves wiggling your fingers while moving your hand downwards.)
Beyond the actual information regarding the order itself, there are a number of hand signals used to indicate the status of an order, and other procedures on the trading floor.
Order filled. The classic "thumbs up", this indicates the order has been registered and processed.
Order cancelled. Another universal hand signal, dragging the finger or hand across the throat indicates an order has been cancelled.
Order status. A deliberate hands in the air shrug is used to inquire about the status. This is one of the most interesting signals, since it conveys frustration, but is merely a passive signal of inquiry.
Order still in process. Placing your index finger out sideways and rolling it in a circle indicates an order is still being worked on.
Stop order. Without explaining too much about a stop order, it is in short an order only activated at a certain price, used by traders to minimize losses. This is indicated by punching your open palm with your fist.
These signals are not absolutely universal, and many markets have additional signals for additional requirements, but they are the common language of all of the American markets and most European and Asian markets as well.