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The floor pivots date back to a time, when no handhelds or PCs were available. It is based on the high, the low and the close(settlement) of the prior session. The advantage of the floor pivots was that they were easy to calculate and that they could be calculated prior to the open of the new session.
Now the only question that remains is:
Which high, which low and which close is used for the calculation?
In general, traders did not search sophistication, but they were interested in making money. So they took the high, low and close published by the exchange.
Original floor pivots were calculated from
- the high of the regular floor session
- the low of the regular floor session
- the settlement price (average price of all trades of the last seconds of trading prior to the close of the floor session)
Meanwhile, the values published by the exchange are
- the high of the full session
- the low of the full session
- the settlement price (which is still determined at the same historical time prior to the close of the floor session)
The pivots calculated from these values are called GLOBEX pivots and use the same formula as the floor pivots.
For most of the futures contracts, the floor is closed, and the original floor pivots are not used anymore by all traders. This means that for most instruments floor pivots have been substituted with GLOBEX pivots.
However, floor pivots are still in use for some instruments,
- because traders continue to use them
- because they do make sense for futures contracts that are tied to a regional economy
If you think about it, commodities like oil and gold are used all over the world and the gold price is as much linked to the economies of China or Europe as it is linked to the US. It does not make any more sense to use metrics as the floor pivots which are tied to US trading times. Therefore for commodities, there has been a strong shift from floor pivots (which were still predominant in the Nineties) to GLOBEX pivots.
However, if you look at index futures and interest rate futures like ES, YM, NQ, ZB, ZN, the case is different. These are tied to the US economy and therefore it does make sense to use a metric which is based on US opening hours. Also
- there is still an open outcry (floor) session for the large S&P contract
- bonds and treasury notes (underlying markets for ZB and ZN) are only traded during US opening hours
Therefore it still does make sense (and is recommended) to use floor pivots with futures contracts that are tied to the US economy alone.
Personally, I use floor pivots for index and interest rate futures, but use GLOBEX pivots for currency and commodity futures. Again the only difference between them is the input:
- regular session high and low for floor pivots
- full session high and low for GLOBEX pivots
Both of them should use the settlement price as a substitute for the close.
