Pin trading can be a lot of fun, but it can also be very addictive and expensive! I love to trade pins and it's a major part of my trips to Disney, but I only trade with Cast Members. Essentially, you purchase some pins (there are many options for where, how, etc.) and then take them with you. You'll see CMs that are wearing lanyards (either neck or hip) of varying colors (e.g., black, maroon, green/teal). The green/teal lanyards are for trading with children only. When you see a CM with a lanyard, you just go up to them and ask if you may look at their pins. If you see one you like, you offer to trade one of your pins for that pin. Aside from a few limitations, the CMs cannot/will not refuse a trade.
The CMs can only refuse to trade if the pin you are offering is already on their lanyard (i.e., a duplicate), if the pin is not in good condition (i.e., scratched image, broken, etc.), not a Disney pin, or not a pin (i.e., buttons cannot be traded). For the CMS, they only have to trade the pins on their lanyards, so any service pins that they might be wearing on their costume or nametags are not for trading.
Disney has published some guidelines:
http://disney.go.com/eventservices/howtopintrade.pdf
In addition to the neck or hip lanyards that CMs may be wearing, you may also find pin boards or books. Those can have lots pins to look at. I've seen a board at the Frontierland Pin Trading Shop and a book at the Buena Vista Street Pin Shop on a fairly consistent basis. Other boards/books may only come out at certain times.
In terms of the CMs that wear lanyards, look in the shops, at the ride entrances, janitorial, management, and (sometimes) security. The ride operators and loaders tend not to have lanyards. There is no rhymne or reason to which pins are on a CM's lanyard; in other words, the CM's near HM won't necessarily have HM-themed pins. You will not (usually) find the "rack" pins on CM lanyards (a "rack" pin is one you can buy in the store that is sold individually); most CMs tend to have hidden Mickey pins or pins from booster sets.
For me, I usually take pins to trade, but I also buy pins I like (and these are not for trading).
Costs: Pin trading can be very expensive, especially if you buy pins after you get to Disney. Disney sells individual pins (don't buy these for trading) and starter/booster sets. Starter/Booster sets are usually sets of 7 or so pins for about $30. If you run out of pins or decide to start trading after you've arrived, booster/starter sets are your best bet. Other sources include the Disney Stores, Disney Outlets,
DisneyStore.com, etc. I would keep an eye on the DisneyStore.com's clearance section for good deals. You can also buy pins on eBay, but be careful. Those can often be scrappers/fakes, especially if they're cheap (e.g., less than a few dollars per pin).
Caveats: there are a few other things worth noting about trading. The first are the "professional" traders and the second are "scrappers".
Professional Traders: My advice is to be wary of the professional pin traders. These are the non-CM traders that are sometimes found outside of the store in Tomorrowland, Frontierland, and over in DTD (they might be elsewhere, but that's where I've seen them). These folks do not have to trade with you nor do they have to adhere to the Disney trading guidelines (e.g., one pin for one pin). I'm sure some of them are nice folks, but I would be cautious when approaching them for a trade because for many of them this is a business so they're out to get the most valuable/expensive pins possible from you. So if they will trade your pin for their's, that's probably fine. If they ask you go buy a pin or pins for them, I'd walk away. If you're new to pin trading and do not have a sense of the value (in terms of dollars) of the various pins, I'd avoid the professional traders.
Scrappers: The second issue is scrappers. For some folks this matters, for others it does not. You'll need to decide which camp you are in before you get heavily into pin trading. I think there was a difference between the term "scrapper" and a "fake" in the past, but the term "scrapper" has pretty much come to mean any pin the looks legitimate, but is not. It can be a factory overrun (i.e., the factory was contracted to make 1 million, but they made 1.1 million instead) or a pin that has some kind of error that should have been "scrapped" or it can be a straight out fake pin (i.e., not a design authorized by Disney). You'll often be able to tell a scrapper because the colors are weird/off or the back stamp (the copy right) is wrong/missing/damaged. Others say you can tell because they feel "rough" or the edges are sharp/pronounced. Sadly, there is no sure fire way to tell a scrapper.
The general rule of thumb is that you buy a "lot" of pins (e.g., 25-pins) for less than a couple of dollars each, you're likely buying scrappers. Also, if you buy pins that come in little baggies (instead of pin cards like the ones you see at the stores in WDW/DLR), those are more likely to be scrappers as well. So, unless you only buy from Disney directly, it is hard to say whether you'll get scrappers or not. The best advice is to look for pins that are still in their original packaging; meaning on the little plastic cards if it's an individual pin or on the cardboard with plastic wrapping if it's a set.
It's worth noting that if you do end up trading with CM, the CM lanyards tend to be filled with scrappers. So if you really dislike scrappers, I would avoid trading with CMs. That's the crux of the argument: those that dislike scrappers feel they cheapen the trading and make it not worthwhile. Those that don't care, tend to say that they like the pin, so it doesn't really matter if it's a scrapper or not (they also say that if you can't tell, does it really matter?). Both points are valid and you have to decide which camp you are in before you start trading.
