Futures exchange

History of Futures Exchanges

Though the origins of futures trading can be supposedly traced to Ancient Greek or Phoenician times, the history of modern futures trading begins in the Chicago, United States in the early 1800's. Chicago was located at the base of the Great Lakes, close to the farmlands and cattle country of the U.S. Midwest, making it a natural centre for transportation, distribution and trading of agricultural produce. Gluts and shortages of these products caused chaotic fluctuations in price. This led to the development of a market enabling grain merchants, processors, and agriculture companies to trade in "to arrive" or "cash forward" contracts to insulate them from the risk of adverse price change.

In 1848, the Chicago Board of Trade (CBOT), the world's first futures exchange, was formed. Trading was originally in "forward contracts"; the first contract (on corn) being written on March 13, 1851. In 1865, standardized "futures contracts" were introduced.

The Chicago Produce Exchange was established in 1874, re-named in 1898 the Chicago Mercantile Exchange (CME). In 1972 the International Monetary Market (IMM), a division of the CME, was formed to offer futures contracts in foreign currencies: British pound, Canadian dollar, German mark, Japanese yen, Mexican peso, and Swiss franc.

Later in the 1970's saw the development of the financial futures contracts, which allowed trading in the future value of interest rates. These (in particular the 90-day Eurodollar contract introduced in 1981) had an enormous impact on the development of the interest rate swap market.

Today, the futures markets has far outgrown its agricultural origins. The trading and hedging of financial products using futures dwarfs the traditional commodity markets, and plays a major role in the global financial system.

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