HOME

TheInfoList




A futures exchange or futures market is a central
financial exchange An exchange, bourse (), trading exchange or trading venue is an organized market where (especially) tradable securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument Finance is th ...
where people can trade standardized
futures contract In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availabl ...
s defined by the exchange. Futures contracts are
derivatives Derivative may refer to: In mathematics and economics *Brzozowski derivative in the theory of formal languages *Derivative in calculus, a quantity indicating how a function changes when the values of its inputs change. *Formal derivative, an opera ...
contracts to buy or sell specific quantities of a
commodity In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plan ...
or
financial instrument Financial instruments are monetary contracts A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A contract is legally enforceable because it me ...
at a specified price with
delivery Delivery may refer to: *Delivery (commerce), of goods, e.g.: **Pizza delivery **Milk delivery Film and television *Delivering (film), ''Delivering'' (film), a 1993 short film by Todd Field *Delivery (film), ''Delivery'' (film), a 2005 animated sho ...
set at a specified time in the future. Futures exchanges provide physical or electronic trading venues, details of standardized contracts, market and price data, clearing houses, exchange self-regulations, margin mechanisms, settlement procedures, delivery times, delivery procedures and other services to foster trading in futures contracts. Futures exchanges can be organized as non-profit member-owned organizations or as for-profit organizations. Futures exchanges can be integrated under the same brand name or organization with other types of exchanges, such as
stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as w ...

stock market
s, options markets, and
bond market The bond market (also debt market or credit market) is a financial market A financial market is a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an i ...
s. Non-profit member-owned futures exchanges benefit their members, who earn commissions and revenue acting as brokers or market makers. For-profit futures exchanges earn most of their revenue from trading and clearing fees.


Role in futures contracts standardization

Futures exchanges establishes standardized contracts for trading on their trading venues, and they usually specifies the following: assets to be delivered in the contract, delivery arrangements, delivery months, pricing formula for daily and final settlement, contract size, and price position and limits. For assets to be delivered, futures exchanges usually specify one or more grades of a commodity acceptable for delivery and for any price adjustments applied to delivery. For example, the standard deliverable grade for CME Group's corn futures contract is "No. 2 Yellow", but holders of short positions in the contract can deliver "No. 3 Yellow" corn for 1.5 cents less the delivery price per
bushel A bushel (abbreviation: bsh. or bu.) is an imperial Imperial is that which relates to an empire, emperor, or imperialism. Imperial or The Imperial may also refer to: Places United States * Imperial, California * Imperial, Missouri * Imperi ...
. The location where assets are delivered are also specified by the futures exchanges, and they may also specify alternative delivery locations and any price adjustments available when delivering to alternative locations. Delivery locations accommodate the particular delivery, storage, and marketing needs of the deliverable asset. For example, ICE frozen concentrate orange juice contracts specify delivery locations as exchange-licensed warehouses in Florida, New Jersey, or Delaware, while in the case of CME
live cattleLive cattle is a type of futures contract In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. ...
contracts, delivery is to exchange-approved livestock yards and slaughter plants in the Midwest. The futures exchange also determines the amount of deliverable assets for each contract, which determines a contract's size. Contract sizes that are too large will dissuade trading and hedging of small positions, while contract sizes that are too small will increase transaction costs since there are costs associated with each contract. In some cases, futures exchanges have created "mini" contracts to attract smaller traders. For example, the CME Group's Mini Nasdaq 100 contract is on 20 times the Nasdaq 100 index.


Clearing and margin mechanisms

Futures exchanges provide access to clearing houses that stands in the middle of every trade. Suppose trader A purchases $145,000 of gold futures contracts from trader B, trader A really bought a futures contract to buy $145,000 of gold from the clearing house at a future time, and trader B really has a contract to sell $145,000 to the clearing house at that same time. Since the clearing house took on the obligation of both sides of that trade, trader A do not have worry about trader B becoming unable or unwilling to settle the contract - they do not have to worry about trader B's
credit risk A credit risk is risk of default Default may refer to: Law * Default (law), the failure to do something required by law ** Default (finance) In finance Finance is the study of financial institutions, financial markets and how they ope ...
. Trader A only has to worry about the ability of the clearing house to fulfill their contracts. Even though clearing houses are exposed to every trade on the exchange, they have more tools to manage credit risk. Clearing houses can issue ''Margin Calls'' to demand traders to deposit Initial Margin moneys when they open a position, and deposit Variation Margin (or Mark-to-Market Margin) moneys when existing positions experience daily losses. A margin in general is
collateral Collateral may refer to: Business and finance * Collateral (finance) In loan agreement, lending agreements, collateral is a Borrower, borrower's pledge (law), pledge of specific property to a lender, to Secured loan, secure repayment of a loan. ...
that the holder of a
financial instrument Financial instruments are monetary contracts A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A contract is legally enforceable because it me ...
has to deposit to cover some or all of the
credit risk A credit risk is risk of default Default may refer to: Law * Default (law), the failure to do something required by law ** Default (finance) In finance Finance is the study of financial institutions, financial markets and how they ope ...
of their
counterparty A counterparty (sometimes contraparty) is a legal entity, unincorporated entity, or collection of entities to which an exposure to financial risk might exist. The word became widely used in the 1980s, particularly at the time of the Basel I in 198 ...

counterparty
, in this case the central counterparty clearing houses. Traders on both sides of a trade has to deposit Initial Margin, and this amount is kept by the clearing house and not remitted to other traders. Clearing houses calculate day-to-day profit and loss amounts by ' marking-to-market' all positions by setting their new cost to the previous day's settlement value, and computing the difference between their current day settlement value and new cost. When traders accumulate losses on their position such that the balance of their existing posted margin and their new debits from losses is below a thresh-hold called a ''maintenance margin'' (usually a fraction of the initial margin) at the end of a day, they have to send Variation Margin to the exchange who passes that money to traders making profits on the opposite side of that position. When traders accumulate profits on their positions such that their margin balance is above the maintenance margin, they are entitled to withdraw the excess balance. The margin system ensures that on any given day, if all parties in a trade closed their positions after variation margin payments after settlement, nobody would need to make any further payments as the losing side of the position would have already sent the whole amount they owe to the profiting side of the position. The clearinghouse do not keep any variation margin. When traders cannot pay the variation margin they owe or are otherwise in default the clearing house closes their positions and tries to cover their remaining obligations to other traders using their posted initial margin and any reserves available to the clearing house. Several popular methods are used to compute initial margins. They include the CME-owned SPAN (a grid simulation method used by the CME and about 70 other exchanges),
STANS Stans () is the capital of the canton Canton may refer to: Administrative division terminology * Canton (administrative division), territorial/administrative division in some countries, notably Switzerland * Township (Canada), known as ''ca ...
(a
Monte Carlo simulation Monte Carlo methods, or Monte Carlo experiments, are a broad class of computation Computation is any type of calculation A calculation is a deliberate process that transforms one or more inputs into one or more results. The term is used in a v ...
based methodology used by the Options Clearing Corporation (OCC)), TIMS (earlier used by the OCC, and still being used by a few other exchanges). Traders do not interact directly with the exchange, they interact with clearing house members, usually futures brokers, that pass contracts and margin payments on to the exchange. Clearing house members are directly responsible for initial margin and variation margin requirements at the exchange even if their clients default on their obligations, so they may require more initial margin (but not variation margin) from their clients than is required by the exchange to protect themselves. Since clearing house members usually have many clients, they can net out margin payments from their client's offsetting positions. For example, if a clearing house member have half of their clients holding a total of 1000 long position in a contract, and half of their clients holding a total of 500 short position in a contract, the clearing house member is only responsible for the initial and variation margin of a net 500 contracts.


Nature of contracts

Exchange-traded contracts are standardized by the exchanges where they trade. The contract details what asset is to be bought or sold, and how, when, where and in what quantity it is to be delivered. The terms also specify the currency in which the contract will trade, minimum tick value, and the last trading day and expiry or
delivery monthFor futures contract In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors ...
. Standardized commodity futures contracts may also contain provisions for adjusting the contracted price based on deviations from the "standard" commodity, for example, a contract might specify delivery of heavier
USDA The United States Department of Agriculture (USDA), also known as the Agriculture Department, is the federal executive department responsible for developing and executing federal laws related to farming, forestry, rural economic development, ...
Number 1 oats at par value but permit delivery of Number 2 oats for a certain seller's penalty per bushel. Before the market opens on the first day of trading a new futures contract, there is a specification but no actual contracts exist. Futures contracts are not issued like other securities, but are "created" whenever
open interest Open interest (also known as open contracts or open commitments) refers to the total number of outstanding derivative In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (out ...
increases; that is, when one party first buys (goes
long Long may refer to: Measurement * Long, characteristic of something of great duration Duration may refer to: * The amount of Time#Terminology, time elapsed between two events * Duration (music) – an amount of time or a particular time interval, ...
) a contract from another party (who goes
short
short
). Contracts are also "destroyed" in the opposite manner whenever open interest decreases because traders resell to reduce their long positions or rebuy to reduce their short positions. Speculators on futures price fluctuations who do not intend to make or take ultimate delivery must take care to "zero their positions" prior to the contract's expiry. After expiry, each contract will be
settled A settler is a person who has migrated to an area and established a permanent residence there, often to colonize Colonization, or colonisation refers to large-scale population movements where the migrants maintain strong links with their or ...

settled
, either by physical delivery (typically for commodity underlyings) or by a cash settlement (typically for financial underlyings). The contracts ultimately are not between the original buyer and the original seller, but between the holders at expiry and the exchange. Because a contract may pass through many hands after it is created by its initial purchase and sale, or even be liquidated, settling parties do not know with whom they have ultimately traded.


Regulators

Each exchange is normally regulated by a national governmental (or semi-governmental) regulatory agency: * In Australia, this role is performed by the
Australian Securities and Investments Commission The Australian Securities and Investments Commission (ASIC) is an independent commission of the Australian Government tasked as the national corporate regulator. ASIC's role is to regulate company and financial services and enforce laws to pro ...
. * In the Chinese mainland, by the
China Securities Regulatory Commission The China Securities Regulatory Commission (CSRC) is a government ministry of the State Council of the People's Republic of China The State Council, constitutionally synonymous with the Central People's Government since 1954 (partic ...
. * In Hong Kong, by the
Securities and Futures Commission The Securities and Futures Commission (SFC) of Hong Kong Hong Kong (; , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (HKSAR), is a List of cities in China, city and Special administrative ...
. * In India, by the
Securities and Exchange Board of India The Securities and Exchange Board of India (SEBI) is the regulatory body for securities and commodity market in India India (Hindi: ), officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries a ...
* In South Korea, by the Financial Supervisory Service. * In Japan, by the
Financial Services Agency The is a Japanese government The is the central government of Japan , image_flag = Flag of Japan.svg , alt_flag = Centered deep red circle on a white rectangle , image_coat = Im ...
. * In Pakistan, by the
Securities and Exchange Commission of Pakistan The Securities & Exchange Commission of Pakistan (SECP) ( ur, ) is the financial regulatory agency in Pakistan whose objective is to develop a modern and efficient corporate A corporation is an organization—usually a group of people or ...
. * In Singapore by the
Monetary Authority of Singapore The Monetary Authority of Singapore (MAS) is the central bank and Financial regulation, financial regulatory authority of Singapore. It administers the various statutes pertaining to money, banking, insurance, securities and the financial sector ...

Monetary Authority of Singapore
. * In the UK, futures exchanges are regulated by the
Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Tel ...
. * In the US, by the
Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974, that regulates the U.S. derivatives markets, which includes futures Futures may mean: Finance *Futures contract, a tradable financia ...
. * In Malaysia, by the
Securities Commission Malaysia The Securities Commission Malaysia (SC; ms, Suruhanjaya Sekuriti Malaysia) is a statutory body entrusted with the responsibility of regulating and systematically developing the capital markets in Malaysia. History The following is taken from the ...
. * In Spain, by the
Comisión Nacional del Mercado de Valores The National Securities Market Commission () (often abbreviated as CNMV) is the Spanish government agency responsible for the financial regulation Financial regulation is a form of regulation Regulation is the management of complex systems acc ...
(CNMV). * In Brazil, by the Comissão de Valores Mobiliários (CVM). * In South Africa, by the Financial Sector Conduct Authority (South Africa). * In Mauritius, by th
Financial Services Commission
(FSC) * In Indonesia, by th
Commodity Futures Trading Regulatory Agency
(BAPPEPTI)


History


Ancient times

In Ancient Mesopotamia, around 1750 BC, the sixth Babylonian king,
Hammurabi Hammurabi () was the sixth king of the First Babylonian dynasty The First Babylonian Empire, or Old Babylonian Empire, is dated to BC – BC, and comes after the end of Sumerian power with the destruction of the Third Dynasty of Ur The ...

Hammurabi
, created one of the first legal codes: the
Code of Hammurabi The Code of Hammurabi is a Babylonian legal text composed 1755–1750 BC. It is the longest, best-organised, and best-preserved legal text from the ancient Near East. It is written in the Old Babylonian dialect of Akkadian, purportedly by Ham ...

Code of Hammurabi
. Hammurabi's Code allowed sales of goods and assets to be delivered for an agreed price at a future date; required contracts to be in writing and witnessed; and allowed assignment of contracts. The code facilitated the first derivatives, in the form of forward and futures contracts. An active derivatives market existed, with trading carried out at temples. One of the earliest written records of futures trading is in
Aristotle Aristotle (; grc-gre, Ἀριστοτέλης ''Aristotélēs'', ; 384–322 BC) was a Greek philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental questio ...

Aristotle
's ''
Politics Politics (from , ) is the set of activities that are associated with Decision-making, making decisions in Social group, groups, or other forms of Power (social and political), power relations between individuals, such as the distribution of res ...
''. He tells the story of
Thales Thales of Miletus ( ; el, Θαλῆς Thales of Miletus ( ; el, Θαλῆς Thales of Miletus ( ; el, Θαλῆς (ὁ Μιλήσιος), ''Thalēs''; ) was a Greek mathematician A mathematician is someone who uses an extensive kn ...

Thales
, a poor philosopher from
Miletus Miletus (; gr, Μῑ́λητος, Mīlētos; Hittite language, Hittite transcription ''Millawanda'' or ''Milawata'' (Exonym and endonym, exonyms); la, Miletus; tr, Milet) was an Ancient Greece, ancient Greek city on the western coast of Ana ...
who developed a "financial device, which involves a principle of universal application". Thales used his skill in forecasting and predicted that the olive harvest would be exceptionally good the next autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiated low prices because the harvest was in the future and no one knew whether the harvest would be plentiful or pathetic and because the olive-press owners were willing to
hedge A hedge or hedgerow is a line of closely spaced shrub A shrub (often called a bush) is a small- to medium-sized perennial A perennial plant or simply perennial is a plant that lives more than two years. The term ('' per-'' + '' -enni ...
against the possibility of a poor yield. When the harvest-time came, and a sharp increase in demand for the use of the olive presses outstripped supply (availability of the presses), he sold his future use contracts of the olive presses at a rate of his choosing, and made a large amount of money. This is a very loose example of futures trading and, in fact, more closely resembles an
option contract An option contract, or simply option, is defined as "a promise which meets the requirements for the formation of a contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties ...
, given that Thales was not obliged to use the olive presses if the yield was poor.


Modern era

The first modern organized futures exchange began in 1710 at the Dojima Rice Exchange in
Osaka is a designated city in the Kansai region The or the , lies in the southern-central region of Japan , image_flag = Flag of Japan.svg , alt_flag = Centered deep red circle on a white rectangle , ...

Osaka
, Japan. The London Metal Market and Exchange Company (
London Metal Exchange The London Metal Exchange (LME) is the futures exchange with the world's largest market in options and futures contract In finance Finance is the study of financial institutions, financial markets and how they operate within the financial sy ...
) was founded in 1877, but the market traces its origins back to 1571 and the opening of the
Royal Exchange, London The Royal Exchange in London was founded in the 16th century by the merchant Sir Thomas Gresham on the suggestion of his factor (agent), factor Richard Clough to act as a centre of commerce for the City of London. The site was provided by the Cit ...

Royal Exchange, London
. Before the exchange was created, business was conducted by traders in London
coffee house 200px, Coffeehouse in San Francisco A coffeehouse, coffee shop, or café is an establishment that primarily serves coffee (of various types, e.g. espresso, latte, cappuccino). Some coffeehouses may serve cold drinks such as iced coffe ...

coffee house
s using a makeshift ring drawn in chalk on the floor.BBC Radio 4 ''
Today Today (archaically to-day) may refer to: * Day of the present, the time that is perceived directly, often called ''now'' * Current era, present Arts, entertainment, and media Films * ''Today'' (1930 film), a 1930 American drama film directed ...
'', broadcast 25 October 2011.
At first only
copper Copper is a chemical element In chemistry, an element is a pure Chemical substance, substance consisting only of atoms that all have the same numbers of protons in their atomic nucleus, nuclei. Unlike chemical compounds, chemical elem ...

copper
was traded.
Lead Lead is a chemical element with the Symbol (chemistry), symbol Pb (from the Latin ) and atomic number 82. It is a heavy metals, heavy metal that is density, denser than most common materials. Lead is Mohs scale of mineral hardness#Intermediate h ...

Lead
and
zinc Zinc is a chemical element In chemistry, an element is a pure Chemical substance, substance consisting only of atoms that all have the same numbers of protons in their atomic nucleus, nuclei. Unlike chemical compounds, chemical element ...

zinc
were soon added but only gained official trading status in 1920. The exchange was closed during
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a global war A world war is "a war War is an intense armed conflict between states State may refer to: Arts, entertainment, and media Literatur ...
and did not re-open until 1952. The range of metals traded was extended to include
aluminium Aluminium (aluminum in and ) is a with the  Al and  13. Aluminium has a density lower than those of other common , at approximately one third that of . It has a great affinity towards , and of on the surface when exposed to air ...

aluminium
(1978),
nickel Nickel is a chemical element In chemistry, an element is a pure Chemical substance, substance consisting only of atoms that all have the same numbers of protons in their atomic nucleus, nuclei. Unlike chemical compounds, chemical elem ...

nickel
(1979),
tin Tin is a with the Sn (from la, ) and  50. Tin is a silvery-colored metal that characteristically has a faint yellow hue. Tin is soft enough to be cut with little force and a bar of tin can be bent by hand with little effort. When bent ...

tin
(1989), aluminium alloy (1992),
steel Steel is an alloy An alloy is an admixture of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when freshly prepared, polished, or fractured, shows a lustrous appe ...

steel
(2008), and minor metals
cobalt Cobalt is a chemical element In chemistry, an element is a pure Chemical substance, substance consisting only of atoms that all have the same numbers of protons in their atomic nucleus, nuclei. Unlike chemical compounds, chemical element ...

cobalt
and
molybdenum Molybdenum is a with the Mo and 42. The name is from ''molybdaenum'', which is based on ', meaning , since its ores were confused with lead ores. Molybdenum minerals have been known throughout history, but the element was discovered (in the ...

molybdenum
(2010). The exchange ceased trading
plastics Plastics are a wide range of syntheticA synthetic is an artificial material produced by organic chemistry, organic chemical synthesis. Synthetic may also refer to: In the sense of both "combination" and "artificial" * Synthetic chemical or s ...

plastics
in 2011. The total value of the trade is around $11.6 trillion annually.
Chicago (''City in a Garden''); I Will , image_map = , map_caption = Interactive map of Chicago , coordinates = , coordinates_footnotes = , subdivision_type = Country , subdivision_name ...

Chicago
has the largest future exchange in the world, the
CME Group CME Group Inc. (Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange, The Commodity Exchange) is an American global markets company. It is the world's largest financial derivatives exchange, and trades in asset class ...
. Chicago is located at the base of the
Great Lakes The Great Lakes also called the Great Lakes of North America or the Laurentian Great Lakes, is a series of large interconnected freshwater lake A lake is an area filled with water, localized in a basin, surrounded by land Land ...

Great Lakes
, close to the farmlands and cattle country of the
Midwest The Midwestern United States, also referred to as the Midwest or the American Midwest, is one of four Census Bureau Region, census regions of the United States Census Bureau (also known as "Region 2"). It occupies the northern central part of ...
, making it a natural center for transportation, distribution, and trading of agricultural produce. Gluts and shortages of these products caused chaotic fluctuations in price, and 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 and enable them to
hedge A hedge or hedgerow is a line of closely spaced shrub A shrub (often called a bush) is a small- to medium-sized perennial A perennial plant or simply perennial is a plant that lives more than two years. The term ('' per-'' + '' -enni ...
. In March 2008 the CME announced its acquisition of NYMEX Holdings, Inc., the
parent company A parent company is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture of both, with a specific objective. ...
of the New York Mercantile Exchange and Commodity Exchange. CME's acquisition of NYMEX was completed in August 2008. For most exchanges, forward contracts were standard at the time. However, forward contracts were often not honored by either the buyer or the seller. For instance, if the buyer of a
corn Maize ( ; ''Zea mays'' subsp. ''mays'', from es, maíz after tnq, mahiz), also known as corn (North American English, North American and Australian English), is a cereal grain first domesticated by indigenous peoples of the Americas, indige ...

corn
forward contract made an agreement to buy corn, and at the time of delivery the price of corn differed dramatically from the original contract price, either the buyer or the seller would back out. Additionally, the forward contracts market was very illiquid and an exchange was needed that would bring together a market to find potential buyers and sellers of a commodity instead of making people bear the burden of finding a buyer or seller. In 1848 the
Chicago Board of Trade The Chicago Board of Trade (CBOT), established on April 3, 1848, is one of the world's oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange The Chicago Mercantile Exchange (CME) (often ca ...

Chicago Board of Trade
(CBOT) was formed. Trading was originally in
forward contract In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivat ...
s; the first contract (on corn) was written on March 13, 1851. In 1865 standardized
futures contract In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availabl ...
s were introduced. The Chicago Produce Exchange was established in 1874, renamed the Chicago Butter and Egg Board in 1898 and then reorganised into the
Chicago Mercantile Exchange The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an a ...

Chicago Mercantile Exchange
(CME) in 1919. Following the end of the postwar international gold standard, in 1972 the CME formed a division called the
International Monetary MarketThe International Monetary Market (IMM), a related exchange created within the old Chicago Mercantile Exchange The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chi ...
(IMM) to offer futures contracts in foreign currencies: British pound,
Canadian dollar The Canadian dollar (symbol A symbol is a mark, sign, or that indicates, signifies, or is understood as representing an , , or . Symbols allow people to go beyond what is n or seen by creating linkages between otherwise very different ...
,
German mark The Deutsche Mark (, "German mark"), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later the unified Germany from 1990 until the adoption of the euro in 2002. In English, it is commonly calle ...
,
Japanese yen The is the official currency of Japan. It is the third most traded currency in the foreign exchange market The foreign exchange market (Forex, FX, or currency market) is a global decentralized Decentralization or decentralisation ...
,
Mexican peso The Mexican peso (symbol A symbol is a mark, sign, or word In linguistics, a word of a spoken language can be defined as the smallest sequence of phonemes that can be uttered in isolation with semantic, objective or pragmatics, practical me ...
, and Swiss franc. In 1881 a regional market was founded in
Minneapolis, Minnesota Minneapolis () is a city in the U.S. state of Minnesota. With a population of 429,954 as of 2020 United States census, 2020, it is the most populous city in the state and the 46th most populous in the nation. The county seat of Hennepin County, ...

Minneapolis, Minnesota
, and in 1883 introduced futures for the first time. Trading continuously since then, today the
Minneapolis Grain Exchange The Minneapolis Grain Exchange (MGEX) is a commodities and futures exchange of grain products. It was formed in 1881 in Minneapolis Minneapolis () is a city in the U.S. state of Minnesota. With a population of 429,954 as of 2020 United States ...

Minneapolis Grain Exchange
(MGEX) is the only exchange for hard red spring wheat futures and options. and and Futures trading used to be very active in India in the early to late 19th Century in the Marwari business community. Several families made their fortunes in opium futures trading in Calcutta and Bombay. There are records available of standardized opium futures contracts made in the 1870-1880s in Calcutta. There are strong grounds to believe that commodity futures could have existed in India for thousands of years before then, with references to the existence of market operations similar to the modern day futures market in Kautilya's ''
Arthashastra The ''Arthaśāstra'' ( sa, अर्थशास्त्र, ) is an ancient India According to consensus in modern genetics, anatomically modern humans first arrived on the Indian subcontinent from Africa between 73,000 and 55,000 ye ...

Arthashastra
'' written in the 2nd century BCE. The first organised futures market was established in 1875 by the Bombay Cotton Trade Association to trade in cotton contracts. This occurred soon after the establishment of trading in cotton Futures in UK, as Bombay was a very important hub for cotton trade in the British Empire. Futures trading in raw jute and jute goods began in Calcutta with the establishment of the Calcutta Hessian Exchange Ltd., in 1919. In modern times, most of the futures trading happens in th
National Multi commodity Exchange
(NMCE) which commenced futures trading in 24 commodities on 26 November 2002 on a national scale. Currently (August 2007) 62 commodities are being traded on the NMCE.


Recent developments

The 1970s saw the development of the financial futures contracts, which allowed trading in the future value of
interest rate An interest rate is the amount of interest In and , interest is payment from a or deposit-taking financial institution to a or depositor of an amount above repayment of the (that is, the amount borrowed), at a particular rate. It is disti ...
s. These (in particular the 90‑day
Eurodollar Eurodollars are time deposit A time deposit or term deposit (in the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located i ...
contract introduced in 1981) had an enormous impact on the development of the
interest rate swap In finance, an interest rate swap (finance), swap (IRS) is an interest rate derivative, interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a Interest_rate_derivative#Linear_and_non-linear ...
market. Today, the futures markets have far outgrown their agricultural origins. With the addition of the
New York Mercantile Exchange The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place (New York City), Brookfield Place in the Battery Park City section ...

New York Mercantile Exchange
(NYMEX) the trading and hedging of financial products using futures dwarfs the traditional commodity markets, and plays a major role in the
global financial system The global financial system is the worldwide framework of legal agreements, institutions, and both formal and informal economic actors that together facilitate international flows of financial capital Financial capital (also simply known as c ...
, trading over $1.5 trillion per day in 2005. The recent history of these exchanges (Aug 2006) finds the
Chicago Mercantile Exchange The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an a ...

Chicago Mercantile Exchange
trading more than 70% of its futures contracts on its "Globex" trading platform and this trend is rising daily. It counts for over $45.5 billion of nominal trade (over 1 million contracts) every single day in "
electronic trading In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products ca ...
" as opposed to
open outcry Open outcry is a method of communication between professionals on a stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sel ...
trading of futures, options and derivatives. In June 2001
Intercontinental Exchange The Intercontinental Exchange (ICE) is an American Fortune 500 company formed in 2000 that operates global exchanges, clearing houses and provides mortgage technology, data and listing services. The company owns exchanges for financial Fin ...
(ICE) acquired the
International Petroleum Exchange International is an adjective (also used as a noun) meaning "between nations". International may also refer to: Music Albums * ''International'' (Kevin Michael album), 2011 * ''International'' (New Order album), 2002 * ''International'' (The Th ...
(IPE), now ICE Futures, which operated Europe's leading open-outcry energy futures exchange. Since 2003 ICE has partnered with the Chicago Climate Exchange (CCX) to host its electronic marketplace. In April 2005 the entire ICE portfolio of energy futures became fully electronic. In 2005, The
Africa Mercantile Exchange Africa is the world's second-largest and second-most populous continent A continent is any of several large landmass A landmass, or land mass, is a large region In geography Geography (from Greek: , ''geographia'', ...
(AfMX®) became the first African commodities market to implement an automated system for the dissemination of market data and information online in real-time through a wide network of computer terminals. As at the end of 2007, AfMX® had developed a system of secure data storage providing online services for brokerage firms. The year 2010, saw the exchange unveil a novel system of electronic trading, known as After®. After® extends the potential volume of processing of information and allows the Exchange to increase its overall volume of trading activities. In 2006 the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an U ...

New York Stock Exchange
teamed up with the Amsterdam-Brussels-Lisbon-Paris Exchanges "Euronext" electronic exchange to form the first transcontinental futures and options exchange. These two developments as well as the sharp growth of internet futures trading platforms developed by a number of trading companies clearly points to a race to total internet trading of futures and options in the coming years. In terms of trading volume, the
National Stock Exchange of India National Stock Exchange of India Limited (NSE) is the leading stock exchange of India India, officially the Republic of India (Hindi Hindi (Devanagari: , हिंदी, ISO 15919, ISO: ), or more precisely Modern Standard Hin ...
in
Mumbai Mumbai (, ; also known as Bombay — List of renamed Indian cities and states#Maharashtra, the official name until 1995) is the capital city of the Indian States and union territories of India, state of Maharashtra. According to the United ...

Mumbai
is the largest single-stock futures trading exchange in the world.


See also

*
Bond market The bond market (also debt market or credit market) is a financial market A financial market is a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an i ...
*
Commodity markets A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar Sugar is the generic name for Sweetness, sweet-tasting, soluble carbohydrates, many of which are ...
*
Currency market The foreign exchange market (Forex, FX, or currency market) is a global decentralization, decentralized or Over-the-counter (finance), over-the-counter (OTC) market for the trading of currency, currencies. This market determines Exchange rate ...
*
List of futures exchanges This is a list of notable futures exchanges. Those stock exchanges that also offer trading in futures contract In finance Finance is the study of financial institutions, financial markets and how they operate within the financial sy ...
*
List of traded commodities The following is a list of Futures contracts on physically traded commodity, commodities. Agricultural Grains, food and fiber Symbol from "CME Group Website". cmegroup.com. CME Group. Retrieved 2010-10-20. Livestock and meat Energy For ...
* Paper trading *
Prediction market Prediction markets (also known as betting markets, information markets, decision markets, idea futures or event derivatives) are exchange-traded markets created for the purpose of trading the outcome of events. The market price A price is ...
*
Stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in whic ...

Stock market
*
Trader (finance) A trader is a person, firm, or entity in finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Save ...


References


Further reading


Understanding Derivatives: Markets and Infrastructure
Federal Reserve Bank of Chicago, Financial Markets Group {{Authority control