Commodity Exchanges

Formalized trading practices involving a fixed time and place as well as a fixed currency date back to the Roman Empire where trading centers called fora vendaliaserved as distribution centers for commodities the Roman legions had brought from the far corners of the Roman Empire. Despite the fall of the Roman Empire, the concept of the central marketplace has endured. Central marketplaces evolved over the years through medieval England, Japan and the United States. Commodity markets in the United Sates existed as early as 1752. As the mid-West was settled in the early 1800's, Chicago's strategic location at the base of the Great Lakes made it a logical choice for grain terminals. Lack of reliable roads and a reliable infrastructure often made it near impossible to get product to the grain terminals in Chicago in a timely, profitable fashion. In response to these difficult conditions, farmers and merchants began contracting with one another for forward delivery.Farmers seeking to reduce the risk of storing a crop until road conditions improved, now were able to contractfor a delivery at a future date at an agreed upon price. As grain trade expanded, the Chicago Board of Trade was established in 1848 by 82 merchants. To futher standardize trading, in 1865 the Board of Trade adopted standardized forward agreements called futures contracts. These contracts provided for standard quality, quantity, time and place of delivery. A margin system was also established to eliminate the problem of sellers not fulfilling their contractual obligations. As the North American economy evolved, other commodity exchanges developed. Today, in addition to the Chicago Board of Trade,there is the Chicago Mercantile Exchange, the Winnipeg Commodity Exchange, the Coffee Sugar, Cocoa Exchange, the New York Cotton Exchange, COMEX, Mid-America Commodity Exchange, Minneapolis Grain Exchange, New York Futures Exchange, Kansas City Board of Trade, Philadelphia Board of Trade and the New York Mercantile Exchange.