Clarification of Answer by
easterangel-ga
on
18 Nov 2002 03:40 PST
Hi again! Thanks for asking a clarification before making a rating. I
hope that you would be patient with me on this one.
Futures trading is a form of investment wherein people trade in
commodities from corn, crude oil to currency. Investors speculate on
the future movement of the price of these commodities. Investors don’t
actually hold the commodity but only a paper called the futures
contract.
“What Are Futures Trading of Commodities?”
http://www.commodity-futures-options-stocks-trading.com/index-one.html
A future contract like any other contract has expiration dates.
However, you don’t have to wait for a contract to expire; in fact you
could cancel it within days or even minutes when you hold the
contract. Analyzing or speculating on when a particular commodity’s
price will go up will then be the basis on the length of the contract
that you hold.
“What is a Futures Contract?”
http://www.commodity-futures-options-stocks-trading.com/index-two.html
When did this system started? The first recorded trading of futures
was found in the date of 17th century Japan. In its present form, it
started in 1840 in Chicago. With the invention of the McCormick
reaper, which made possible the production of wheat in greater
amounts, farmers and dealers briskly traded this commodity. Since
Chicago has very few storage facilities for wheat, immediate delivery
and payment of cash for the wheat became a necessity in 1848. This
necessitated the creation of a central location for such trade. This
started the futures contract we talked about earlier which mainly was
a commitment to deliver a specified amount of wheat for cash. Such
contracts were then became common and valuable and sometimes became
bank collaterals. The contracts were also known to change hands before
delivery date when the contract holder decides to sell the contract to
another person. This was the start of what we now know as futures
trading.
These central locations for trading then became the exchanges we know
today like stock exchanges. The difference with the stock market is
that, you do not own equity in a company and you cannot hold a futures
contract indefinitely. Like we said earlier it has an expiration date.
“FUTURES HISTORY”
http://www.profittrading.com/4history.htm
“Commodity Futures Trading for Beginners”
By Bruce Babcock
http://www.rb-trading.com/begin4.html
In these days, the government agency tasked with regulating the
futures market is the CFTC (Commodity Futures Trading Commission).
Created by Congress in 1974 to protect investors and other market
participants against abuses, unfair trade practices and fraud.
It also has the responsibility to review contracts, safeguard the
market and regulate those companies and individuals that handle the
funds. It also regulates the individual exchanges, which could trade
futures contracts in the US.
“The CFTC at a Glance”
http://www.cftc.gov/cftc/cftcglan.htm
“Boards of Trade Designated as Contract Markets (DCMs)”
http://www.cftc.gov/dea/deadcms_table.htm
One of them is the American Stock Exchange, which started as a stock
exchange. Its first name was the New York Curb Market. The AMEX
Commodities Corporation was accepted by the CFTC in 1985 and was then
permitted to trade in futures.
American Stock Exchange
http://www.amex.com/atamex/aboutAmex/history/aboutAmex_history.html
(history)
The Chicago Board of Trade (CBOT) meanwhile began in 1848 and grew as
one of the largest agricultural exchanges in the world. A group of
Chicago merchants met to organize a more standard way of trading
commodities.
In 1865 the CBOT formalized grain trading by making standardized
agreements called futures contracts. In the 1870’s the CBOT was
responsible for the purchase of and sale of almost sixty million
bushels of grain. Grain was then brought to Chicago and shipped to
different places via trains and ships.
Board of Trade of the City of Chicago, Inc.
http://216.239.53.100/search?q=cache:EEYQigNKoV0C:www.lib.niu.edu/ipo/ihy000454.html+%22chicago+board+%2Bof+trade%22+history&hl=en&ie=UTF-8
(history)
In 1898 an organization called the Chicago Butter and Egg Board was
founded. It then evolved into the Chicago Mercantile Exchange in 1919.
Up until 1964 only agriculture related products were traded here like
eggs, bacon and live cattle. By 1972, the exchange was the first to
introduce currency futures contracts in 7 different currencies.
Another milestone was the creation of stock index futures products in
1982.
Chicago Mercantile Exchange
http://www.cme.com/about_cme/about_history.cfm (history)
In 1973, the CBOT created the Chicago Board of Exchange (CBOE) in
regards to stock options trading. During that time stock options have
no clear-cut standards when it comes to trading. The CBOE changes all
this and became the largest stock options trading entity in the US.
Despite the challenges in the mid 70’s wherein the SEC placed a
moratorium in stock options trading for almost 3 years, the CBOE
outgrew its CBOT facilities and moved to its own building. This was
due to the increased in trading volume in the 1980s.
New products followed after that providing evidence to the success of
the exchange.
Chicago Board Options Exchange
http://www.cboe.com/AboutCBOE/History.asp (history)
One of the earliest futures exchanges outside of Chicago was the
Kansas City Board of Trade (KCBT). It was established in 1878 at the
banks of the Missouri River. It started by trading cash grains.
Kansas City Board of Trade
http://www.kcbt.com/century.htm (history)
The oldest commodity market meanwhile in the United States is the
Merchant’s Exchange. Housed in an elegant building in downtown St.
Louis, Missouri, the who’s who of society and politics traded cash and
futures contracts.
In 1950’s its buildings were razed to the ground, which necessitated
the move to a new and more technologically advanced facility. The
exchange has not traded in futures contracts for decades and it was
only 2000 that it was approved by the CFTC to do so again.
Merchants’ Exchange
http://www.merchants-exchange.com/about/then_and_now_sub.asp (history)
The Minneapolis Grain Exchange (MGEX) was founded under the name
Minneapolis Chamber of Commerce in 1881. It regulated futures trading
so as to protect the participants from abuses. It introduced its first
futures contract in 1883 for price risk management. The contract was
for hard red spring wheat. By the 1946 the term “Chamber of Commerce”
has become synonymous with civic activities so they adopted their
present name.
Minneapolis Grain Exchange
http://www.mgex.com/about/history/history.htm (history)
The Philadelphia Stock Exchange meanwhile started in 1791. We can see
from its name that it started in trading stocks. It only started to
trade in futures particularly in 1986 when it was permitted by the
CFTC.
Philadelphia Board of Trade
http://www.phlx.com/exchange/history.html (history)
The following meanwhile provides a brief description of the other
companies mentioned in my original answer.
BrokerTec
“BrokerTec Global is a fully electronic inter-dealer broker of fixed
income securities that was formed by a consortium of some of the
world's leading financial services companies.”
”Announced in June of 1999, BrokerTec's mission is to provide fast,
reliable, cost-effective execution and straight-through processing
services to the world's fixed income trading community.”
BrokerTec Overview
http://www.brokertec.com/newsite/AboutBTEC/background/index.cfm
Island
“Island is a leading electronic securities marketplace that executes
approximately one out of every six trades in Nasdaq securities.1 Since
its inception, Island has consistently identified and capitalized on
emerging industry trends by offering market professionals greater
access to the market, increased transparency, stronger technological
services, and lower transaction costs.”
Island Corporate Information
http://www.island.com/corp/about/index.asp
New York Mercantile Exchange
“The New York Mercantile Exchange, Inc., is the world's largest
physical commodity futures exchange and the preeminent trading forum
for energy and precious metals.”
“The Exchange pioneered the development of energy futures and options
contracts nearly 25 years ago as means of bringing price transparency
and risk management to this vital market.”
“Who We Are”
http://www.nymex.com/jsp/home/who_we_are.jsp
NASDAQ Liffe Markets
“Nasdaq Liffe Markets (NQLX) is the first U.S. marketplace, since the
repeal of the Shad Johnson Accord in September of 2000, to be approved
by the CFTC for trading of single stock futures. This joint venture
between NASDAQ and LIFFE was announced in March of 2001 and is a
wholly electronic exchange offering a broad range of contracts. NQLX
is an independent exchange and uses LIFFE CONNECTTM, the world's most
advanced derivatives trading system, as its trading platform.”
“The single stock futures contracts include the most actively traded
equities on NASDAQ and the New York Stock Exchange. NQLX's regulatory
function is operated by NASDR with all trades cleared by the Options
Clearing Corporation (OCC).”
“About the Company”
http://www.nqlx.com/NQLX/AboutTheCompany/AboutTheCompany.stm
Thanks again for visiting us.
Best Regards,
Easterangel-ga
,
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