Derivatives have probably been around for as long as people have been trading with one another.
Forward contracting dates back at least to the 12th century, and may well have been around before then. Merchants entered into contracts with one another for future delivery of specified amount of commodities at specified price.
A primary motivation for prearranging a buyer or seller for a stock of commodities in early forward contracts was to lessen the possibility that large swings would inhibit marketing the commodity after a harvest.
Although early forward contracts in the US addressed merchants’ concerns about ensuring that there were buyers and sellers for commodities, “credit risk” remained a serious problem.
To deal with this problem, a group of Chicago businessmen formed the
Chicago Board of Trade (CBOT) in 1848. The primary intention of the CBOT was to provide a centralized location known in advance for buyers and sellers to negotiate forward contracts.
In 1865, the CBOT went one step further and listed the first “exchange traded” derivatives contract in the US; these contracts were called “futures contracts”.
In 1919, Chicago Butter and Egg Board, a spin-off of CBOT, was reorganized to allow futures trading. Its name was changed to Chicago Mercantile Exchange (CME). The CBOT and the CME remain the two largest organized futures exchanges, indeed the two largest “financial” exchanges of any kind in the world today.
The first stock index futures contract was traded at Kansas City Board of Trade. Currently the most popular index futures contract in the world is based on S&P 500 index, traded on Chicago Mercantile Exchange.
During the mid eighties, financial futures became the most active derivative instruments generating volumes many times more than the commodity futures. Index futures, futures on T-bills and Euro-Dollar futures are the three most popular futures contracts traded today.
Other popular international exchanges that trade derivatives are LIFFE in England, DTB in Germany, SGX in Singapore, TIFFE in Japan, MATIF in France, etc.
Forward contracting dates back at least to the 12th century, and may well have been around before then. Merchants entered into contracts with one another for future delivery of specified amount of commodities at specified price.
A primary motivation for prearranging a buyer or seller for a stock of commodities in early forward contracts was to lessen the possibility that large swings would inhibit marketing the commodity after a harvest.
Although early forward contracts in the US addressed merchants’ concerns about ensuring that there were buyers and sellers for commodities, “credit risk” remained a serious problem.
To deal with this problem, a group of Chicago businessmen formed the
Chicago Board of Trade (CBOT) in 1848. The primary intention of the CBOT was to provide a centralized location known in advance for buyers and sellers to negotiate forward contracts.
In 1865, the CBOT went one step further and listed the first “exchange traded” derivatives contract in the US; these contracts were called “futures contracts”.
In 1919, Chicago Butter and Egg Board, a spin-off of CBOT, was reorganized to allow futures trading. Its name was changed to Chicago Mercantile Exchange (CME). The CBOT and the CME remain the two largest organized futures exchanges, indeed the two largest “financial” exchanges of any kind in the world today.
The first stock index futures contract was traded at Kansas City Board of Trade. Currently the most popular index futures contract in the world is based on S&P 500 index, traded on Chicago Mercantile Exchange.
During the mid eighties, financial futures became the most active derivative instruments generating volumes many times more than the commodity futures. Index futures, futures on T-bills and Euro-Dollar futures are the three most popular futures contracts traded today.
Other popular international exchanges that trade derivatives are LIFFE in England, DTB in Germany, SGX in Singapore, TIFFE in Japan, MATIF in France, etc.