Chicago Mercantile Exchange, Innovator of Futures
On the 9th July 2007, two companies, namely, Chicago Mercantile Exchange Holdings, and Chicago Board of Trade (CBOT) Holdings merged to form the largest and most diverse exchange in the world.
The new combined CME Group has a strong record of innovation in futures contracts, indeed Chicago is where futures trading began in 1848.
Since 1919 members of the Chicago Mercantile Exchange have been trading in agricultural commodity futures, using the open outcry system.
You can now subscribe to the free Commodity Universe Ezine below, and get the latest artic les on the commodity sector . Just your first name and email. It's as easy as 1-2-3! Open Outcry Tradition At the term suggests there is a lot of vocal activity, and there are hundreds of auctions happening at the same time.
Traders stand in open pits on the trading floor calling out prices and quantities to each other, using hand gestures to pass the information.
This system has been refined with development of the latest communications technology.
New Electronic Trading Systems Electronic trading or e- trading has increased significantly in recent years, as some traders prefer this approach.
You are part of the same system as those in the open pits even though you may be in your own thousands of miles away from the exchange.
Among the commodities traded are butter, dry whey, milk, non fat dry milk, cheese feeder cattle, live cattle, lumber, wood pulp, frozen pork belly, lean hog and S&P GSCI.
Agricultural commodities previously traded on the Chicago Board of Trade(CBOT) exchange are now trading on the CME Globex electronic trading platform at the Chicago Mercantile Exchange. Here are some examples.
Butter CME butter futures offer a way of trading based on the knowledge of supply, demand and cold storage stock levels.
Opportunities exist in trading spreads when butter is stored ready for holiday demand surges.
Contracts are listed for six months, namely March, May, July, September, October and December.
The trade unit for pit traded butter futures is 40,000 pounds of grade AA butter, and a point represents $0.0001 per pound, and so one trade unit is four dollars.
These futures are traded both on the floor and on CME Globex, each unit is 40,000 pounds of cut and trimmed frozen pork bellies.
And these contracts are traded for five calendar months, namely February, March, May, July, and August.
Frozen pork bellies were first introduced as a futures contract in 1961, to reflect frozen stored meat.
The contracts are a means of managing risk, providing a measure of stock levels and giving an indication of future pricing.
Dry Whey Futures They are cash settled contracts are only traded on the CME Globex platform (not the open pit) offering traders the opportunity for price discovery.
A high protein, low fat product used in high energy drinks and bars as well as cereals and biscuits, dry whey is traded in all calendar months.
Live Cattle futures contracts offer a fair reflection of supply and demand dynamics for feed cattle, feed grains and various meats.
Long term consumer taste and meat supply cycles are also reflected in these contracts. Each trade unit is 40,000 pounds, and one point is $4.00.
This futures contract is listed for 9 months, including February, April, June, August, October and December.
Live cattle futures are traded on the floor and on CME Globex.
A special futures contract in that it is only traded on the floor and considered a commodity contract with big price swings, providing traders with opportunities to benefit from such volatility.
The unit of trade is 110,000bd ft random length (2 x4’s) where 1 point is 10 cents per 1,000 bd ft, making it $11 per contract. Trading months for random length lumber are January, March, May, July, September and November.
Ownership CME Holdings has two classes of shares. Class A stock confers equity rights, and there are 32 million shares in issue.
While class B stock consists of 3000 shares, giving equity rights, and also trading rights on the exchange.
To be a member of CME, you must either hold Class B shares or lease the trading rights from a Class B stockholder.
With the fast pace of technological change, we should not be surprised to see further developments at the Chicago Mercantile Exchange going forward.
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