Introducing Two Major Commodities Exchanges: Chicago Board of Trade and Chicago Mercantile Exchange - dummies

Introducing Two Major Commodities Exchanges: Chicago Board of Trade and Chicago Mercantile Exchange

By Amine Bouchentouf

Established in 1848, the Chicago Board of Trade (CBOT) used to be the oldest commodity exchange in the world. The CBOT was the go-to exchange for grains and other agricultural products, such as oats, ethanol, and rice. The exchange also offered several metals contracts targeted at individual investors, including the mini gold and mini silver contracts.

In 2007, the Chicago Mercantile Exchange (CME) acquired the CBOT as part of a great consolidation wave (the CME also acquired NYMEX/COMEX). CME rolled up the CBOT’s popular grain contracts and now offers them on its electronic platform. Many traders still refer to some of these contracts as CBOT grains.

CME is the largest and most liquid futures exchange in the world. The CME has the heaviest trading activity — and open interest — of any exchange, partly because of the depth of its products offerings. Besides agricultural commodities, it trades economic derivatives (contracts that track economic data such as U.S. quarterly GDP and nonfarm payrolls), foreign currencies (it offers a broad currency selection, ranging from the Hungarian forint to the South Korean won), interest rates (including the London Inter Bank Offered Rate, the LIBOR), and even weather derivatives (contracts that track weather patterns in various regions of the world).

Because of its broad products listing, the CME is perhaps the most versatile of the commodity exchanges. In addition, the CME was one of the first exchanges to launch an electronic trading platform, the CME Globex, which became an instant hit with traders. It now accounts for more than 60 percent of the exchange’s total volume. In 2006, the New York Mercantile Exchange (NYMEX) entered into an agreement with the CME to trade its marquee energy and metals contracts on the CME electronic platform.

In 2008, the CME went on a series of acquisitions and purchased the NYMEX, COMEX, and Chicago Board of Trade (CBOT). The CME is also the first exchange to go public. Investors greeted the initial public offering with enthusiasm, raising the stock from $40 in 2003 to more than $500 in 2006. For more on the CME, check out its website, which also includes helpful tutorials on all its products.