Major Commodity Exchanges on the Market - dummies

Major Commodity Exchanges on the Market

By Amine Bouchentouf

A number of commodity exchanges operate worldwide and specialize in all sorts of commodities. Before 2007, the industry was characterized by several players, each dominant in a particular segment of the market. Although some overlap existed among some of the commodities the exchanges offered, most exchanges offered unique contracts.

As such, every exchange specialized in certain commodities. For instance, the NYMEX focused on products to trade energy and metals; it had contracts for crude oil, propane, and heating oil, as well as gold, silver, and palladium.

The New York Board of Trade (NYBOT), on the other hand, focused primarily on tropical or “soft” commodities, such as coffee, cocoa, sugar, and frozen concentrated orange juice. The Chicago Mercantile Exchange (CME) offered a wide range of products but specialized in livestock, offering contracts for live cattle, feeder cattle, lean hogs, and frozen pork bellies.

Beginning in 2007, the industry experienced a significant consolidation period during which the number of players decreased and the number of product offerings from each remaining body increased significantly. This consolidation permanently altered the exchange landscape and made it easier for investors and traders to get access to these markets: The remaining exchanges became one-stop shops offering a variety of different products.

Although the industry had been ripe for consolidation for some time, the latest catalyst for change has been the advent of electronic and Internet-based trading platforms. Indeed, one of the main factors of the digital revolution has been the migration of trade flow from floor exchanges to electronic platforms.

This shift has resulted in decreased volumes on traditional floor exchanges (such as the NYMEX) and increased flow in electronic-based exchanges such as the Intercontinental Exchange (ICE).

The consolidation era saw two main players emerge: the CME and the ICE. The CME acquired the CBOT and the NYMEX, including the COMEX division, making it the largest commodities exchange globally. The ICE had made a bid for the CBOT but failed in its acquisition; instead, it acquired the NYBOT and the Winnipeg Commodity Exchange (WCE).

The ICE is a dominant player in energy (crude oil, coal, natural gas) and agricultural commodities (cocoa, coffee, cotton). Note that both the ICE and the CME offer interactive, online-based trading platforms.

The main commodity exchanges in the United States are located in New York and Chicago, with a few other exchanges in other parts of the country.

Exchange Name Commodities Traded
Chicago Board of Trade (CBOT) Corn, ethanol, oats, rice, soybeans, wheat, gold, silver
Chicago Mercantile Exchange (CME) Feeder cattle, frozen pork bellies, lean hogs, live cattle,
butter, milk, lumber
Intercontinental Exchange (ICE) Crude oil, electricity, natural gas
Kansas City Board of Trade (KCBT) Natural gas, wheat
Minneapolis Grain Exchange (MGE) Corn, soybeans, wheat
New York Board of Trade (NYBOT) Cocoa, coffee, cotton, frozen concentrated orange juice, sugar,
New York Mercantile Exchange (NYMEX) Aluminum, copper, gold, palladium, platinum, silver, crude oil,
electricity, gasoline, heating oil, natural gas, propane

The technical name for a commodity exchange is a Designated Contract Market (DCM). DCM is a designation that the Commodity Futures Trading Commission (CFTC) assigns to exchanges that offer commodity products to the public. If an exchange doesn’t have the designation DCM, stay away from it!

Most commodities in the United States are traded on only one exchange. The feeder cattle contract is traded only on the CME, and frozen concentrated orange juice is traded only on the NYBOT.

However, certain commodities are traded on more than one exchange. For example, the WTI crude oil contract is traded on both the NYMEX and the ICE. In this case, you want to trade the most liquid market. You can find the most liquid market for a commodity by consulting the CFTC, which keeps information on all the exchanges and their products.