Chicago Board of Trade - Explained
What is the Chicago Board of Trade?
Written by J. Mance Gordon
Updated at April 22nd, 2024
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What is the Chicago Board of Trade?
The Chicago Board of Trade is a form of commodity exchange established in 1848 in cases where both financial and agricultural contracts have been closed. Previously, CBOT was being traded only in agricultural products like maize, wheat, and soybeans unlike currently when CBOT offers futures and options for a number of products like gold, silver, energy and US government bonds.
How Does the Chicago Board of Trade Work?
The CBOT was established in the mid-19th century in order to assist farmers and commodity consumers to control the dangers by abolishing price unpredictability of agricultural products. At some point, futures were included in products like cattle and other species. Chicago was preferred as a trade-off due to its closeness with US farmland and the city as a key transit location for livestock and better rail infrastructure. As a result, it enhanced delivery of products to CBOT futures to be traded easily, safely and affordable. The emergence of the CBOT portfolio sold financial products, energy, and precious metals contracts. In the 1970s, option contracts encouraged investors and traders to boost their risk management strategies. Commodities are very vital in the CBOT trade and US government bonds. As a result, futures for the stock index have been quoted there. Currently, CBOT and CME (Chicago Business Group) are related, although CME Group is the most significant and widespread derivatives market globally comprising of four markets namely CME, CBOT, NYMEX, and COMEX. It is important to note that CME and CBOT merged in the year 2007 to add agricultural products, equity indices and interest rates to the current group offerings.
CBOT Restrictions
CBOT is free for all trading platform where traders converge to discuss the market price of commodities. Physical contact has been the normal practice of doing business unlike trading using telegraph, telephone, and computers. CBOTs launch of e-commerce systems has significantly reduced open trade because of their economic benefits.