As well as being one of the largest commodity exchanges in the world, the Chicago Mercantile Exchange is also one of the most important, being one of the leading exchanges for the trade in soft commodities and agricultural commodities.
The Chicago Mercantile Exchange was founded in 1898, when it was spun off from the Chicago Board of Trade. It was originally known as the Chicago Butter and Egg Board, reflecting its origins as an exchange set up to more precisely meet the needs of dairy producers and the purchasers of dairy products. While it continued to concentrate on these core commodities, it slowly expanded to include more general agricultural commodities. As a result of this, in 1919 it was reorganised, and the Chicago Mercantile Exchange was formed.
After the Second World War the CME flourished as prosperity increased in the United States, growing to include many of the commodities traded today. This success continued, until in 2007 it merged with its parent exchange the Chicago Board of Trade to form the CME Group. In 2008 this combined organisation also acquired the New York Mercantile Exchange, forming the world’s largest futures trading exchange.
The two methods of commodities trading at the Chicago Mercantile Exchange are open outcry and their own CME Globex electronic trading system. The former is the traditional system of in person trading that has been used for decades in commodity exchanges around the world, while the latter is a 24-hour electronic system that allows the global trading of commodities and other financial instruments (including online commodity trading). Implemented in 1992, it was the first such system used for futures trading.
The Chicago Mercantile Exchange has four types of membership:
- Individual: intended for individuals of good standing with sufficient financial resources to trade.
- Corporate: standard corporate membership for banks, hedge funds, commodity brokers etc.
- Electronic Corporate: corporate membership designed to benefit firms that conduct large amounts of trading using the CME Globex system.
- Clearing: highest level of membership, for large organisations that play a clearing role (underpinning transactions) in the Chicago Mercantile Exchange.
Despite trading only eggs and butter at its inception, a wide range of commodities are now traded at the Chicago Mercantile Exchange. The commodities traded include:
- Agricultural commodities: Butter, Cheese, Class 3 Milk, Class 4 Milk, Dry Whey, Feeder Cattle, Frozen Pork Bellies, Hardwood Pulp, Lean Hogs, Live Cattle, Non-Fat Dry Milk, Random Length Lumber, Softwood Pulp.
- Energy Commodities: Ethanol.
In addition to commodities, the Chicago Mercantile Exchange has expanded to trade a number of other products. Forex trading now forms a large part of the CME’s business: as well as major currencies like the Dollar, Sterling, the Euro and the Yen, a basket of other currencies are traded. There are also opportunities to trade in equity indexes like the Nasdaq 100 and S&P 500, as well as futures and options based on interest rates, and weather-based futures and options that allow speculation based on general and specific weather conditions in the United States and beyond.
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