Though the origins of futures trading can be supposedly traced
to Ancient Greek or Phoenician times, the history of modern futures
trading begins in the Chicago, United States in the early 1800's.
Chicago was located at the base of the Great Lakes, close to the
farmlands and cattle country of the U.S. Midwest, making it a natural
centre for transportation, distribution and trading of agricultural
produce. Gluts and shortages of these products caused chaotic fluctuations
in price. This led to the development of a market enabling grain
merchants, processors, and agriculture companies to trade in "to
arrive" or "cash forward" contracts to insulate them from the risk
of adverse price change.
In 1848, the Chicago Board of Trade (CBOT), the world's first
futures exchange, was formed. Trading was originally in "forward
contracts"; the first contract (on corn) being written on March
13, 1851. In 1865, standardized "futures
contracts" were introduced.
The Chicago Produce Exchange was established in 1874, re-named
in 1898 the Chicago
Mercantile Exchange (CME). In 1972 the International
Monetary Market (IMM), a division of the CME, was formed to
offer futures contracts in foreign currencies: British pound, Canadian
dollar, German mark, Japanese yen, Mexican peso, and Swiss franc.
Later in the 1970's saw the development of the financial
futures contracts, which allowed trading in the future value
rates. These (in particular the 90-day Eurodollar contract introduced
in 1981) had an enormous impact on the development of the interest
rate swap market.
Today, the futures markets has far outgrown its agricultural origins. The trading and hedging of financial products using futures dwarfs the traditional commodity markets, and plays a major role in the global financial system.