How Did The US Commodity Futures Market Come Into Being?

The commodity futures trading we know today has a long heritage that dates back to the Frontier days of the mid 1800s when the westward march of settlers took them ever farther from the markets of the East Coast.

It quickly became clear that transporting bulky goods like grain hundreds of miles seeking a buyer was as an inefficient way to do business. What was needed was a central marketplace where buyers and sellers could trade with safeguards on price, delivery and quality. Thus the commodity exchange was born.

Unlike other financial markets that trade in assets such as stock or currency, the commodity futures market deals in contracts. Each commodity futures contract sets out the future delivery of goods at a specified price, date, time and place. Because commodities are bought and sold in standard contractual units, they are interchangeable.

Investors in the commodity futures market are therefore speculating that the value of a commodity will increase in the period between buying the contract and the goods being delivered as agreed. Today commodity can also mean a variety of financial instruments or stock indexes.