Futures/Futures Exchanges/History

The concept of futures and futures markets, involving a legally binding contract for the delivery of a specified quantity of a commodity at a specified time in the future at an agreed price, originated in Chicago in the 1830s. The intention was to try to even out prices and give farmers, in particular, some way of hedging their crops well before harvest. They were known as ‘to-arrive’ contracts and were for agricultural commodities as diverse as soybeans, wheat and pork bellies. After the American Civil War, the Chicago Board of Trade formalized this into the first real futures markets with standardized contracts.

Thus the concept of trading futures contracts soon came naturally to Americans and the custom spread to New York.

Gold futures contracts came on the scene much later, simply because no one traded gold while the United States was on a fixed price gold standard until 1933. Then, for a generation, Americans were forbidden to buy or trade gold. It was not until 31 December 1974 that the first gold futures contract was traded in New York on the Commodity Exchange (COMEX).

Other American exchanges, including the Chicago Board of Trade, followed suit. In fact, there was also a trial run for gold futures with a 400 ounce contract on the Winnipeg exchange in Canada launched in 1972 prior to the relaxation of American legislation. But it was the American exchanges and above all COMEX that brought a new dimension to international gold trading.

COMEX had the advantage because of its close affinity with New York’s banks and financial institutions, which immediately gave it a world-wide clientele; the Chicago exchanges still tended to cater to Americans of the mid-west more attuned to trading pork bellies than gold. COMEX merged with the New York Mercantile Exchange (NYMEX) in 1994.