History of Futures Trading – Introduction
Futures trading is one among the foremost powerful and important financial activities happening within the financial markets worldwide. Futures are traded in almost every capital and commodity exchange within the world and has proven to be a particularly important price discovery and risk management tool especially within the commodity exchange . Futures have since evolved to become far more than simply the hedging tool it had been designed to be but also important arbitrage and speculation tool.

Brief History of Futures Trading
Futures contracts evolved from what were referred to as “Forward Contracts”. Forward contracts serve an equivalent function as futures contracts apart from the very fact that forward contracts are privately entered into by producer and buyer of a commodity without exchange nor standardized terms. Futures exchange that we all know today actually started within the US within the early nineteenth century from “to-arrive” contracts employed by grain merchants with the formation of the Chicago Board of Trade (CBOT) in 1848. As time goes by, futures trading became more and more regulated and standardized, creating the open and public futures exchange we all know today with standardized and guaranteed futures contracts. Futures trading expanded beyond commodities after 1970, extending to currency ($US, Yen, Pound ) futures, interest rates (bonds) futures and eventually stocks and indexes (ES mini, NASDAQ, DJIA, Russell) of all kinds .

 Timeline

Year 1848 – Rise of Modern Futures Trading – Beginning of CBOT
The beginning of recent futures trading started with the formation of the Chicago Board of Trade (CBOT) in 1848. within the 1840s, Chicago became a crucial commodities transportation and distribution center within the USA because of its geographical advantage. Farmers from the Midwest would bring their harvest to Chicago purchasable per annum but because grain is seasonal, the seasonal over and under supply would cause sharp increase in price during the non harvest times and a pointy decrease in price during harvest because of oversupply. In fact, prices fluctuate so wildly that grain sellers are forced to dump their grain into the Chicago River because the expenses involved in selling the grain elsewhere would end in a loss because of the low asking price . This is often the precise same situation for fresh pork in China before the pork futures started in 2010.

Year 1884 – Beginning of Modern Futures Trading – The First Clearinghouse 1884
The basic structure of recent futures markets is completed with the  CBOT’s clearinghouse, which is that the first formal clearinghouse within the world, in 1884. The functions of a clearinghouse was finished and made mandatory only in 1925 after decades of development.

Year 1971 – Futures Trading Extended Beyond Commodities

Futures broke out of its confines for the facilitation of commodities trading in 1972 with the introduction of forex futures. With the removal of world currencies from the gold standard in 1971, the new paper money , which is basically a freely traded commodity on its own, allowed futures to be traded on a financial instrument for the primary time, creating financial futures. This allowed regulators to ascertain how futures trading are often useful altogether manners of monetary instruments, leading on to the invention of cash settled futures contracts.

Year 1974 – Futures Trading Come Under Full Government Regulation 1974

Since the start of “to-arrive” contracts trading within the US along the Chicago River, this “futures” market has been organized by the merchants involved within the CBOT who make all the principles privately without regulation from the govt . because of the widespread speculation in grain futures, trading in futures also came under heavy legislation pressure everywhere the US during this era . Market manipulation through cornering, risky speculation and arranged , institutional, futures gamblers posed great challenge to the steadiness of commodities prices, resulting in calls to outlaw futures trading all the high to 1895. By 1936, the commodities exchange Act was passed which gave the govt rights to research and prosecute illegal futures trading activities and price manipulation. However, at now in time, the govt still had no say in how the CBOT, its clearinghouse and exchanges conducted their business. it had been not until the passing of the Commodity Futures Trading Commission (CFTC) in 1974 that made the govt the regulator of the full futures trading market that commodity futures trading became fully regulated.

Year 1975 – Cash Settled Futures Begun 1975

Regulators experimented with futures trading on the primary non-physical commodity after the launch of foreign currency futures, which is interest rates. rate of interest , because the cost of cash , are subject to plug forces and is a crucial “commodity” to take a position in or hedge against for anyone involved within the dealing of cash . However, because of the very fact that it’s not a physical commodity which will be exchanged physically at the top of the lifetime of a derivative instrument , a replacement concept referred to as “Cash Settlement” was conceived and therefore the Eurodollar Futures, which is futures contracts on the rate of interest purchased US dollars deposited overseas, became the primary ever cash settled derivative instrument . The feasibility and convenience of money settled futures opened the door to expanding futures trading into more non-physical commodities also as physical commodities. one among the foremost important of money settled futures is that the introduction of stock index futures in 1982 on the S&P500 index

Year 2000 – Ban Lifted On Single Stock Futures
The 18 year ban on single stock futures trading was lifted in 2000, completing the full range of futures trading products in the US market.