What Is the Chicago Board of Trade (CBOT)?
The Chicago Board of Trade (CBOT) is a commodity exchange established in 1848 where both agricultural and financial contracts are traded. The CBOT originally traded only agricultural commodities such as wheat, corn, and soybeans. Now, the CBOT offers options and futures contracts on a wide range of products including gold, silver, U.S. Treasury bonds, and energy. It is considered a self-regulatory organization.
Understanding the Chicago Board of Trade (CBOT)
The Chicago Board of Trade originated in the mid-19th century to help farmers and commodity consumers manage risks by removing price uncertainty from agricultural products such as wheat and corn. Later, futures contracts on products such as cattle and other livestock were added. Chicago was chosen as the exchange location because of its proximity to American agricultural heartlands, the city's position as a key transit point for livestock as well as good railroad infrastructure. This made delivery of the products underlying the futures contacts traded on CBOT relatively easy, affordable and certain.
As the CBOT exchange evolved and developed over time, contracts related to financial products, energy, and precious metals also traded there. In the 1970s, options contracts emerged, allowing traders and investors to refine their risk management strategies further. Commodities still play a central role in CBOT trading, but other products like U.S. Treasury bonds and equity index futures now trade there as well.
Today, CBOT is part of the Chicago Mercantile Exchange (CME) Group. The CME Group is the world’s leading and most diverse derivatives marketplace, made up of four exchanges: CME, CBOT, NYMEX, and COMEX. Each exchange offers a wide range of global benchmarks across major asset classes. CME Group merged with the Chicago Board of Trade (CBOT) in 2007, adding interest rates, agricultural and equity index products to the group's existing product offering.
Limitations of the CBOT
CBOT is an open-outcry trading platform, where human traders meet to haggle and agree on a market price for a commodity. Given that stock and commodity trading predates the invention of the telegraph, the telephone or the computer by hundreds of years, it is fairly obvious that face-to-face human trading was the standard way of doing business for a long time. Today, open-outcry trading is on the decline, and CBOT has increasingly introduced electronic trading systems. Given the cost benefits of the electronic systems and the clients' preference for them, a very large percentage of the world's exchanges have already converted to this method. At this point, the United States is more or less alone in maintaining open-outcry exchanges.