What Is the Chicago Board of Trade (CBOT)?

The Chicago Board of Trade (CBOT) is a commodity exchange established in 1848. The Chicago Board of Trade originally traded only agricultural commodities such as wheat, corn, and soybeans. Now it offers options and futures contracts on a wide range of products including gold, silver, U.S. Treasury bonds, and energy.

Key Takeaways

  • The Chicago Board of Trade (CBOT) is a commodity exchange established in 1848.
  • The Chicago Board of Trade originally traded only agricultural commodities such as wheat, corn, and soybeans.
  • Now it offers options and futures contracts on a wide range of products including gold, silver, U.S. Treasury bonds, and energy.
  • The Chicago Board of Trade was originally solely an open-outcry trading platform, where human traders met to haggle and agree on a market price for a commodity.

Understanding the Chicago Board of Trade (CBOT)

The Chicago Board of Trade originated in the mid-19th century in order 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 railroad infrastructure, its proximity to the American agricultural heartlands and the city's position as a key transit point for livestock. The delivery of the products underlying the futures contacts and traded on the exchange was made easier and more affordable by its physical location.

As the exchange evolved and developed over time, contracts related to financial products, energy, and precious metals also began to be traded. In the 1970s, options contracts emerged, allowing traders and investors to refine their risk management strategies even further. Commodities still play a central role in trading on the Chicago Board of Trade, but other products like U.S. Treasury bonds and equity index futures now trade there as well.

Today, the Chicago Board of Trade is part of the Chicago Mercantile Exchange (CME) Group. The Chicago Mercantile Exchange Group is the world’s leading and most diverse derivatives marketplace, made up of four exchanges: the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), and COMEX. Each exchange offers a wide range of global benchmarks across major asset classes. The Chicago Mercantile Exchange (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 offerings.

Special Considerations

The Chicago Board of Trade was originally solely an open-outcry trading platform, where human traders met 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, 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 the Chicago Board of Trade has increasingly introduced electronic trading systems, maintaining very limited open-outcry trading pits. In 2015, the exchange closed 35 open-outcry trading pits for futures contracts. 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. The United States is one of the few countries that maintains even limited open-outcry exchanges.