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.

BREAKING DOWN '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 further refine their risk management strategies. 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, telephone or 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. (For more, see: The Death Of The Trading Floor).

RELATED TERMS
  1. Commodity Market

    The commodity market is a physical or virtual marketplace for ...
  2. Futures Exchange

    A futures exchange is a central marketplace, physical or electronic, ...
  3. Chicago Mercantile Exchange - CME

    The Chicago Mercantile Exchange is a futures exchange which trades ...
  4. Cat Spread

    A cat spread is a type of derivative traded on the Chicago Board ...
  5. International Monetary Market (IMM)

    The International Money Market is a division of the Chicago Mercantile ...
  6. Bond Futures

    Bond futures are financial derivatives which obligate the contract ...
Related Articles
  1. Investing

    Analyzing The 5 Most Liquid Commodity Futures (WTI, ZC)

    Crude oil leads the pack as the most liquid commodity futures market, followed by corn and natural gas.
  2. Investing

    Why Hedge Funds are Mass-Selling Agricultural Futures

    An oversupplied wheat market, speculation about Federal Reserve shifts to interest rates, and other factors have contributed to the large-scale shift.
  3. Investing

    Commodities trading: An overview

    Trading commodities can seem challenging to a novice trader but we break it down for you. Learn more about the history of commodities, the types of commodities, and how to invest in them.
  4. Insights

    The World's Top Financial Cities

    These cities are the heart of the world's financial activity.
  5. Trading

    How to Trade Options on Government Bonds

    A look at trading options on debt instruments, like U.S. Treasury bonds and other government securities.
  6. Trading

    Commodities Are Headed Lower (DBA,WEAT)

    Nearby resistance, combined with recent moves below key support levels on major ETFs, suggest agriculture commodities will struggle to head higher in coming months.
  7. Investing

    DBA vs. USAG: Comparing Agriculture ETFs

    Read a comparison of USAG and DBA, and learn about the characteristics, strategies and performance statistics of these agriculture exchange-traded funds.
  8. Investing

    Grow Your Finances in the Grain Markets

    Hedging with futures can protect buyers and sellers of commodities from adverse price movements.
RELATED FAQS
  1. What is the history of futures?

    Explore the history of futures trading and the origin of the major commodity futures trading exchanges in England and the ... Read Answer >>
  2. How can I calculate the notional value of a futures contract?

    Learn how the notional value of a futures contract is calculated, and how futures are different from stock since they have ... Read Answer >>
  3. How do S&P 500 futures work?

    Learn about the mechanics of S&P 500 futures contracts, a type of stock index future introduced by the Chicago Mercantile ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center