WHAT IS 'New York Board Of Trade - NYBOT'

The New York Board Of Trade was a commodity futures exchange that traded futures contracts and options on futures for physical commodities such sugar, cotton, coffee, cocoa and orange juice. The exchange also traded financial and index contracts based on stock market indices, currencies and interest rates.

BREAKING DOWN 'New York Board Of Trade - NYBOT'

The New York Board Of Trade exchange was originally founded as the New York Cotton Exchange in 1870 and in 1997 acquired the Coffee, Sugar and Cocoa Exchange. The CSCE also dates back to the 19th century, founded in 1882 as the Coffee Exchange in the City of New York.

In 2004, the two exchanges were merged under a new name, The New York Board of Trade. Just three years later, the NYBOT was acquired by the Intercontinental Exchange.

Traditional Trading Evolves Into Global Electronic Exchanges

The roots of the New York Board of Trade illustrate how futures contracts have evolved to become the sophisticated hedging tools used by financial professionals today.

The New York Cotton Exchange had been established so that forward contracts could easily be traded for cotton, used extensively to manufacture clothing, linens, towels and other related products before the use of synthetic fibers.

Because cotton is an agricultural commodity, its price could be subject to volatile changes, making it difficult for manufacturers to price their goods. As far back as the early 19th century, futures markets began to operate and exchanges were formed to standardize contract terms.

This allowed manufacturers to buy cotton at a predetermined price for future delivery in the months and years ahead so that regardless of how the spot price of cotton might fluctuate, manufacturers could be more certain of the cost of their raw materials. On the other side of transaction might be a cotton farmer seeking to guarantee a price for the cotton that farm would deliver in the future.

While farmers and manufacturers might be seeking to hedge the risk of price changes, sometimes the other party to a contract might be a speculator with no interest in the cotton itself, but sees opportunity and willing to risk the price rising or falling.

A standard contract would specify the amount of cotton to be delivered and its quality. The emergence of exchanges allowed for easier trading of these contracts.

Similarly, the CSCE traded futures contracts in these agricultural products. Other exchanges, mostly in New York and Chicago, traded still other products, including grains, livestock and metals.

For well more than a century, contracts would be traded on exchange floors in pits with open outcry as a method for soliciting bids and offers for contracts. As communications and computer technology improved, however, more trades were executed electronically. And as exchanges merged and were acquired by others, trading on exchange floors became obsolete.

A few years after the Intercontinental Exchange acquired the NYBOT, exchange floors were closed so that all trades would be executed electronically.

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