What is a Futures Exchange?

Published by Thomas Herold in Economics, Investments, Trading

'Futures Exchange' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

A futures exchange refers to a central clearing marketplace that allows for futures contracts as well as options on such futures contracts to be traded. Thanks to the rapid increase in electronic trading of futures, this term also finds use regarding futures trading activities directly.

There are the two most important futures exchanges in the world today. The biggest in the United States is the Chicago Mercantile Exchange, or CME. This one became established in the last years of the 1890s. In the early days, the only futures contracts available were agricultural products’ futures.

This changed rapidly in the 1970s. Currency futures appeared on the major currency pairs after the breakdown of the Breton Woods Agreement. The futures exchanges of today are massive by comparison. They allow for investors to hedge all sorts of financial products and commodities. These range from stock indices and individual stocks to energies, precious and base metals, soft commodities such as orange juice and soybeans, interest rate products, and even credit default swaps.

In today’s futures exchange, it is hedging financial instruments and products which create the significant majority of activity in futures markets. Today the futures exchange markets carry an important responsibility for global financial system operations, efficient functioning, and activity. The international nature of this global futures exchange has given rise to the world’s first truly international futures market, the ICE Intercontinental Exchange.

ICE is massive and important in not only futures markets. They own and operate 12 different exchanges around the world, including NYSE EuroNext, which controls the famed and venerable New York Stock Exchange and EuroNext exchange (owning the Paris and Dutch stock exchanges, among others). In Europe, this is a serious rival to the historic LSE London Stock Exchange and continental powerhouse the German Deutsche Bourse. The ICE today counts 12,000 listed futures contracts as well as securities. It trades 5.2 million futures contracts every day, as well as $1.8 billion in cash equities every day.

In energies, the Intercontinental Exchange Futures commands almost half of all the traded crude and refined oil futures contracts volume for the entire planet. It is also the location of the most highly liquid market for the European interest rates short term contracts. It controls a wide variety of global benchmarks in agriculture, energies, foreign exchange, and equity indices.

ICE only launched its international futures exchange back in 2000 with the advent of their electronic trading platform. This makes it among the newer futures exchanges in the world, and yet it is a dominant international player still. Their high tech-powered rise increased the access to and transparency of the Over the Counter traded energy markets as well as the new global futures markets exchange they opened shortly thereafter. It was 2001 when they expanded to energy futures with their acquisition of the International Petroleum Exchange.

In 2002, ICE expanded heavily into Europe by opening up their ICE Clear Europe. This represented the first new clearing house in the United Kingdom in a full century. By 2007, the Intercontinental Exchange had cemented its global position in energy trade by acquiring both the NYBOT New York Board of Trade and the Canadian-based Winnipeg Commodity Exchange.

The end result today is an entire ecosystem made up of futures and equities markets, clearing houses throughout the world, listing and data centers and services, and technology-driven solutions which together work to create a full, free, and transparent accessibility to the worldwide futures, energy, derivatives, and capital markets.

Between ICE Futures U.S.’s operations and endeavors within the United States, the futures exchange is enabling and empowering markets which allow for an effective risk management throughout the world economy. Their product offerings and solutions encompass a diverse and broad variety of futures contracts. These span internationally traded equity indexes and futures; credit derivative futures; FX futures; North American oil, power, and natural gas futures; and soft commodities and agriculture futures including sugar, cotton, coffee, and cocoa.

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The term 'Futures Exchange' is included in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.