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Commodities Brokers


In medieval Europe, business was transacted at local market fairs, and commodities, primarily agricultural, were traded at scheduled times and places. As market fairs grew, "fair letters" were set up as a currency representing a future cash settlement for a transaction. With these letters, merchants could travel from one fair to another. This was the precursor to the Japanese system, in which landowners used "certificates of receipt" for their rice crops. As the certificates made their way into the economy, the Dojima Rice Market was established and became the first place where traders bought and sold contracts for the future delivery of rice.

"Forward contracts" entered the U.S. marketplace in the early 19th century. Farmers, swept up in the boom of industrial growth, transportation, and commerce, began to arrange for the future sale of their crops. Traders entered the market along with the development of these contracts. However, there were no regulations to oversee that the commodity was actually delivered or that it was of an acceptable quality. Furthermore, each transaction was an individual business deal because the terms of each contract were variable. To address these issues, the Chicago Board of Trade was formed in 1848, and by 1865 it had set up standards and rules for trading "to arrive" contracts, now known as commodity futures contracts. In 2007, the Chicago Board of Trade merged with the Chicago Mercantile Exchange to become the CME Group.

Today, electronic trading has largely replaced the "open outcry" system on the exchange floor. As a result, most commodities brokers now work at desks in typical office settings rather than on loud and bustling exchange floors. And many trades are completed without the assistance of a broker. Instead, they are conducted using a programmed algorithm. In 2019, "funds run by computers that follow rules set by humans account for 35 percent of America’s stockmarket, 60 percent of institutional equity assets, and 60 percent of trading activity," according to The Economist. 

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