Lesson 3 -- Contracts Traded

The Chicago Mercantile Exchange (CME) actually started out in 1874 as the Chicago Produce Exchange, which traded in butter, eggs, poultry and other farm products. By 1919, the CME had grown and gotten its current name. Since then the commodities traded have changed. Many products have been added and others are no longer traded.



Agricultural Commodity Futures

One group of commodities traded at the CME are agricultural. Modern expansion of the CME started in 1961 when Frozen Pork Bellies futures were introduced, soon to be followed by Live Cattle and Live Hog futures. Today, there are futures contracts for Feeder Cattle, Lean Hogs, and Random Length Lumber too. The latest agricultural futures contracts to be introduced include the Fluid Milk and Butter contracts.

Foreign Currency Futures

A number of foreign currency futures are traded at the CME. Currency futures are quoted as U.S. dollars against the currency. That tells you the number of dollars it takes to buy one unit of foreign currency. For example, dollars per Japanese yen, dollars per Deutsche mark or dollars per British pound. In addition to those foreign currencies just named, futures on the Australian dollar, Canadian dollar, French franc and Swiss franc are also traded. The latest foreign currency futures added to the CME are those from emerging nations such as the Mexican peso and the Brazilian real.



Interest Rate Futures

The CME also trades interest rate products like 13-week and 1-year U.S. Treasury Bills. People can profit from trading interest rate futures by
correctly predicting upward or downward interest rate changes.

The CME also trades Eurodollars, which are U.S. dollars on deposit with banks outside the country. The futures contract reflects the offered
interest rate for a 3-month $1 million deposit.



Other interest rate products include the Brady Bonds (Mexican Par, Argentine FRB, Brazilian C, and Brazilian EI Bonds), Federal Funds Rate, and LIBOR futures. LIBOR stands for London Interbank Offered Rate, an interest rate dealing in Eurodollars between commercial banks in the London Interbank Market. The CME’s LIBOR contract is for a 1-month $3 million deposit.

Equity Index Futures

The fourth type of futures contracts at the CME is made up of equity index futures. One example is the Standard & Poor’s 500 Stock Index futures
contract. The actual S&P Stock Index is based on 500 companies, about 80% of the value of all the stocks listed on the New York Stock Exchange.
The CME’s contract size is $500 times the S&P Stock Index. People can trade these futures contracts to protect stock investments.

As you can see from the great number and variety of contracts traded at the CME, a lot has changed since 1874.



On-Line Trading Lessons -- Courtesy of the Chicago Mercantile Exchange

Futures trading is highly speculative, and can involve the loss of some or all of any monies you may commit to such trading.

No responsibility is assumed for the use of material available at this web site, and no express or implied warranties are made. Futures trading is highly speculative, and can involve the loss of some or all of any monies you may commit to such trading.