Chicago Mercantile Exchange (CME) Explained

Date Modified: 22/03/2023

When it comes to Futures trading, the CME Group and its subsidiary, the Chicago Mercantile Exchange are big names in the field. The Chicago Mercantile Exchange is an organized Futures trading exchange based in Chicago, USA, and was founded in 1898. This exchange offers access to a plethora of Futures contracts including Cryptocurrency, Commodity, Forex, and Indexes Futures among others.

The Chicago Mercantile Exchange differs from the CME Group in that the first is part of the latter in addition to the NYMEX, COMEX, and CBOT exchanges. On Plus500’s Futures platform, traders may trade CME Group’s Futures which allows them access to the largest exchanges in the world, CME, NYMEX, COMEX, and CBOT. Here’s what you need to know about some of the largest Futures exchanges in the world.

Chicago Mercantile Exchange (CME)

What Is the CME Group?

Among the world's leading and largest Futures marketplace, the CME Group is an American global markets company consisting of the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX) and Commodity Exchange Inc (COMEX). The CME Group is considered the world’s biggest and most diverse financial derivatives exchange with an astounding market capitalization of over $60 billion as of December 2022. The group offers Futures and Options trading on Agricultural, Currency, Energy, Interest Rates, and Indexes products.

Furthermore, the CME group was formed in 2007 as the Chicago Mercantile Exchange (CME) merged with the Chicago Board of Trade (CBOT) giving the group access to interest rates, agricultural products, and Indexes. And most importantly, it’s regulated by the Commodity Futures Trading Commission (CFTC) and is also a member of the World Federation of Exchanges, a global association of exchanges.

What Is the Chicago Mercantile Exchange?

The Chicago Mercantile Exchange (CME) is an organized Futures and Options Futures exchange that was founded in 1898 as a non-profit organization and became the first exchange to demutualize to a shareholder-owned exchange in the United States in 2000.

Whereas nowadays the CME offers access to a large variety of financial markets like interest rates, benchmark Indexes, and more, this renowned exchange was originally called the Chicago Butter and Egg Board. Furthermore, its first contract was launched in 1961 on frozen pork bellies, and in 1969 it started offering Futures contracts on currencies.

What Is the Chicago Board of Trade?

The Chicago Board of Trade is a commodity exchange founded in 1848 to mitigate credit risks farmers and consumers faced when purchasing agricultural commodities by removing price uncertainty by providing forward contracts. This is one of the oldest exchanges in the world and it’s located in Chicago due to the fact that Chicago is close to railroad infrastructure and American heartlands and the city’s transit point for livestock.

Initially, the CBOT offered commodity trading only, whereas nowadays, it also offers Futures contracts and Options on other market sectors including US Treasury Bonds. In 2007, CME (Chicago Mercantile Exchange) and CBOT (Chicago Board of Trade) merged to create the CME Group.

What Is the New York Mercantile Exchange?

The New York Mercantile Exchange, otherwise known as NYMEX is also part of the CME Group and is one of the largest physical commodity Futures exchanges in the world. Initially, the NYMEX was established in 1872 as the Butter and Cheese Exchange of New York and in 1994 it merged with COMEX (a Futures market for metals trading), making it the world's largest physical commodity exchange then.

As time passed, NYMEX was not able to withstand the economic headwinds due to the 2007-2008 financial crisis which is why it was acquired by the CME Group in 2008. Furthermore, the NYMEX’s trading activity comprises about 10% of CME’s trading volume, and it offers Futures and Options on Metals and Energy commodities listed on the exchange.

What Is the Commodity Exchange Inc (COMEX)?

Founded in 1933, The Commodity Exchange Inc often referred to as COMEX, is the primary exchange for metals trading for metal commodities like Gold and Silver. It is also considered the biggest Options and Futures metal exchange.

In 1994, COMEX merged with the New York Mercantile Exchange (NYMEX) and due to the fact that in 2008 CME Group merged with NYMEX, COMEX is now also considered part of the CME Group.

Who Regulates the CME?

CME Group is regulated by the Commodity Futures Trading Commission (CFTC), which is a federal agency that regulates commodity Futures and derivatives contracts in the US. CFTC ensures that Futures markets are transparent, fair, and free of fraud, manipulation, and other abuses. Under the CFTC's jurisdiction, brokers and merchants are overseen, derivatives trades are monitored, and market manipulation and other abusive practices are investigated. In addition, other organizations like the National Futures Association (NFA) which regulates derivate markets in the US, oversee CME’s activities.

To Conclude

The CME and the CME Group are integral parts of the Futures landscape and as such knowing how they operate and how they came about may be crucial to understanding the overall picture of Futures trading.