Commodity Trading Exchange
A little earlier I already wrote about how and when appeared and developed STOCK EXCHANGES. Today we dwell on the commodity exchange. Today's well-known commodity exchanges are the result of a long period of development of wholesale trade, as well as a type of commodity market system.
According to historical data, for the first time, wholesale trade originated in the form of a caravan. It had several characteristic features: periodicity, lack of regularity, uncertainty of the place and rules of bidding. How to make money on the exchange today, read in this article.
Today, thanks to the computer and the Internet, every adult can trade on the stock exchange by registering on the website Robot for the exchange.
The next stage in the development of wholesale trade was the fair. During the Middle Ages, both very large fairs and small ones appeared. At the same time, the place and time of the auction was known to the participants, since they had been previously notified. The term "fair" when translated into German means "annual trade." This indicates a sufficient level of organization and stability of such events.
European fairs XII-XIII centuries. Assumed not only payment for the goods "here and now", but also a delay. In some cases, trade used special instructions, which included the requirements for the level of quality of goods. Later, trade was started with the help of samples, because it was not advisable to bring the entire cash lot to the fair.
Trading at the fairs of those times presupposed the existence of strict internal rules. There were so-called codes of conduct governing the relationship of English merchants with counterparties, as well as establishing standard forms for contracts, loans, receipts and other documentation. The merchant, who violated the rules, was excluded from the merchant community and was deprived of the right to trade.
The court of arbitration, dealing with the ironic title "court for people with dusty legs", dealt with disputes. The reason for this name is that the merchants were constantly on the road. This body became akin to arbitration in modern times.
Gradually, fairs became insufficient to meet the needs of merchants. Therefore, in the sixteenth century with the development of capitalism and the discovery of America, places of constant wholesale trade began to appear, and rare fair events faded into the background. Thus, modern exchanges were born.
There are various theories of the origin of the concept of "exchange." According to etymology, the word "exchange"Refers to the Greek" byrza "meaning" wallet ", as well as the German and Dutch terms" borse, burse ". Another version is that the name came from the name of a certain person who lived in Belgium in the city of Bruges. This settlement was located at the intersection of a large number of trade routes in Europe and bore the title of “Christian broker”. The auctions themselves were carried out on one square, which was called “de burse”, which came from a rich and respected man named Van de Bursa who was located there. The building even had its own emblem, consisting of three wallets, and the owner is assigned the invention of exchange trading.
Initially, most stock exchanges were formed in hotels or cafes, gradually moving to separate buildings. If you pay close attention to the evolution of wholesale trade, you can see not only a change in the organization of trading and various rules, but also a significant development of the trade process itself. Each, even the simplest, transaction is a combination of market supply and demand for a specific consignment of goods. Directly the method of such a combination reflects the level of market development and relationships in it.
Consider again the market trade in the form of a caravan. In essence, caravan trade is the simplest market or bazaar. The bidding process itself has a primitive organization: the seller is waiting for its buyer. It turns out that demand needs a proposal and just waits for it, this expectation can last a very long time, as caravans appear occasionally and are unstable. This makes them less efficient and unsuitable for a large level of demand or supply.
The fairs have become more developed, differing in the presence of a trading range, as well as sellers who specialize in a particular category of goods. In this case, the offer expects demand, and specialization allows to accelerate this process. Bidders have a certain value that does not change with time. With a significant increase in the volume of trade operations, fair trade becomes an exchange trade.
Any exchange differs by instant collision of supply and demand in the market, and also by undoubtedly faster process of completion of trade operations and making deals.
Formation of commodity exchanges
From the above, it is obvious that the exchange acts as one of the varieties of a market organization. An ordered market for goods is a place in which there are buyers and sellers who carry out transactions according to pre-established bidding rules. All such markets have a number of common features:
- openness of trading and conducting transactions;
- certain laws and rules by which transactions are carried out;
- there is a system of information transfer and communication between participants;
- there are various retail spaces, warehouses and offices.
A partially ordered (organized) market was back in ancient times. For example, in the Roman Empire there was a "mercatorium collegium", which was a collection of merchants at a strictly certain time. Similar meetings were held in specially designated places, which were called "fora Vendalia" or sales markets. Such markets became the central part in the turnover and distribution of goods, delivered from various parts of Rome. The key influence in them was barter, and related operations, while there were transactions with a cash payment. In some cases, participants entered into contracts with deferred payment. A similar practice today can be seen in the developed exchange markets.
Thus, the birthplace of exchanges is Europe in the dawn of capitalism. Without taking into account the reunification of monetary institutions, the first exchange was precisely the commodity exchange, and not any other one.
According to some studies, the first stock markets began to emerge in Italy, and their emergence is associated with the growth of international trade and the formation of the largest manufactories in Venice (Florence and Genoa).
One of the first stock exchanges is the market in Antwerp, which appeared in 1531. In those days, such a market was called an endless fair. The stock market in Antwerp was also the ancestor of the international exchange markets, as merchants from various European countries traded there. This exchange had its own building, where the phrase "in Latin for traders of all languages and peoples" hung right at the entrance.
A slightly later appearance of exchanges is famous for France (the cities of Lyon and Toulouse), the approximate date of creation of markets - 1549 year. Exactly in 7 years (in 1556 year) there is the first exchange in London. Next is Japan, where in 1790, the first exchange market for the commodity turnover of rice was born. Known to this day, the Chicago Mercantile Exchange appeared only in 1848 year.
An important commodity for the history of exchange trading is the commodity exchange created in 1602 in Amsterdam. She is famous for being the pioneer of trade on samples and samples of goods. In addition, strict standards for the quality of goods and samples were established on this exchange, which made it possible to trade without the availability of products on the exchange market (it was confirmed by the exchange itself).
Amsterdam Stock Exchange is rightfully considered the first market where trading operations and securities transactions began. In those days, traded shares of the trading company from Holland, as well as the British East India and West India Company (in later years). The main part of the turnover was occupied by government bonds of Portugal, England and Holland. In general, there were forty-four types of securities.
In 1720 in Amsterdam, speculation in securities spread, and then gradually spread to commodity markets. Peter I visited Amsterdam and the local stock exchange at the beginning of the XVIII century.
It is worth noting that in general, the development of exchanges in the XVIII century was rather slow and spontaneous, and their location was more often at the trading ports, where international routes were going. It was there that the largest number of merchants and traders from various countries, ready to work in large quantities of goods.
Initially, exchange markets were engaged in the turnover of real goods, which provided and helped to realize the trading needs of those times. Distribution of the exchange was only in the XIX century, appearing in Japan, America and the largest countries of Europe.
Different countries had their own understanding of the market and participants in the trading process, which entailed the formation of two types of exchanges: open and closed.
In open exchange markets The trading process was carried out by sellers and buyers of real goods, in other words, participants in economic relations. At the same time, everyone had access to the auction. Along with the increase in trade turnover, special intermediaries were brought to the exchange, and the owners of the goods did not spend all the time on making deals. Most often, such intermediaries appeared from professional traders who had previously participated in the exchange, or from outside.
At first, these were exchange markets of a mixed type, where there were both intermediaries and sellers with buyers. Some intermediaries made deals for their clients, others acted on their own account and on their own behalf.
Closed Exchange Implies the implementation of transactions only by intermediaries or specialized bidders, other persons have no access to trading. Stock exchange markets of a closed type entailed a change in the trading process, since it became necessary to have an organized processing of orders for transactions from external customers. As a result, some services appeared outside the exchange, which allowed customers to submit applications and have the necessary information about the conduct of trading.
Availability of open and closed exchange stock markets influenced not only the development of the trade process, but also the participation of the government (state) in the conduct of operations. For example, in England and the US, the government did not interfere in the work of the exchanges, and those in turn were private companies and were of a closed nature. On the contrary, in Germany, state bodies carefully controlled the activities of open exchange markets, which were called public.
According to the research of commodity exchanges in the early XX century, conducted by the Russian scientist A. Filippov, four types of exchange markets are distinguished. The criterion of classification is the degree of state influence on commodity turnover, as well as the availability of an open or closed form of organization of the exchange.
- As the first type, the market assemblies that are most accessible to all are distinguished, which existed in Holland, France and Belgium. Such exchanges, as a rule, did not have any legal restrictions affecting their activities. The state was only engaged in control over the general order in the exchange market. Anyone could become a participant in the exchange trading, and the building for trading was provided by the government or a company.
- The second type of exchanges is a completely state-controlled market organization. Similar exchange markets were observed in Germany, with the exception of isolated cities. In this type of exchange, trading is comprehensively controlled by the government administration and regulated by law. Moreover, the exchange is a completely open meeting of participants unorganized in a corporation. The Exchange Committee is appointed exclusively by government agencies.
- The third type of exchange markets is closed exchanges, but controlled by the state. Such markets were common in Russia and Austria-Hungary. The bidders were consolidated into corporations. The committee was drawn up by the stock exchange, but was strictly subordinate to government bodies. In some cases, outsiders were allowed to bid with limited rights. In general, the exchange, as in the second case, was completely subordinate to the government.
- The fourth variation among stock exchanges is private companies and free corporations, typical of the United States and England. The state does not interfere in exchange processes here, and the exchange itself is a legal entity equated to the exchange. Otherwise, such companies aimed to provide and organize the exchange. As a rule, there were no specialized legislative acts. The governing bodies of the exchanges, elected at the general meeting, constituted an exchange committee with broad powers. These exchanges were closed in nature.
The goods that were circulating on the exchanges also did not become an exception in a series of changes that occurred during periods of increased development of markets. Even at the initial stage of trade, according to the samples, a number of requirements were presented to the product, including: divisibility, homogeneity and mass character. Over time, the application of standards (quality standards) extends. The above characteristics were characteristic primarily of agricultural and primary products, representing the main category of turnover objects on the commodity exchange.
In the first half of the XIX century commodity exchange markets were exchanges of real goods, and their main task was to provide the channel of the largest wholesale transactions. During this time, the exchanges acquired the following features:
- the trading process is carried out according to pre-established rules, as well as with the active participation of both buyers and sellers;
- circulating products have clear standards, are interchangeable and homogeneous;
- operations on the exchange can be both speculative and consumer-oriented;
- exchange trading is carried out without the availability of goods, based on the description of its characteristics.
Towards the end of the XIX century, new types of exchange markets emerged, which included futures contracts. Similar exchanges performed different tasks for the participants. At this stage, the value of real goods lost due to the development and monopolization of production processes. The exchanges became a way of insurance against excessive risk, and also a source of pricing.
The position of commodity exchanges in the current world economy
Exchange trade in the modern world had a very vague role. It ceased to exist as a wholesale trade and became more and more in demand in cash transactions.
Such innovations have entailed changes in the work of commodity exchange markets, this has been subjected to:
- types of transactions;
- the size of transactions and the number of buildings on the exchange
- transactions, where there were their own goods and markets;
- conducting operations on the exchange and trading.
All goods that are sold on the exchange are called stock exchange. The subjects of commercial exchanges include goods that combine such qualities as the possibility of replacement, uniformity and the establishment of their quality by specific standards (standards). Fast-spoiling goods, a fairly long period was not attributed to exchange, but this has changed in the modern world, where there are advanced technologies. Now some products of this kind are included in the turnover of the exchange markets.
The decisive factor for the creation of the exchange market is the formation of prices for various goods. Products that have a low level of monopolization are much more likely to remain an object of trading on the exchange. Goods with excessive monopolization also have a chance to exist on the exchange market, but this is only possible when there are those who sell goods or buy in sufficient quantities, as well as a stable and active participant in the trade. The sample of such goods is oil and oil products.
Today, the number of goods on the exchange markets has become much smaller. At the end of the XIX century, goods on the stock exchange exceeded two hundred designations. Previously, the categories of large commodities included: iron, coal and other exchange commodities, now they do not conduct the previous number of transactions and transactions.
The first half of the twentieth century brought an even greater reduction in goods to about fifty positions, which has remained the same for the current time. The markets of futures contracts on the contrary became more and more. Futures Is a market with a product of established quality, because of this, such markets can be with one designated product.
The list of established commodities on the exchange includes a couple of main categories:
- agricultural goods;
- semi-finished products;
- minerals and natural resources.
Semi-finished products and goods of the latter category include minerals (oil products, coal, gas), non-ferrous metals (lead, nickel, titanium, magnesium), precious metals (silver, gold, platinum group metals), as well as potatoes and orange juice ).
The number of agricultural products is constantly decreasing. This category contains these items:
- cereals (oats, wheat, corn);
- olive (oil, seeds);
- livestock (chickens, pork, lamb);
- flavoring additives (salt, coffee);
- textile (linen, wool).
Factors that have an influence on the structure of goods on the exchange are quite a lot, one of them is development in the scientific environment. This factor contributed to the emergence of goods that could replace other, namely synthetic products and artificial. The existing competition between these types of goods, favorably affects the value, which leads to a decrease in trade turnover on the exchange market. A good example is the market where wool is sold, where the number of agreements in recent years has significantly decreased, and in the largest exchange markets has been reduced to zero.
Progress in scientific achievements also helped to improve methods and techniques for testing and evaluating the quality of products, and new tools and technical developments were used for this. As a result, the accelerated and more accurate determination of the quality of products and products made it possible to increase the number and category of goods on the exchange. For example, earlier precious metals and forest products were not included in the list of goods, and participants did not have the opportunity to carry out transactions with them on the exchange.
Today, a new category of retail facilities has emerged, which have come to be known as financial instruments. Such operations began to be introduced in the 70-ies on commodity exchanges:
- with price indices;
- bank interest;
- mortgage lending;
- with currency;
- with government-owned securities.
Futures contracts markets began to develop and become larger due to changes in the 70-s, namely, changes in the economy at the world level. This became apparent when the US dollar began to change relative to the currency of Western Europe. The exchange rate depended on both different monetary rates and changes in the exchange rate of other currency. An example can serve as bonds or money issued by the Treasury. The US debt and these changes, served to confidently stabilize the interest rate, but at the same time, they caused a constant volatility of rates.
World stock exchanges, led by the Chicago exchange, were not going to lag behind the modern foundations and introduced futures contracts into trading, which allowed various financial companies to reduce the risk of price fluctuations. Futures contracts, which appeared first, consisted of certificates that provide a pledge from the Government National Collateral Association and also in the 70-ies on the currency of other countries. Certificates served as a joint project of the Chicago Stock Exchange and economic figures who were engaged in business on bail. Contracts were made not one year, demanding the strengthened works then they began to sell autumn 1975 of year.
The appearance of futures contracts in the trade increased and began to include more and more different types of financial means, including long-term treasury bills, treasury tickets, financial futures for stocks and bonds, futures for the purchase and exchange of the country's currency.
Thanks to this, a lot of operations on the stock exchange have appeared, which do not stand still and develop. According to the statistics of contracts, on US exchange operations, about 70% of them were put into circulation during the last decade.
Until the end of the 70-ies, futures contracts for goods were of major importance on the stock exchange. Over time, their number has become smaller, and futures for finance have increased on the contrary. Now their share is 60% of all futures exchange deals.
Among commodities and options futures, fuels and metals play a major role today. Agricultural commodities have little demand in futures trading, such commodities include sugar and coffee. In the early 90s, these contracts fell in demand. Generally speaking, trading in futures contracts for agricultural commodities has been constantly changing.
Exchange trading at the international level has a clear focus on geographical location. The main concentrations are the United Kingdom, America and Japan. The exchanges of America began to have a greater significance when the Second World War was going on and after its end, at that time the exchanges did not work anywhere except America. Almost all operations took place on their exchanges. Leading place in options and futures America had up to 80-ies, after this time, futures markets in Europe and Asia served as strong opponents. Over the past 5 years to 1990, the role in futures trading in other countries has increased significantly from 13% to 47%. The scope of trade in futures in Asia has doubled, and in Europe it has more than tripled.
Participants from other countries began to have an increasing importance in the futures market of America. According to the data available from the Commodity Futures Trading Commission, there were more than 2100 large operators from 96 countries that participated in options and futures markets in the United States. In certain markets, participants from other countries were over 30%.
The activities of commodity exchanges in the United States were agricultural products, while the United Kingdom specialized in various metals and energy carriers, and Japan focused on agricultural machinery, these days the activities of these countries are not as pronounced as before.
The most basic commodity exchanges in the world are in more civilized countries, but in countries that are only developing they are also present. Often, many customers from countries that are only developing live far from exchanges, and in particular work through intermediaries. Trading houses in most cases and are these intermediaries. Very rarely, futures exchanges are engaged in the supply of physical goods. Exist Two types of the most basic commodity exchanges:
If you look at the importance of the product in the trade, you can subdivide the stock exchanges into:
Related Exchange of goods to the international Can be guided by certain characteristics. The main criterion is that the exchange should be central, the service should be at the level of the world market, and the prices of goods reflect the dependence of supply and demand. The commodity on the stock exchange must be a product of constantly developing trade.
Guided by these signs, the bulk of Japan's exchanges do not refer to international exchanges, these exchanges operate with exotic goods such as shellfish, for example. The title of the international exchange is also lost due to the fact that only a small part of the operations pass and the participants do not have locality.
If the exchange is international, then this gives a number of certain advantages in relation to the rules of work, namely, an unhindered exchange rate regime, tax and trade, which makes it possible for foreign clients to participate in the exchange and guarantees them a free transfer of earned on exchange operations between different markets.
In Japan, the main reason for the lack of international exchange status was the presence of restrictions with currency and taxes. Only 80-ies brought Japan changes related to the currency regime and at the same time their exchange moved to the international level.
Regional level exchanges, Conduct operations with a less limited number of traders. The list of countries with which these exchanges operate is very small.
National exchanges include exchanges of Japan, Brazil and a limited number of American exchanges. Such exchanges are engaged in operations aimed at the local market and in most cases are limited by tax laws and trade aspects. All this in the complex excludes foreign bidders and various operations in the form of arbitration.
Also worth noting is that in countries with the most developed civilization, there remained a stock exchange of real goods. A large part of such exchanges, is still concentrated on wholesale trade and provides services to the domestic market.
Exchange transactions with real goods
Operations with real products on exchange markets were crucial at times when exchanges were in fact the central part of international trade relations. In the course of development of exchange markets, two types of transactions on the stock exchange were formed:
- contracts for real goods with delivery "here and now" (immediately);
- contracts for real goods with delayed delivery (in the future).
Operations with the goods delivered immediately are called physical transactions, as well as spot or cash. Registration of such transactions is carried out on the exchange markets without inspection of products taking into account standards and quality standards. In the "spot" transaction, the goods, as a rule, were in stock exchange and the buyer had the opportunity to take it immediately.
Delivering goods to the stock exchange, the seller received a special certificate of quality and quantity of products, called "warrants". Concluding the contract, the seller gave the warrant to the buyer in return for money or a payment document.
As a consequence, the exchange acts only as the actual location of the deal, and all other nuances are discussed by the parties independently. The guarantor of the operation was not the stock exchange, but the participants themselves. The next feature was that the scope of the operation and other delivery conditions were also decided by the buyer and the seller, and the contract was individual in each case.
The key goal of such transactions was the fastest purchase of goods by the buyer, and immediate implementation for the seller. Such operations made it impossible for any speculative game to change quotes.
However, price fluctuations for common commodities, especially those from an agricultural environment, forced bidders to develop other forms of contracts. As a result, operations with real goods appeared, but delivery in the future tense, and not “here and now”. Such transactions existed on most exchanges already in the first years of operation and were called forward, or shipment. It is generally accepted that the first forward deal, dubbed "advance contract", was struck at the Doyama Rice Exchange in 1730 in Japan.
In America, the first such contracts were associated with corn and appeared on the commodity exchange in Chicago. Those who traded grain bought it from farmers at the beginning of winter or in the fall, but kept it until the river melted and the corn dried for shipload. During the waiting time, prices in the market changed, so in order to reduce the risks of falling prices, traders in Chicago concluded deals on the supply of corn kernels in the spring. 13 March 1851 year is the date of the first of such officially registered transactions in the USA.
Forward transactions - these are some official trade agreements that the seller will deliver a certain consignment of goods to the buyer at a predetermined date in the future. When making a transaction, the buyer and the seller agree on the issues regarding the price, the quality standards of the products and their volumes, as well as the time frame and the location of the delivery. The seller is obliged to deliver the goods by the established time to the stock exchange, where the quality assessment will be carried out and the warrant (warehouse certificate) issued. Then the certificate is exchanged by the seller for a check or other monetary document.
As a result, forward transactions imply the sale and purchase of goods or products, even before they are produced. Such transactions were more profitable for bidders on the stock exchange, since they were able to plan future profitable operations in advance. At the same time, the buyer was insured against changes in quotations and inflated prices, and also reduced the cost of renting storage facilities. The seller of real goods forward transactions were also preferable, because they allowed to fix prices and reduce costs.
Forward contracts have a number of shortcomings. For example, they do not have standards. A number of conditions, like: product quality, volumes, terms and price, are discussed directly between the seller and the buyer. In many exchange markets, forward transactions were carried out for up to two years for all categories of goods and on any terms for delivery.
In addition, forward transactions have an increased level of risk as there are no guarantees in the transaction. The buyer or seller can easily deviate from their obligations, or future events can change the circumstances so that the transaction will be impossible. For example, when grain prices plummeted, American buyers often did not fulfill the terms of the contract, and the goods remained with the farmers. On the contrary, sellers tried to evade execution of the forward contract when the price increased by selling products to other counterparties. The riskiness of forward transactions has increased significantly with the introduction of the use of credit. Gradually, the conclusion of contracts was accompanied by the use of bills. At the same time, experts noted that the interest in issuing a bill was to turn it into money, and not to buy real goods. As a result, both the buyer and the seller had funds much earlier (up to several months) than they would have paid for the products. Often, bills of exchange were renewed due to the need for time to sell in such long-term transactions.
Pricing in forward transactions involves not only the level that was formed at the time of the conclusion of the contract, but also possible changes in the balance of market demand and supply during the term of the contract. Nevertheless, to anticipate all the nuances in the future is not possible, so the forward deals give some winning and unprofitable potential for both sides.