Talk:History of commodity markets

History
Every trade in anything, is either a spread against something of monetary value or something that can be exchanged for something of monetary value.

When you are buying something you are long what you bought and short cash. Wall Street does not want you to see it this clearly, so they are always giving you results as though you are shorting some index or other arbitrary benchmark whenever you buy securities.

Your investments are not actually gaining if they are performing better than some index and losing against cash. Wall Street is implying you are spreading against some benchmark when in reality we are really spreading against cash. All trades are in essence Spreads against cash. As far back as we can tell there has always been some way to provide for the forward pricing of products. The Biblical record of Joseph, hedging seasonal grain comes clearly to mind. GT

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Origins of Futures
Leo Melamed on the origins of futures says "It is no simple task to pinpoint .. the .. moment when the idea of futures and options was born."

"Indeed, the idea of establishing forward availability of product as well as its future price was conceived at the dawn of mankind, perhaps at that inspirational moment just after Eve bit into the proverbial apple and then frantically sought to make a futures contract with Adam."

“Clearly, the first recorded application of futures is Biblical, when Joseph outlined to the Pharaoh his plan for forward buy hedges in grain to protect the land of Egypt from the coming seven years of famine."

"Ancient records are replete with proof that markets, utilizing elements of modern futures exchanges, were in existence throughout man's early history and in every corner of civilization. Sumerian documents, circa 3,000 B.C., reveal a systematic use of credit based on loans of grain by volume, and loans of metal by weight.  Ancient records found in China, Egypt, Austria, and India are replete with rules and regulations pertaining to active commodity markets.  In the city-states of Greece, market laws were in place to prevent  manipulation.  During the Roman period, there were nineteen trading markets in Rome called [Fora Venalia] that specialized in distribution of specific commodities, many of them brought from far corners of the earth by caravans.  There were a host of medieval European seasonal festivals, the actual precursors to our modern exchanges, which evolved into important year-round markets, incorporating such features as self-regulation, business conduct, guarantee of contract fulfillment and mutual trust among merchants."

"In the sixteenth century, in two opposite parts of the world, two similar techniques were created to deal with inherent risks of production and delivery: In London, the great commercial insurance syndicate of [Edward Lloyd] was born; In [Osaka, Japan] the first rice futures exchange was founded. Later, as a result of increased international trade spurred by the industrial revolution, a system of to arrive forward purchasing became commonplace throughout the then commercial world."

Excerpted from a speech, by Leo Melamed.

Fora Venalia

Edward Lloyd

Osaka, Japan GT