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commodity exchange

economics
Also known as: futures exchange, futures market
Written and fact-checked byThe Editors of Encyclopaedia Britannica
The Editors of Encyclopaedia Britannica
Encyclopaedia Britannica's editors oversee subject areas in which they have extensive knowledge, whether from years of experience gained by working on that content or via study for an advanced degree. They write new content and verify and edit content received from contributors.
Table of Contents
also called:
Futures Market, or Futures Exchange
Key People:
Eli Filip Heckscher

commodity exchange, organized market for the purchase and sale of enforceable contracts to deliver a commodity such as wheat, gold, or cotton or a financial instrument such as U.S. Treasury bills or Eurodollars at some future date. Such contracts are known as futures (q.v.) and are bought and sold by means of a competitive auction process on the commodity exchange. The financial instruments known as options and indexes are also traded on commodity exchanges. The largest commodity exchange is the Chicago Board of Trade. The seller of a futures contract on a commodity exchange does not normally intend to deliver the actual commodity, nor does the buyer intend to accept delivery; each will, at some time prior to the date of delivery specified in the contract, cancel out his obligation by an offsetting purchase or sale. The parties merely wish to engage in the assumption or delegation of the risk involved in a change in price.

Commodity exchanges are thus ancillary to the markets in which commodities are actually bought and sold; commodity exchanges in effect provide insurance against the risk of price changes by transferring that risk to speculators who are willing to assume it. Commodity exchanges also provide a basis for the determination of prices at which commodities are actually traded.