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Derivatives – a reason to trade for thousands of years

16 Sep 2020

Derivatives – a reason to trade for thousands of years

200 years of stock trading in Frankfurt: It all began with the share of the Austrian National Bank. Since then, countless companies have financed themselves via the stock exchange - and investors have invested in precisely those companies. With our series "Evolution of exchange trading" we look back on the origins and milestones of exchange trading from various perspectives.

Derivatives are by no means an invention of the stock exchange era. From the times of the Babylonian rulers through the Middle Ages to today's electronic trading, they have always played an important role in the history of finance. Based on an agreement on an underlying asset and the declared intention to exchange cash or other goods within a certain time frame, derivatives are a way to invest and hedge assets without ever actually having to own them.

As early as 8000 BC, the Sumerians were already firing small clay slabs, which were regarded as a promise to a counterparty to deliver a certain quantity of goods by a certain date. Based on the imprinted time frame and the slabs themselves, the sellers promised to deliver these goods. This exchange essentially functioned as a kind of forward transaction that was settled once the seller had delivered his goods by the date stamped on the token.

Aristotle reports around 330 B.C. in his work 'Politics' of Thales of Miletus, who, according to astronomical calculations, already in winter predicted a lush olive harvest for the coming autumn. He spoke to all the owners of olive oil presses in the area and negotiated the right to use the presses at harvest time for a small fee. The olive harvest actually exceeded all expectations, Thales of Miletus sold his right of use at a considerable premium and became rich. One of the first call options in history.

Around 1500, a permanent building for merchants was formally established in Antwerp for the first time. The building became known as the "Exchange" and merchants from all over Europe offered their goods here. For the first time, however, they no longer sold real goods. Instead, they bought and sold the rights to the goods by trading in bills of exchange. In this way, the traders eliminated the transport risk of their goods and created a European financial market on the side.

At the same time, a derivatives market developed in Amsterdam. Up to now, futures contracts were traded exclusively on physical commodities. Amsterdam was the first exchange where derivatives were based on securities such as options, futures-like contracts and other derivative instruments. 

In 1848, the Chicago Board of Trade (CBOT) became the first grain futures exchange in the United States. In 1851, the first time contract for the future delivery of a certain quantity of corn at a fixed price was traded here. The Board of Trade became one of the largest futures markets in the world and still exists today as the CME Group.

In Frankfurt in 1989, warrants issued by banks were brought onto the market for the first time. They were no longer part of a warrant bond but were issued as independent investment instruments for private investors. In the period that followed, the range of derivative financial products on offer increased more and more, and private investors can now also participate disproportionately in the performance of a share or other underlying instrument, profit from falling prices or even hedge a portfolio against price losses. 

In 1998, our subsidiary Eurex Exchange became one of the world's leading derivatives exchanges, with an annual trading volume of well over 1 billion contracts.

In the 1990s, trading then became electronic, which enabled the worldwide trading of derivatives, securities and commodity investments. In 2019, more than 1.7 million derivative investment and leverage products for private investors were traded in Germany alone.

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Evolution of exchange trading

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Read more about the origins and milestones of exchange trading: from “derivatives” in ancient times to the first share in Frankfurt and the development of trading systems.


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