Definition of Chicago Mercantile Exchange (CME)

What is the Chicago Mercantile Exchange?

The Chicago Mercantile Exchange (CME), colloquially known as the Chicago Merc, is an exchange organized for the trading of futures and options. The CME trades futures, and in most cases options, in agriculture, energy, stock indexes, forex, interest rates, metals, real estate. and even the weather.

Key points to remember

  • The Chicago Mercantile Exchange, or Merc, is an exchange organized for the trading of futures and options.
  • The CME was originally called the Chicago Butter and Egg Board and was used to trade in agricultural products, such as wheat and corn.
  • In the 1970s, the CME added financial futures, followed narrowly by precious metals, treasury bills and other assets.
  • In 2007, CME merged with the Chicago Board of Trade to create the CME Group, one of the world’s largest financial exchange operators. CME Group now has several other exchanges in different cities.
  • Nowadays, CME is also known for trading unusual commodities such as Bitcoin futures and weather derivatives.

Understanding the Chicago Mercantile Exchange (CME)

Founded in 1898, the Chicago Mercantile Exchange began life as the “Chicago Butter and Egg Board” before changing its name in 1919. It was the first financial exchange to “demutualize” and become a corporation. listed on the stock exchange and owned by shareholders in 2000.

CME launched its first futures contracts in 1961 on frozen pork belly. In 1969 he added financial futures and currency contracts, followed by the first interest rate, bond and futures contracts in 1972.

Creation of the CME Group

In 2007, a merger with the Chicago Board of Trade created the CME Group, one of the largest financial exchanges in the world. In 2008, CME acquired NYMEX Holdings, Inc., the parent company of the New York Mercantile Exchange (NYMEX) and Commodity Exchange, Inc (COMEX). In 2010, the CME purchased a 90% stake in the Dow Jones stock and financial indices.

The CME grew further in 2012 with the takeover of the Kansas City Board of Trade, the dominant hard red winter wheat player. And in late 2017, the Chicago Mercantile Exchange started trading Bitcoin futures.

According to the CME group, it manages an average of 3 billion contracts worth about $ 1 quadrillion per year. In 2021, CME Group ended auction trading for most commodities, although auction trading continues in the Eurodollar options pit. In addition, the CME group operates CME Clearing, one of the leading providers of central counterparty clearing.

$ 1 billion

The approximate total value of all CME contracts in one year.

CME Futures and risk management

With uncertainties still present in the world, there is a demand for fund managers and business entities to have tools to hedge their risks and lock in prices that are essential to business operations. Futures contracts allow sellers of the underlying commodities to know for sure the price they will receive for their commodities in the market. At the same time, this will allow consumers or buyers of these underlying commodities to know for sure the price they will pay at some point in the future.

While these trading entities use futures contracts to hedge, speculators often take the other side of the trade in the hope of profiting from changes in the price of the underlying commodity. Speculators bear the risk that the ads cover. A large family of futures exchanges such as the CME group provide a regulated, liquid and centralized forum for carrying out such activities. In addition, the CME group provides settlement, clearing and reporting functions which enable a smooth trading platform.


CME is one of the only regulated markets for trading Bitcoin futures contracts.

FMC regulations

CME is regulated by the Commodity Futures Trading Commission, which oversees all commodity and derivative contracts in the United States. The CFTC is responsible for overseeing brokers and traders, performs risk monitoring of derivative transactions, and investigates market manipulation and other abusive trading practices. It also regulates the trading of virtual assets, such as Bitcoin.

Chicago Mercantile Exchange v Chicago Board of Trade

The Chicago Board of Trade (CBOT) is another Chicago-based futures exchange founded in 1848. CBOT originally focused on agricultural products, such as wheat, corn, and soybeans; it then spread to financial products such as gold, silver, US Treasury bills and energy. The CME merged with the CBOT in 2006, in a move approved by shareholders of both organizations.

Chicago Mercantile Exchange Example

Most commodities can be traded anywhere, but there is one you can only trade at CME: weather. CME is the only futures exchange to offer derivatives based on weather events, allowing traders to bet on cold temperatures, sunshine or precipitation. In 2020, CME negotiated up to 1,000 weather-related contracts per day, for a total annual volume of over $ 1 billion.

The bottom line

The Chicago Mercantile Exchange is a key part of America’s financial infrastructure. Originally a marketplace for the settlement of agricultural futures, it is now a major hub for precious metals, foreign currencies, treasury bills, cryptocurrencies, and many types of derivatives.

Chicago Trade Exchange FAQs

How does the Chicago Mercantile Exchange do?

The CME is the largest futures and options exchange by daily volume. According to CME Group, the exchange manages 3 billion contracts per year, worth around $ 1 billion.

How big is the Chicago Mercantile Exchange?

The CME group was valued at $ 26 billion in 2020. In addition to the Chicago Mercantile Exchange, the CME group also owns the Chicago Board of Trade, the New York Mercantile Exchange, and six other exchanges. The CME Group had 4,370 employees in 2020.

How Much Money Does the Chicago Mercantile Exchange Make?

CME Group reported net income of $ 2.1 billion in 2020, with total revenues of $ 4.9 billion.

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