History of the futures industry: The Evolution of Futures Trading in the 20th Century

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Key Takeaways:

• The CEA was amended, allowing futures contracts to be based on individual securities and indexes.
• Traders began receiving or paying cash rather than in actual goods.
• Technological advancement helped to democratize trading

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As the 20th century progressed, futures trading saw significant changes reflecting broader economic trends. Initially focused on agricultural commodities, the futures market began to embrace a wider array of products, especially as financial markets became a more prominent part of the economy.

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A key development came in the 1980s with amendments to the Commodity Exchange Act. These changes allowed futures contracts to be based on individual securities and indexes, not just physical commodities. This marked a significant shift: instead of dealing with actual goods, these new contracts were financially settled. Traders would receive, or pay, the difference in cash between the purchase price and the value of the underlying asset at the contract’s expiration. This adaptation made futures trading more relevant in an economy that was moving away from a focus on commodity production. This change was only accelerated by the technological revolution led by American computing companies, such as Apple and Microsoft.

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The commercialization of computers and widespread adoption of internet services further transformed futures trading. Traditional open outcry pits, where traders would gather to shout orders, gave way to online platforms and sophisticated trade matching algorithms. This shift not only streamlined trading but also democratized access, opening the market to a broader range of participants beyond professional merchants and brokers.

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Today, the principles of futures trading remain the same, but the players and the playing field have evolved. The next article will explore futures markets in the present day. Highlighting how platforms like Railbird are shaping the future of futures trading, making these assets more accessible and relevant to everyday consumers.