THE ORIGINS OF THE FUTURES MARKET

The earliest known futures contract is recorded by Aristotle in the story of Thales, an ancient Greek philosopher who believed that the upcoming olive harvest would be particularly large. Thales entered agreements with the owners of all the olive oil presses in the region in exchange for a small deposit ahead of the harvest. Thales therefore obtained the right to lease the presses at market prices during the harvest. Thales turned out to be right as the olive harvest was bountiful, and the demand for oil presses boomed, hasten to say Thales made a lot of money.

Futures Markets on the other hand began in the late 17th century in Japan with the trading of rice tickets and the first known market was the Osaka futures Market. Feudal Lords set up rice warehouses to store and sell rice, thus protecting themselves from price fluctuations between harvests. This grew into the first known futures exchange named the ‘Dojima Rice Market’ somewhere around 1600-1697. In this exchange merchants would gather to negotiate their rice tickets and these tickets could be used for existing rice stock or future production.

The European equivalent of such practices was during the medieval times where trade fairs were set up so buyers and sellers could exchange goods and these market fairs followed rules and regulations of specific times and places. Problems arose from trade fairs because it meant that traders had to carry large quantities of goods often over long distances which could be fraught with dangers. The solution to this problem was solved with ‘Fair Letters’ where specific future delivery dates were arranged on the goods.