Weird Facts About the History of Commodity Markets You Probably Didn’t Know

Before you dive into the world of assayers and straddles, it might be worth your time to brush up on the less well-known facts about the market.

Weird Facts About the History of Commodity Markets You Probably Didn’t Know

The Aristotle Angle

Options first came into being when Greek philosopher Aristotle wrote a story about one of the seven sages of ancient Greece in his book Politics. In the story, Thales, from Miletus, was so aggrieved by his poverty that he found philosophy useless. However, while observing the stars and weather, Thales foresaw a bumper crop of olives the next year. It then struck him that such a large harvest would push up the demand for olive presses.

Having all the presses for himself would have been ideal, but Thales was a professor and didn’t even have the money to purchase all the presses he needed. Instead, he put in a deposit to secure use of all presses. This was a call option on presses.

When the large harvest arrived, his presses were in high demand and Thales made a killing by selling the right to use them!

The Samurai Commodity Exchange

Even though options have a rich and deep history, the first commodity exchange was established in the 17th century. In Japan, the Samurai got paid in rice that they exchanged for coins via money changers or rice brokerages. As time went on, the Samurai wanted to have stronger control over the rice markets. An established and formal market meant more money for the Samurai. Together with rice brokers, the Samurai set about establishing the first exchange – Dojima Rice Exchange – in 1697. The exchange lasted an astounding 242 years before it was dissolved.

Color Codes

At the New York Mercantile exchange, floor traders identify each other by the green or yellow badges displaying floor names instead of their actual names. The floor names are three or four letter codes including ZEN, OPEC, OIL, DOLR.

This is a tradition that has come about because most of the trading took place on the floor and identification of people by some acronym was the easier, faster way that calling out their names or companies they represent.

Hand Codes

The hand signals on the floor are a specialized sign language used by traders to confirm trader verbal offers and bids, especially when trading is particularly highly active. A trader showing the palm facing inward shows a wish to buy; with palm outward means to sell. Every finger held vertically indicates quantity and fingers extended horizontally indicate price at which bid or offer is made, according to Huck’s Commodity Trading blog.

Bulls and Bears

“Bear” was the term that came earlier of the two designations. In the 1720s Bailey’s English Dictionary, “sell a bear” is defined as selling what one does not have. This is in reference to the old proverb “to sell the bear-skin before the bear is caught.” Hence the word “bear.” However, the reference of the term “bull” before 1720 is unknown. It is thought that it was adopted due to the long relationship between the two words, bear and bull, in old English sports of bearbaiting and bullbaiting.

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