Legal Definitions - CBT

CBT stands for the Chicago Board of Trade.

The Chicago Board of Trade is one of the world's oldest and largest futures and options exchanges. It provides a marketplace where buyers and sellers can trade contracts for various commodities, such as agricultural products (like corn, wheat, and soybeans), precious metals, and financial instruments. These contracts allow participants to agree on a price today for a commodity to be delivered at a future date, helping manage risk or speculate on price movements.

Here are some examples illustrating the role of the Chicago Board of Trade:

• Example 1: A Grain Farmer Hedging Future Harvests

  A farmer in Iowa anticipates harvesting a large corn crop in six months. Concerned that corn prices might drop by then, the farmer sells corn futures contracts on the CBT. This action locks in a price for a portion of their future harvest, protecting them from potential price declines. If prices do fall, the profit from the futures contract can offset the lower price received for their physical corn, illustrating how the CBT facilitates risk management for producers.

• Example 2: An Investor Speculating on Gold Prices

  An individual investor believes that global economic uncertainty will cause the price of gold to rise significantly in the coming months. Instead of buying physical gold, which can be cumbersome, they purchase gold futures contracts through the CBT. If gold prices increase as predicted, the investor can sell their contracts at a higher price, profiting from the market movement. This demonstrates the CBT's function as a platform for investors to speculate on commodity price trends without needing to handle the physical commodity.

• Example 3: A Food Manufacturer Securing Ingredient Costs

  A large bakery chain needs a consistent supply of wheat flour for its products over the next year. To avoid unexpected increases in wheat prices that could impact their profit margins, the bakery's procurement team buys wheat futures contracts on the CBT. By doing so, they establish a predictable cost for their raw material, allowing them to budget more effectively and maintain stable product pricing for their customers. This highlights the CBT's role in enabling businesses to manage supply chain costs and ensure price stability for essential inputs.