EBF 301
Global Finance for the Earth, Energy, and Materials Industries

The New York Mercantile Exchange


Financial energy commodity contracts are traded on the New York Mercantile Exchange (NYMEX). The New York Mercantile Exchange building is located on the Hudson River in New York City and owned and operated by CME Group of Chicago (Chicago Mercantile Exchange & Chicago Board of Trade). NYMEX has offices in other cities as well (Boston, Washington, Atlanta, San Francisco, Dubai, London, and Tokyo.) The New York Mercantile Exchange started in the 1800s. There were scattered markets for the goods in large cities. You can picture a city like New York City and agricultural products being brought in and sold in various parts of it. So, some entrepreneurial businessmen decided that they needed a central exchange. So, in 1872, it was founded as the Butter and Cheese Exchange. In 1880, it was changed to the Butter, Cheese, and Egg Exchange. And then, finally, in 1882, it was changed to its present name, the New York Mercantile Exchange.

Later products would include yellow globe onions, apples, potatoes, plywood, and platinum. Platinum is the only one of these products which is still traded today on the New York Mercantile Exchange. Today, it trades crude oil, heating oil, gasoline, propane, natural gas, platinum, and palladium.

For a quick overview of the Exchange, view this "This is NYMEX" video (2:20 minutes).

This is NYMEX
Click for the transcript.


PRESENTER: New York City, financial capital of the world. Home to global giants in banking, investing, and finance.

AUDIENCE: We only have four and 1/2.

AUDIENCE: Sell 20 and 1/2.

PRESENTER: Where there is always a transaction on the table, money on the line, and business never sleeps. It's also home to the New York Mercantile Exchange where billions of dollars in commodities are traded every day, but one way or another, impact business and consumer alike.



PRESENTER: What appears, at first glance, to be pure pandemonium, is in reality, a very structured business, as highly choreographed and orchestrated as any Broadway show. The New York Mercantile Exchange is a marketplace for buying and selling futures and options contracts in commodities. For instance, energy products such as crude oil, natural gas, gasoline, home heating oil, propane, and electricity, as well as metals like gold, silver, copper, aluminum, and platinum.

But what does that matter to me, you might ask. Here's an example. Oil refiners sell fuel-- mainly gasoline, heating oil, diesel, and jet fuel. Airlines buy large quantities of jet fuel. It's similar to heating oil, and the two products are often priced within a few cents of each other. As price protection against unexpected increases in the cost of jet fuel, an airline can buy a heating oil futures contract at today's known price for use in the future.

If prices rise tomorrow, the airline saves money by having locked in a lower fuel cost. That's called hedging. The fuel savings could mean lower airfares for you and me. The same principle applies to heating oil we use to keep our homes warm in winter, and the gasoline we buy for our cars. When companies protect themselves from volatile prices, they can help pass along those savings to their customers.

Price transparency is a key advantage to doing business on the Exchange. Everyone knows the price of all contracts being bought or sold. This benefits the entire marketplace and builds confidence and credibility for business and consumer alike.

90 bid!

Source: Morris Product Group