PLUS The Secret History of Liverpool’s Commodity Futures Exchange

Did you know Liverpool had one of the very first futures exchanges in the world?

I had no idea – and it’s only 25 miles from where I live!

You probably knew that import and export was a big part of the city’s success in the nineteenth century. And sadly, the slave trade played a big part too…

But this latest nugget of information came to my attention last Sunday, on the way to an under-eight’s rugby match of all things.

Now, I love delving into the history of trading, so it really grabbed my attention. The things you learn from the past really hammer-home how trading can be kept to a simple process…

The fact is, fortunes have been made in formalised markets consistently – right across the last two centuries – no matter how primitive we consider the technology of the day.

Hint: Do you REALLY need all those computerised indicators?

So anyway, both my boys play for the local rugby team and they had an away game on the outskirts of Liverpool. On the way I was chatting to one of the other dads. We drove past some big houses at one end of the dock road and I commented how impressive they must have been in their heyday.

(They look a bit sorry for themselves now… boarded-up windows and stripped-off roofs.)

“Oh yeah, that’s where all the wealthy merchants used to live”, he said.

He went on to tell me how his family roots were in Liverpool and how his great-great-grandfather had been a bit of a player at the Cotton exchange, making his fortune there.

So I did a bit of research on Sunday night…

His relative was in action when Liverpool had some of THE leading physical and future commodities markets in the world.

Grain, sugar, coffee and spices were all traded as Liverpool took a competitive edge over London (Trans-Atlantic shipping could sail straight into the sheltered port and shave a day off the journey to London)…

But it was the boom in cotton processing in the mill-towns around Liverpool that really put it on the map.

Traders there even worked a forerunner to futures contracts…

Cotton was sold to ‘arrive’. These arrivals contracts would specify the commodity and the quantity, as well as the departure date and the port it would sail from (some even named the ship that would carry it).

And without missing a trick, a secondary market soon sprang up. Traders began buying and selling the paper contracts between themselves – speculating on the rises and falls in price rather than waiting for the commodity to actually be delivered.

Outrageous fortunes were made by ‘arrivals’ operators during the American Civil War. Fast ships called ‘blockade runners’ were built on Merseyside. They could outrun the Federal navy ships and get the cotton safely back to Liverpool.

Futures contracts arrived soon after…

And this really blows the commodity markets wide open

You see, the difference between a futures contract and an arrivals contract is that futures just specify the grade the commodity had to achieve, a delivery date and a location. They had gotten rid of the limitation of having to identify and track individual shipments.

The Liverpool Cotton exchange opened for business in the 1870’s and quickly became the leading cotton futures exchange in the world. And I just love this part of the story…

The entire cotton market operated in the paved square outside the exchange, in all weathers!

The brokers had offices inside but they preferred to swap their information and gossip out in the open. I suppose it makes good sense – they could all see who was active in the market, interested parties could easily find each other, and information could be passed along and priced-in quickly. I suppose it was a natural predecessor to the trading pit.

The brokers were only tempted back into the building by the arrival of the telegraph machine – it could let them get information and reports from the field quicker than the competition.

But many didn’t trust the new-fangled technology…

Even though the exchange threatened to expel any member that conducted ‘dishonorable or disreputable dealings’, there were still cases of corrupt telegraph operators paid-off to relay incorrect prices to rival firms. Depravity is ever-present amongst a certain element of the market, nothing new there!

So for a while, physical mail was the only trusted source of market data. If you wanted to get reliable reports on the cotton crop, overseas pricing, or what have you, you’d have to wait until a letter arrived from your contact across the Atlantic.

Can you imagine the anxiety some of those traders must have gone through?

The fate of their fortunes hinged on the contents of a soggy envelope that could take weeks to arrive. I thought I had it bad when my old dial-up modem used to drop-out after 60 minutes, taking a few seconds to re-connect!

So with a nod to those forefathers of trading…

Here’s a new service to help you keep up with your price alerts, economic data releases, and general day-to-day market moving news

I was invited to participate in the beta-phase rollout of this software. It’s called Triggerbuddy and if you register via this link you can try it out yourself, completely free of charge:

Click here to try Triggerbuddy for free

Once you’ve downloaded the software it’s going to give you a streamlined, convenient way of managing and monitoring all your trading concerns.

  • It’ll give you live coverage of economic data announcements, press conferences, speeches and interviews
  • You’ll get global news headlines as soon as they hit the wires
  • And you can set your own price alerts on just about any currency cross you can think of!

And it all gets delivered to you from a nice, clean, intuitive desktop interface. Here’s how it looks on your screen:

Give it a try. I think you’ll like it!

Binary Options Strategy Update: Release Date Just Announced

First off, make a note in your diary…

I will be releasing my new binary options trading strategy at 11am on Thursday 20th March. I am so excited about this, not least with the amazing feedback I’ve been getting from beta testers (see below).

I also want to thank all traders who emailed to register interest in my new Binary Options strategy. I was a little bit overwhelmed by the numbers coming in…

I’m wondering whether to make provisions now for a second print run of the manual. It looks like the first batch will be snapped up fast!

If you didn’t send me an email last week and you are interested in coming on board just hit reply to this email now and type ‘Binary Profits’ in the subject line (I’m trying to get an idea of the total number likely to apply).

In the meantime, here’s what beta-tester ‘DH’ had to say:

“I’ve been trading Forex markets for over a decade, and without doubt this is the easiest trading method I have ever used! The triggers and entry points are very clear, there is no doubt about when to enter a trade, and the strike rate is high and reassuringly consistent. Once you have placed your trade you can forget about it and take the rest of the day off.

Following the manual, and using just the recommended single trade each day, my account has increased by £1575 in the first two weeks. Taking a maximum of 15 minutes per day, that works out to be around £700 profit per hour!

Be Prepared: Market Moving Data Coming This Week (London Time):

Wednesday 12th March:
[No major reports]

Thursday 13th March:
12:30 USD Retail Sales

Friday 14th March:
12:30 USD Producer Price Index

Monday 17th March:
10:00 EUR Consumer Price Index

Tuesday 18th March:
12:30 USD Building Permits
12:30 USD Consumer Price Index

As always, don’t hesitate to drop me an email with any comments or questions.