Energy trading began in 1978 with the first oil futures contract traded on the New York Mercantile Exchange (NYMEX). Today, energy commodities constitute an important component of international trade dominated by wholesale markets. How did energy trading evolve and is it about to be disrupted by Decentralized Finance such as ENEDEX?
Commodity exchanges date back to the 19th century when businessmen began organizing marketplaces to sell commodities easier. These were usually located at ports and railroad stations for practical reasons. Large warehouses in big cities, such as New York and Chicago, were centralized in the early 20th century. The local, smaller exchanges started to give way to the larger exchanges, such as NYMEX.
For many years, NYMEX was the place for large business trading futures of potato crops. Manipulation in the NYMEX potato market was common and resulted in the known “potato bust” scandal in the 1970s. Potato magnate J. R. Simplot allegedly went short in excessive numbers leaving a significant number of contracts unsettled causing a large number of default delivery contracts.
First Energy Trades
The NYMEX reputation was saved by the intervention of J.E. Treat, the White House energy advisor to President Carter and President Reagan. He helped the NYMEX exchange to explore the possibility of entering the petroleum market and thus successfully supported the launch of the WTI crude oil contract. The first oil futures contract was traded at NYMEX in 1978. Treat began an aggressive marketing campaign to bring in the leading US and British oil companies and followed by pulling in the leading Middle Eastern producers. NYMEX eventually provided an open transparent pricing market for the following commodities: heating oil, crude oil, gasoline, and natural gas. As a result, the energy trading at NYMEX took off substantially and NYMEX prospered strongly.
Electronic Trading and Competition
NYMEX was holding a virtual monopoly on open market oil futures trading until the early 2000s. The electronic exchanges started to appear as relevant alternatives to the traditional open outcry markets like NYMEX. Enron developed an online energy trading system similar to the Intercontinental Exchange (ICE) which started trading oil contracts very similar to NYMEX. It took large chunks of market share almost immediately after the ICE foundation in May 2000.
Next Step: Decentralized Exchanges
NYMEX, ICE, and other energy commodity exchanges allow for wholesale, large-volume centralized, and heavily regulated trading of selected commodities, such as oil or natural gas, rendering participation of small investors virtually impossible. However, with today’s technologies based on reliable decentralized blockchain ecosystems such as Polkadot or quantum-proof DCore, opportunities related to Decentralized Finance concepts such as Decentralized Energy Exchanges ENEDEX provide for fractional trading, rendering energy commodities trading available to literally everyone. Such revolutionary democratization of energy trading as provided by ENEDEX has the potential to become the key disruptor to the traditional centralized, wholesale, and elitist markets dominated by large energy companies and trading houses.
Join the ENEDEX decentralized energy trading platform today and start your own trading!
How to participate
Support the development of DeFi traded energy commodities. The private sale has officially started.
Visit www.enedex.org to participate!
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