Hedging and futures trading was invented in ancient Greece. The history of hedging is actually far older dating back to the times of the ancient Greeks. Hedging originated in the agricultural industry from the need to transact year-round in seasonal products such as rice and grain. Contained in the writings of Aristotle’s we find the story of Thales, a poor philosopher who developed a “financial device, which involves a principle of universal application.” Thales used his skill in forecasting to predict that the olive harvest would be exceptionally good the following autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiated low prices because the harvest was in the future and no one knew whether the harvest would be plentiful or pathetic and because the olive-press owners were willing to hedge against the possibility of a poor yield. When the harvest-time came it was plentiful and many presses were wanted all at once. Thales let them out at high rates and made a large quantity of money. Similar techniques were used by Japanese rice farmers in the 17th century who would sell future receipts against stored or expected rice crops. These receipts known as “rice tickets” guaranteed a future sale price and were the first form of futures trading. This later developed into the first modern futures exchange.
Posted on: Sun, 01 Sep 2013 07:00:09 +0000
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