The fascinating history of derivatives!I do not know how many people are interested in this. I know I am.
I am not a historian, I am exposing here what I know, some of it might be inaccurate.
For those that do not know a derivative is a financial product derived from an underlying asset or reliant on it.
So in other words currencies, indices, bonds, interest rates, commodities, stocks.
65 million years ago or more: Primates
25 million years ago: First hominoids (apes). Bipedalism & loss of body hair speculated to happen 5-7 million years ago.
4 million years ago: First Australopithecus. Said to be as smart as modern chimps (I don't know if other apes 4 million years ago were smarter or not).
2.5 million years ago: Homo genus. Homo habilis. Not the first to use stone tools, but they are more advanced. Start of the paleolithic (old stone age).
2 to 0.5 million years ago: different human species. Not sure if sapiens descends from habilis or erectus or both. First known use of fire by Homo Erectus.
1.2 million years ago skin pigmentation appears, probably because of a megadrought. Sweating is older than this I think. I don't know much about the evolution of speech, stamina, opposable thumbs etc. I know the world temperature is in a downtrend for the past 50 million years. I don't really know all the ice ages and everything. Alot of very big very strong mammals with low intelligence disappeared. CO2 levels started being really very low. It is likely in my opinion that with the glacial periods, the droughts, the low CO2, apes had to get smarter, as well as start hunting meat (homo species have the digestive system of herbivores but consume meat) at some point using the help of dogs (not sure when that first started, but at least 15 thousand years ago). Human species might have started to save food for harsh times that I don't know.
Eating meat (eating everything even bone marrow and potatoes perhaps) allowed humans to make evolutionary leaps because they spent less time looking for food and eating.
Tribes might have traded with each other I don't know.
0.8-0.3 million years ago: Neanderthal, Denisovan
0.5 million years ago: H. Sapiens, a champion, is born. The species starts its path to absolute world domination and Super Apex predator, dominating all biomes, land, sky, upper ocean, the depths too, and even the bacteria living deep down in earth crust.
300,000 BC: Earliest evidence of long distance trade network. It is highly likely I think, that short distance trade networks precede that.
From wikipedia: "The use of barter-like methods may date back to at least 100,000 years ago. There is no evidence, historical or contemporary, of a society in which barter is the main mode of exchange; instead, non-monetary societies operated largely along the principles of gift economy and debt. When barter did in fact occur, it was usually between either complete strangers or potential enemies."
Yes, debt is pretty old. Everything that was invented was for a reason, because it made sense, and was necessary.
Buying cheap to sell low might be very very old...
Possible more than 100,000 BC: Brace yourselves... Some people think money evolved as a convenient way to replace barter (I have rice I want apples he has apples but wants something other than rice...) but this has not much evidence, and a theory that makes more sense is since it all started with IOUs which can be hard to keep track of (plus there's no proof) then money was first a debt and later became a medium of exchange and (lol) a store of value (I guess we devolved).
10,000 BC: With CO2 levels going up and the climate improving, agriculture appears (probably for the first time).
8000 BC: Oldest evidence of derivatives.
Clay tokens used in Sumer (Iraq) as forwards or futures. Climate was not constant, yields would fluctuate. So it makes sense that they needed a way to hedge against fluctuations in supply.
5400 BC: Earliest "City", Eridu, in the Iraq region, not a city by our standards but they considered it so.
~3000 BC: Mathematics history begins in the region of Iraq/Egypt/Syria/Turkey.
3000 BC: The mesopotamian may be the first to develop a large-scale economy using commodity money.
The shekel, a specific weight of barley. They had an advanced economic system with rules on debt, credit, contracts, private property, full blown capitalism...
Urban Revolution: When rural villages turned into urban societies. It all began back then...
Long distance (between different cities with different "kings") trade is regular.
Obviously, writting was required.
Iraq 3500 BC
Egypt 3100 BC
India/Pakistan 3000 BC
China 2500 BC
"The civilized life that emerged at Sumer was shaped by two conflicting factors: the unpredictability of the Tigris and Euphrates rivers, which at any time could unleash devastating floods that wiped out entire peoples, and the extreme fecundity of the river valleys, caused by centuries-old deposits of soil. Thus, while the river valleys of southern Mesopotamia attracted migrations of neighboring peoples and made possible, for the first time in history, the growing of surplus food, the volatility of the rivers necessitated a form of collective management to protect the marshy, low-lying land from flooding. As surplus production increased and as collective management became more advanced, a process of urbanization evolved and Sumerian civilization took root".
1750 BC: Code of Hammurabi , the first lawyer book. It set rules on contracts & on trading including "finance". We still have copies!
Who knows how many traders profitted off spreads arbitrage speculation and more back then.
First derivative exchanges (in Babylon temples), very likeky to have lasted 1000 years or more.
3000BC-300BC: Evidences of derivatives used in other areas than Iraq but no market/exchange that we know of.
500 BC: Thales said to have made a fortune with a put option on oil back then. He speculated on options over the counter, as there were no known exchange (Greece).
330 BC: Alexander army/followers notice derivatives and see their advantage, the concept makes its way to Greece & Rome.
Which is why it is very likely Babylon exchanges lasted more than 1000 years (1750BC to 330BC at least).
300 BC - 500 AC: Evidence of derivative trades, but I don't know if there were markets, all was probably OTC.
476 AC - 1492 AC: The dark ages in Europe. The Arab world have their age of enlightement but I don't know about finance there. The rest of the world doesn't make any progress in that area as far as I know. CO2 levels dropped and times were tough. Hunger and scapegoating is common (middle aged and old women with no husband were seen as useless mouths to feed and often ended being called a witch then burned or drowned, the arab world developped polygamy to adapt to high male mortality so afaik they didn't burn their women). The church before the tough times of low CO2 used to say about people that accused someone of witchcraft that they were supersticious uncivilised pagans.
The church sees derivatives & interests as "gambling" and "evil", so it becomes clandestine.
Not a very interesting period prone to advancements, not much in science, not much in standard of living, maths, finance...
Some exceptions: Late 1200s Monty Shares, 1300-1800 Loggia in the Piazza dei Banchi.
1 big exceptions: There was a gigantic futures operation. Ran by the Church. Give them money against a sacred contract for eternal life. It is a form of futures contract.
1530: Charles V of the Netherlands helps bring back a derivatives market.
1531: Antwerp Stock exchange (Hurray).
1571: Ancestor of the London Metal Exchange.
1637: Tulip Bubble
1730: Dojima Rice Exchange (and first known use of Technical Analysis)
1789: French revolution. Followed by terror, Napoleon etc.
1800: CO2 level pops off. Time to accelerate progress.
~1800: Industrial Revolution, emergence of labor (arguably "wageslaving").
Shortly followed by Karl Marx, and the 20th century will be the century of socialism & communism & fascism.
In particular the terror communism following the russian revolution, similarly to France.
First time in history where capitalism is questionned?
Early 1800s: The UK bans regular slavery (wage labor or wageslavery means this is not required anymore...)
At the time labor was compared to slavery, there was no argument against private property or capitalism thought.
1848: CME CBOT. Not sure when stocks only had their exchange and when commodity futures did. FX never did until recently but most of the trading is still OTC I think, with a lot of swap trading thought.
1945: Gold standard, following the great depression and WW2 result of high inequality and the Reichbank money printing.
1971: Gold standard abandonned, back to FIAT money printing and inequality uptrend.
1990s: Trading makes its way to the internet
2000: I am not sure but I think this is when "macro trading" (Oil, world economy, FX) got big. Retail trading from home develops. Everything got more and more correlated as a result.
2010s: As an answer to wild money printing, in particular after 2009 bank bailout, new improved crypto currencies are created, in particular Bitcoin.
Still FIAT currencies, and not meant to be store of values if I remember Satoshi whitepaper correctly, but with a limited supply as well as no central control to prevent what happened in Zimbabwe & Germany. Exchanges (crypto ones) are completely online and anyone can be a market maker, money transactions are (well depends on the crypto) quick simple fast.
Crypto exchanges are open 24/7!
