The center of gravity for futures trading is moving to China

 

Metals market pricing has moved to where the metals are being used, China. Copper price discovery is centered in China given there is so much demand for the metal in one location. The flow of grain price discovery is moving to where there is the highest demand, China. There is even a new pig futures contract in China. There are active futures contracts in China with significant volume and open interest in base and industrial metals and agriculture markets. 

Price discovery for commodities will occur at the center of commercial mass for supply or demand. The Chicago futures exchange became successful in the 19th century given the grain production in the Midwest and the growing demand across the United States. The London futures markets in metals and tropicals became successful given the high local demand for these goods and the city being a trading and banking hub. The same can be said of metals and cotton trading in New York. Chicago, New York, and London futures were the nexus for banking and trading between producers and end users. A natural place for futures trading.

There is no guarantee of trading and exchange success associated with one location, but cash activity creates an environment for risk management products, hedging, and speculation. Location economic find resource allocation and synergies with trading and banking skill creates opportunities for network advantages. 

There is often a first mover advantage with futures trading and the banking regulatory environment has to be right for active trading, but as more commodities are actively bought and sold in China, the risk management apparatus will follow regardless of the advantage of existing exchanges. 

There is nothing inherently good or bad with this transition, but it will mean that trading rules, oversight, and behavior will change. These structural changes will create uncertainty as the process of creative destruction strikes futures trading, but it will also lead to trading opportunities as these markets become easier to trade for all.