The Ethiopia Commodity Exchange (ECX) was established to create opportunities for growth in the country’s agricultural sector. On this page, you’ll learn what the ECX is, which commodities are traded, and how it works.
Contents
What is the Ethiopia Commodity Exchange?
The Ethiopia Commodity Exchange (ECX) is a national multi-commodity exchange in Ethiopia that brings together buyers and sellers of agricultural commodities.
Participants on the ECX trade spot contracts that standardize the quality, quantity, payment, and delivery of agricultural goods.
Mission of the ECX
The ECX’s mission is “to provide a modern, efficient, transparent and reliable market platform and warehousing service through adaptation of technology, excellence in innovation and with integrity”.
To execute its mission, ECX has created a structure that integrates all the key participants in commodities markets, including:
- Central trading system – The commodities trading exchange.
- Warehouse delivery centers – The sites that receive, sample, and grade commodities and maintain their quality.
- Clearing banks – The institutions responsible for clearing and settling commodities transactions.
- Arbitration tribunal – The group responsible for facilitating the resolution of disputes between members or members and the exchange.
- Market information system – The systems that link the exchange with rural sites.
- Remote trading centers – The hardware that connects the central trading system with outside participants.
- Secure data center – The systems that manage membership and market information.
The Ethiopian government, which is the main promoter of ECX, has created a legal framework and a government regulatory agency to ensure the success of ECX.
Population and demographic trends bode well for the future of exchanges such as the ECX.
The United Nations estimates that, by 2050, the global population will grow by 2.2 billion, and 1.3 billion of those people will reside on the continent of Africa.
Dynamic marketplaces such as the ECX will play a critical role in bringing food to this growing population center.
What Can You Trade at ECX?
ECX offers customers access to trading and/or clearing for a variety of agricultural products.
| Commodity | Spot Contracts | Trading Method | Market Facts |
|---|---|---|---|
Coffee | The ECX trades about 25 different varieties of coffee spot contracts, including these popular varieties:
| Open Outcry | |
Sesame | Sesame is an oilseed crop traded on the ECX. There are 24 classifications and delivery centers. Some popular contracts include:
| Open Outcry | |
Legumes | The ECX trades different kinds of legumes, including:
| Open Outcry | Haricot bean is a major food crop in the southern and eastern parts of Ethiopia. |
Maize (corn) | Maize is growing in popularity as a food source in Africa. The ECX trades five contracts each for white, yellow and mixed corn. Each contract covers one of the five delivery centers:
| Open Outcry | The vast majority of maize production in Ethiopia comes from three regions:
|
Wheat | The ECX trades three types of wheat contracts:
| Open Outcry |
How is ECX Regulated?
The proclamation that established the ECX mandates the exchange to set out its own rules for self-governance of its various operations.
At the same time, a second proclamation established an outside regulatory body for the ECX – the Ethiopia Commodity Exchange Authority (ECEA).
Self-Governing Rules
The rules of the exchange developed by ECX list the regulations governing membership, management, trading, warehousing, clearing and settlement, and other operations of ECX. The rules also cover the conduct of its members.
Ethiopia Commodity Exchange Authority Rules
The ECEA has the authority to oversee the following:
- Exchange members and their representatives
- Clearing institutions (domestic banks or other financial institutions engaged in clearing and settlement of payments)
- Rules of the exchange and regulation of exchange-traded contracts
- The conduct of investment advisors, consulting companies, law practices, accounting and audit professionals, as this conduct pertains to ECX business.
ECEA also has the authority to investigate wrongdoing and adjudicate complaints falling under its jurisdiction.
ECEA can, when appropriate, refer criminal cases to the appropriate court. As part of its oversight, ECEA issues directives regarding its activities.
How Does the ECX Conduct Trading?
The ECX is a spot exchange, which means the participants settle prices and delivery “on the spot,” or immediately. Traders and their representatives trade more than 200 spot contracts on the ECX.
Where Do Contracts Trade?
The ECX has an octagonal trading pit where trading takes place via “open outcry”.
In this method of trading, a trader announces his/her intention to buy (bid) or sell (offer) a particular contract, the quantity he/she wants to buy, and the price he/she is willing to pay. Other market participants can make a counter bid or offer or accept the terms offered by the trader.
How Do Traders Communicate?
Traders on the ECX use hand signals to convey their intentions. A trader first announces the commodity and then the quantity.
If the trader wishes to buy the commodity, the trader turns the palm of his/her hand toward his/her face. If the trader wishes to sell the commodity, the trader turns his/her palm away from the face.
What is the Trading System Used?
ECX traders record their orders on order tickets. The tickets list the lot size and the grade of the commodity being traded.
An electronic back office system checks to ensure that the buyer has the requisite funds to enter the transaction and the seller has the commodity available in a warehouse to back the sale. The automated reconciliation process takes place in just minutes.
ECX Trading Hours
| Products | Day | Time |
|---|---|---|
| Grains | Wednesday | 9:00 – 9:30 |
| Sesame | Daily | 10:00 – 11:00 |
| Local Coffee | Tuesday, Wednesday and Thursday | 11:30 – 12:30 |
| Export Coffee | Daily | 14:00 - 18:00 |
How Are Trades Cleared and Settled?
The ECX Clearing and Settlement Department acts as central counterparty to all trades that take place on the exchange. The department determines the net obligations of each member, informs the members of their daily net obligations, and transfers cash funds and commodity ownership among members.
ECX works with 16 banks that have dedicated ECX settlement teams. These banks include the Commercial Bank of Ethiopia (CBE), Dashen Bank, Awash International Bank, and United Bank.
History of the Ethiopia Commodity Exchange
The ECX was established in 2008, which makes it one of the newest global commodity exchanges.
The driving force behind the creation of ECX was its former CEO, Ethiopian economist Eleni Zaude Gabre-Madhin. Prior to the formation of the ECX, Gabre-Madhin worked as a researcher for the International Food Policy Research Institute where she studied agricultural markets in Ethiopia.
She noticed that the crop marketplaces in the country were volatile and uneven. Some regions had bumper crops one year followed by drought and famine the next.
Gabre-Madhin surveyed grain traders in 2002 and learned that many of them lacked key infrastructure and resources such as access to credit, market information, transportation, the ability to enforce contracts, and other key items.
In 2004, Gabre-Madhani launched an IFRI program to help the Ethiopian government improve agriculture and market policies. These efforts culminated in her forming an advisory board to develop plans for creating ECX.
The creation of ECX was a logical and necessary step in the development of African agriculture. At the time of its founding, Ethiopia’s share of cereal grain production was growing, and the only other viable commodities exchange in Africa was in South Africa.
How to Trade Ethiopian Commodities?
Many regulated brokerage firms offer financial trading products such as contracts for difference (CFDs) based on agricultural commodities traded on the ECX.
CFDs are a derivative instrument that offer a way to speculate on the price of commodities without having to actually own the underlying asset.
See our reviews of regulated brokers in who offer CFDs and other trading products on agricultural commodities.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
FAQs
Here are answers to some commonly asked questions about the Ethiopia Commodity Exchange.
Who Owns the Ethiopia Commodity Exchange?
The ECX is a demutualized corporate entity. This means that rather than being owned by members, the exchange is owned by shareholders that are not members.
The ECX establishes a clear separation of ownership, membership, and management. Owners cannot have trading memberships, members cannot have an ownership stake, and the management can’t be either owners or members.
What Are the ECX’s Margin Requirements?
The proclamation that established the ECX grants powers to the exchange to establish and maintain margin requirements for members and to set temporary emergency margin levels on any contract.
Traders should contact the ECX for more details about the margin requirements for trading contracts on the exchange.
What Types of Memberships Does ECX Offer?
ECX offers two types of memberships:
- Ordinary membership – A permanent and freely transferable membership. These members can trade in any commodity.
- Limited membership – Designed for smaller market participants and limited to trading one commodity for one year. They may also only trade on one side of the market.
According to the ECX website, full memberships are currently closed until further notice.
Each type of membership has two sub-classes of membership:
- Trading Member (TM) – Only allows trading in the trader’s account.
- Intermediary Member (IM) – Allows trading in the trader’s account as well as on behalf of clients.
What Are the ECX Fees and Charges?
ECX charges different levels of fees for different categories of membership. In addition, the exchange levies annual membership maintenance fees, storage and handling fees for warehousing, contract fees, minimum and maximum trading fees, and clearing fees.
Traders should consult the ECX the Rules of the Exchange for a specific accounting of these fees and charges.
What ECX Market Data is Available?
ECX utilizes a Market Information System (MIS) to disseminate market information tickers to members and traders across Ethiopia. The key components for disseminating information are the following:
- Electronic Tickers – ECX has 200 market sites across the country for disseminating information.
- Mobile Phone Short Messaging Service (SMS) – ECX utilizes Ethiopia’s mobile phone service provider to disseminate market information via text.
- Interactive Voice Response (IVR) service – This fully-automated telephone system allows traders to access market information 24 hours a day, 7 days a week.
- Website = The ECX website provides real-time data for all commodities traded.
- Bulletins – These provide market commentary to traders.
- Mass media (e.g., radio, TV, print) – ECX disseminates information in Amharic, Oromifa, Somali and English language using mass media.
- Information Center – This is part of the ECX Market Intelligence products described below.
Market Intelligence
The Market Intelligence suite of products ECX makes available to market participants includes the following:
Market Bulletin: This is a bulletin that includes a comparison of local prices with international market prices. The bulletin also offers analysis including graphs, commentary, and research on international commodities markets.
Market Hotline: ECX has a dedicated phone line for disseminating real-time market information and updated international market prices.
Info Center: This service provides market information such as daily domestic and international prices, market trends, production and weather forecast, and market-related news and events.
Further Reading
- Learn more about the world’s largest commodity exchanges including the London Metal Exchange, the Tokyo Commodity Exchange, Euronext, the European Energy Exchange (EEX), the Zhengzhou Commodity Exchange (ZCE), the Deutsche Borse Group, the Multi (CMX) of India, and the Brasil Bolsa Balcão, and the Chicago Mercantile (CME) Group.
- If you’d like a primer on how to trade commodities in general, please see our introduction to commodity trading.
