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CME Changing the Rules for Players

Change, it’s the only constant in life.  And as a professional trader it is our responsibility to keep up with the changes.  Sometimes we can explain change and other times we cannot, but what matters is how this change will impact us.

Free Trading WorkshopTrading Futures involves keeping informed of change that may affect your bottom line, profits.  In this article I would like to address some change coming to the Futures markets that may or may not impact your trading depending on if you trade these particular products.  Even if you do not trade these products, I am trying to get you to pay attention to more than just your charts when it comes to trading.  There is a whole world of events happening in the Futures markets outside your charts that can be beneficial or detrimental to your trading account.

The first change involves a market that trades on the Chicago Mercantile Exchange Group (CMEGroup) and relates to new trading hours.  Normally contract specifications do not change frequently for a Futures contract.  That is why when it does change you need to pay attention.

Not long ago the CMEGroup changed the trading hours for the Livestock market (Live Cattle, Lean Hogs and Feeder Cattle).  The Exchange was unable to provide sufficient liquidity during the extended trading hours (ETH) after the market closed the day session.  This led to the Commercial traders complaining there was insufficient liquidity for filling their hedge orders.  Now the Livestock market has a fragmented, abbreviated trading session.

If you were to look at a chart of the Livestock markets prior to this session time change, you would see very few gaps on the daily chart due to the long trading hours.  Today, with the abbreviated sessions and the market closed for 17 hours each day, we see gaps almost daily.  Do these hours sound familiar?  They should because the Stock market is closed for 17 hours per day and only trades for 7 hours per day.  Do Stocks have many gaps?

The recent market that will have shortened trading hours will be the Lumber market.  On December 14, 2015 these new hours will go into effect.  While I would not recommend you trade this market it is still a great market to chart to help monitor economic activity.  Lumber is a contract of trading 110,000 board feet of 2×4’s used for residential and commercial construction projects.

Changes to Lumber Futures & Options Trading Hours
All times Central Time (CT)

The CME Group changes trading hours for lumber futures and options

There seems to be a trend for the CMEGroup to be going to a 7 hour trading day during the highest volume session.  What does this tell you as a trader?  Perhaps you should be looking to do the same.  Liquidity is needed to reduce risk and allow for better trade executions.  Regardless of the market you trade there will always be a time of day with the most volume. You should be focusing your trading during these periods as well.

The next change will impact traders of the Euro Currency market.  On January 10, 2016, the minimum price increment will go from .0001 to .00005.  Just what we needed, one more decimal place.  The Japanese Yen had done this same thing earlier in the year.  The change will now impact the minimum tick dollar volume as well.  Currently for each .0001 tick change the net result is US $12.50.  With the new change the minimum tick dollar value will be US $6.25.

Effective January 10, 2016

The CME changes the minimum price increment for the Euro Currency Market

The contract size will remain exactly the same at 125,000 Euros as will the trading hours.

These changes might not make sense to a trader, but there is nothing we can do but adapt to these new rules.

Don Dawson

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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