Lessons from the Pros


Commodity Grain Trading Hours Changing, Again

I have mentioned many times before that a Futures trader must always be in the learning mode. Never feel like you know it all in the trading industry. The only constant is change. Today I am going to review with you the new trading hours for the Chicago Mercantile Exchange Group (CMEGroup) grain and grain oil markets.

Yes, you read that right, another change. For my regular readers you may recall I wrote an article in June of 2012 regarding a change in the trading hours to these same products. The trading pit session (regular trading hours -RTH) was extended an extra hour and the electronic trading (extended trading hours – ETH) went to 21 hours per day.

At that time there were two main factors for the session time changes:

  • Inter-Continental Exchange (ICE) introduced their own grain and grain oil seed contracts to create direct competition with the CMEGroup.  ICE contracts are almost 24 hours per day.  To be competitive and keep their large commercial hedger accounts the CMEGroup had to change their hours.
  • Some market participants wanted the grain and grain oilseed trading platforms open in the morning when the monthly Worldwide Agricultural Supply Demand Estimates (WASDE) reports were released.

These reports are so important in the grain markets that the CMEGroup Exchange started opening the trading pits earlier on report days so traders could provide liquidity and react to the report numbers in real time. At least it allowed traders to exit bad positions even if the liquidity was less than perfect prior to the RTH session.

For many years the Exchange would suspend trading each morning from 8:45 a:m Eastern Time (ET) to 10:30 a:m ET.  The monthly report would be released during this suspension of trading and it allowed commercial hedgers and speculators alike time to understand the report before committing capital.  This all sounded good in theory, but once trading resumed at 10:30 a:m ET many times the results were either a Limit up or down move on the resumption of trading, causing many participants to be trapped in the market.

Here we are almost a year later and now the CMEGroup has decided to change the hours again.  These are just some of the growing pains the Exchanges are faced with electronic trading hours.  This won’t be the last change that has to be made to a Futures contract specification, so keep up to date with these and other changes that may impact the market you choose to trade.

As any good professionally run company would do, the CMEGroup kept abreast of these changes in June 2012 by conducting surveys of some 4,000 customers. There were online surveys, personal meetings and several group discussions to determine what hours would be most beneficial for the majority of participants.  Obviously they are not going to please everybody, but they did the best they could under the circumstances.  The survey started in December and before it was even finished the CMEGroup announced they would revise the current trading hours for the grain and grain oilseed markets.

After hearing complaints like these about how the 21 hour trading day caused…

  • Back office work to be more difficult and incur more labor cost to keep up with the additional trading hours
  • Concerns that liquidity would be poor during the night session or during report times prior to the RTH session where the majority of volume is traded

…the CMEGroup took immediate action to help resolve the issue while at the same time trying to please the majority of customers.

Another event has happened in the grain industry since these original changes were made.  The United States Department of Agriculture (USDA) has changed the release time of the monthly WASDE report.  Instead of being released in the mornings around 9:30 a:m ET they have now begun to release the report at 12:00 p:m ET.  As of this writing the USDA has said they will not change their report release time and it will continue to be at 12:00 p:m ET regardless of the CMEGroup’s new trading hours.  Why is it I get this feeling that the CMEGroup lobbyist will be fighting this and soon we will probably see a different report release time?  Stay tuned!

The new trading hours will go into effect on April 8, 2013 and will impact the following Futures and Options markets:

  • Corn
  • Soybeans
  • Wheat
  • Soybean Meal
  • Soybean Oil
  • Rough Rice
  • Oats
  • Kansas City Board of Trade (KCBT) Wheat

The daily settlement price for both electronic and pit trading will be calculated on the closing price at or around 2:15 p:m ET each trading day.

  • Sunday – Friday,

Electronic trading from 8:00 p:m ET to 8:45 a:m ET

  • Monday – Friday,

Suspended Electronic trading from 8:45 a:m ET to 9:30 a:m ET

  • Monday – Friday,

* Pit session (RTH) trading from 9:30 a:m ET to 2:15 p:m ET

* RTH session and the Globex platform will trade simultaneously during this time.

As of April 8, 2013 the Grain complex on the CMEGroup will be open for trading for 17.5 hours instead of the current 21 hours.

For swing traders you will still be able to place your orders for execution at anytime during the 17.5 hour electronic session.  For day traders I would recommend you only trade these markets during the RTH sessions as this is the time of day with the majority of volume.  Liquid markets are much more forgiving when exiting a bad trade.

” An idea that is developed and put into action is more important than an idea that exists only as an idea.”  Buddha

– 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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