Futures trading involves understanding many different aspects of the markets to be a successful trader. One of them is the terminology of and the ability to identify the Globex overnight trading session.
In the mid 1980’s the Chicago Mercantile Exchange (now the CMEGroup) introduced an electronic trading platform called the Globex trading system. The popularity of electronic trading did not really catch on until the mid 1990’s with the introduction of the E-mini Stock Index Futures contracts. Part of the reason for this new style of order execution was for the CMEGroup to be competitive with its international competitor the Eurex Exchange, which is an all electronically traded Exchange.
Futures Exchanges in the United States had always used the open outcry trading style of trading pits on the Exchange trading floors. This required so much personnel to keep the Exchange running smoothly – resulting in much higher operating cost. The CMEGroup had the foresight to see that it needed to have an Electronic trading platform if it was to stay ahead of its overseas competition.
Futures Exchanges were created originally for one specific entity – the Commercial Trader. These market participants are very large corporations usually trading over 60% of any given Futures contracts daily volume. Futures Exchanges make profits with every contract that is traded. For each contract that is traded by either a Hedger (Commercial trader) or a Speculator (large or small) the Exchange collects an Exchange Fee that is built into the commissions that you pay.
When an Exchange has very high operating expenses such as one that trades with trading pits, they must pass this cost on to its customers in the form of higher Exchange fees per transaction. An Exchange with an all electronic platform has lower operating cost and can pass these savings on to its customers. This in turn can lure clients away from the Exchanges having to charge higher fees.
To keep from losing these large Commercial accounts the CMEGroup introduced electronic trading to its customers. Soon the Futures markets were able to be traded almost around the clock. During the day orders were filled in the trading pits and after hours the orders were filled electronically.
Originally the floor traders (members of the Exchange) would not allow the Globex electronic platform to trade while the trading pits were open. By allowing this they would not get all of the orders coming to the Exchange which is how they made their money by being a market maker for all the incoming orders.
This would then create two different trading sessions – Open Outcry and Electronic trading. During the day while the trading pits were open the market trading session was referred to as Regular Trading Hours (RTH). Then once the RTH session stopped the Globex electronic session also known as Extended Trading Hours (ETH) would trade until about 30 minutes before the next RTH session would open again.
Eventually the CMEGroup went public on the Nasdaq Stock Exchange, the floor traders could not stop progress and soon the Globex trading platform was trading simultaneously with the RTH session of open outcry.
Today the majority of all Futures volume is traded electronically. The RTH session still trades the most contracts even though they are traded electronically during this period.
When the Globex ETH sessions were first trading back in the mid 1990’s traders began creating trading systems to take advantage of the ETH session’s high and low that were created overnight. In our Pro Futures class we show our students how to take advantage of this daily scenario. In this article I am going to show you how to identify these sessions, but would strongly recommend you take our class to learn how we use the core strategy of supply/demand to place our trades.
Basically any Futures market that has a trading pit RTH session will also have a Globex session high and low. But this does not mean the Globex high and low is calculated from the same start and end time for all markets.
The Stock Index Futures RTH and ETH traded on the CMEGroup Exchange used to close at 16:15 ET daily. Then the new trading day would start at 16:30 ET via ETH Globex electronic trading. The Stock Indexes would trade through the night for approximately 17 hours and then the RTH session would open at 9:30 ET.
Finding the Globex high and low for this session was simply looking for the highest and lowest price between 16:30 ET and 9:30 ET.
Recently the CMEGroup changed the trading hours for Stock Indexes and now we have different times to look for these Globex high and low points. Instead of the Stock Indexes closing for the day at 16:15 ET they now trade until 17:15 ET. The Exchange stops trading these products temporarily each day at 16:15 ET and resumes at 16:30 ET until 17:15 ET. The new official opening price each day is at 18:00 ET. This is where the confusion for locating the Globex high and low is found.
Some traders like to use the price action beginning at 16:30 ET as the beginning of the Globex session. While this session is traded electronically it is actually just a continuation of the same trading days range. The official open for each trading day is at 18:00 ET and the high and low created from this point forward is a more accurate reflection of the Globex session. Traders will be watching their radar screens for a breakout of the Globex high and or low. The trading range that was created from 16:30 ET to 17:15 ET the prior day is not reflected on the radar screen anymore, only on their all session trading charts.
With these new time changes a trader should be looking for the Globex high and low between 18:00 ET and 9:30 ET each day. Once you locate these highs and lows you can identify them with horizontal lines.
In general whatever market you are trying to identify the Globex high and low for the official opening price for the day (happens the previous day) is the start time for Globex sessions.
This will allow for the South Pacific Rim and European sessions both to trade and produce reliable highs and lows for the session before the United States RTH session starts.
“Life is 10% of what happens to me and 90% of how I react to it” John Maxwell
– Don Dawson