Commodity futures trading systems
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Commodity futures spreads are a lower risk approach to trading commodity futures that can be utilized by traders of all levels of experience. Commodity futures spreads are less sensitive to market moves than a pure commodity future position, and can provide a more conservative addition to an existing futures trading portfolio. We are going to delve in detail into commodity futures spreads and explain a range of key commodity spread trading strategies that traders can utilize to effectively trade the commodity futures market. A market is regarded as being in Contango when the value of the forward contract is higher than its spot price or the price of a contract expiring in an earlier month is lower than the price of a contract expiring in a latter month yielding in an upward sloping curve.
A market is in backwardation when the value of the forward contract is lower than its spot price or the price of a contract expiring in an earlier month is higher than the price of a contract expiring in a latter month generating an inverted sloping curve. This is because the nearer months are up for delivery earlier while prices are high because of demand supply imbalances, with the expectation that these conditions will ease closer to the latter delivery months.
For example, let us say in February , a March corn contract is priced higher than a December contract. In commodity futures contracts, near months react more quickly and by a larger quantum than farther months, in a bull market therefore, the prices of nearer month contracts will rise faster and further than a latter month contract. In such markets, a bull futures spread is a common strategy employed by traders. Here a trader would look to buy a nearer future contract and sell one further out, in the same market.
For example, assume a trader has the view that due to expected winter storms, the price of heating oil for January will be higher than the price of the forward May contract. Based again on the premise that nearer contracts react quicker and farther than later contracts, in a bear market price of nearer month contracts will fall faster and by a larger amount than those further out. In this scenario a bear futures spread strategy would be utilized by selling a nearer futures contract and buying one further out, in the same market.
For example, assume a trader has the view that an increase in supply of Soybean is expected to come into the market in September, putting pressure on the price of the upcoming month futures contract.
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The trader can then sell the Soybean September contract and buy the Soybean December contract to create the spread. Many commodities tend to be cyclical, meaning there are expected periods in the year where the commodity is expected to trade higher, and times that the same commodity usually trades lower. When the crop is most vulnerable — i. Similarly, commodities such as Heating Oil or Natural Gas are usually higher during the winter months due to higher demand. These seasonal changes are expected and usually priced in the future contract.
Thus, a trader may employ a bull futures spread during a seasonal phase when prices are rising and may use a bear futures spread when prices are declining due to seasonality. A trader can look to profit from this seasonality, both by trading an actual futures contract , or utilizing a futures spread trading strategy.
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However, unexpected weather conditions, such as a drought can affect the prices of grains and a warm winter, may drive the prices of heating oil lower than expected. In such conditions, trading the actual contract is riskier, not just because of higher margin requirements but also because the position is essentially unhedged, which may lead to higher losses and potential margin calls.
Risks may therefore be better managed by trading a futures spread instead of an actual contract. The company is dedicated to remaining at the forefront of options and futures technology, focused on building for the trader of tomorrow. BTS works continuously to optimize and expand its low latency electronic trading offering. Fast release cycles ensure the software responds quickly to changing industry conditions.
Critical production issues receive immediate attention from the support, engineering and management. The team takes pride in its work, holds itself to a high standard of quality and resolves issues quickly—all in vigorous support of its product and clients. Since launch, they added support for multi-asset class trading, including complete CME Globex coverage, options strategies, RFQs and booking of block trades.
Most recently, CME Direct integrated with premier options analytics provider QuikStrike to offer users access to cutting edge options and volatility tools. CME Direct clients can also take advantage of CME Pivot, an advanced instant messaging IM platform that integrates seamlessly with the front-end and provides clients intelligent message parsing and extensive collaboration technology. CME Direct is designed to meet a range of trading needs and provide support across the trade life cycle:. Traders and brokers find CME Direct particularly well suited to meet their futures and futures options trading needs.
Traders choose the best way to execute trades using CME Direct either online or through their voice broker. New versions of CME Direct are regularly released and automatically updated to ensure clients utilize the most current version with the latest features.
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CME Direct continues to add new functionality with a mobile version expected in the near future. CQG was founded in , well before the emergence of electronic trading, as a charting and quotes platform. The company, headquartered in Denver, Colorado, continued its leadership in charting and analytics by building an entire ecosystem around its flagship product CQG Integrated Client.
The advanced charting and analytics functionality of CQG make it ideal for technical traders. In addition to Hour call and email support, CQG offers free training with product specialists, an extensive YouTube library of support videos and an innovative collection of add-ons available through the CQG Workspaces website. Advantage witnessed tremendous growth in the popularity of CQG.
CQG serves professional traders who are more visually oriented or looking for a high level of support with the simplicity of one application. TradeSniper is a new client-side feature that allows trading and charting of numerous custom spread combinations. T4 Charts have a variety of studies and indicators as well as the ability to trade directly from a chart and export data into Excel. In addition to the existing model management, theoretical sheets and strategy solver, Options Pro now contains a FaST board, multi-account analyzer, estimated portfolio margin and shock matrix.
CTS offers both a. Both APIs provide access to all exchanges. An iPhone app will be available Q4 T4 allows each trader to customize the workspace for an easy transition from a multi-monitor desktop to a tablet or laptop. CTS offers a free trial in their simulation environment with live data and full functionality. With thousands of active traders, CTS is a formidable competitor.
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Valdi is a suite of global multi-asset trading solutions for listed equities, derivatives, commodities and fixed income instruments. Valdi provides market data; advanced trade, order, execution and liquidity management systems; as well as pre-trade and post-trade risk and compliance solutions. While the Valdi suite spans a broad range of software solutions, Valdi Futures Trader and Valdi Trader are the flagship products for derivatives screen trading. Valdi Futures Trader, the core Windows product, is a professional workstation specialized for Derivatives traders, providing simple and efficient ergonomics for selection, monitoring and trading of single-leg, complex and custom instruments.
The workstation is optimized to operate over private networks and the internet. Valdi Futures Trader is widely installed throughout the world and supports a broad range of trading styles across all major asset classes.
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Valdi Trader offers a variety of trading styles across major asset classes and trading venues, including spreading functionality with user-defined spreads. Valdi Trader adds specialist capabilities for multi-legged strategies and algorithmic and Excel-based trading. The workstations support sales and dealer functionalities for use with order management, position tracking and market-making applications.
Silvestri FISGlobal. Founders of OptionsCity began with two objectives: Create an enjoyable workplace and build great software. OptionsCity, since inception, pushes the limits of their software trading technology. OptionsCity upgraded both the functionality and performance of Metro, their flagship market making platform.
Additionally, they expanded their product portfolio this past year with new offerings for professional and retail traders. Metro offers options pricing and analytics with the ability to set skews, analyze Greeks and execute trades both manually and algorithmically.
The latest version provides enhanced functionality for energy traders and improved performance for those looking to stream quotes and make markets. The platform offers hosted servers in colocation facilities near supported exchange matching engines. Metro is available with various pricing bundles. New this year, OptionsCity CityTrader enables web-based execution of futures and options on futures products. The platform is available through any internet browser and offers some of the advanced options functionality of Metro including spread trading and the ability to submit RFQs.
The latest product offering from OptionsCity is City Execution, a futures and options execution application built directly into the Thomson Reuters news and analytics platform, Eikon. Eikon clients can realize significant savings by eliminating a third party platform and accompanying market data fees.