Exchanges Have a Soft Spot for Softs
By Kristina Zurla Landgraf ISSUE 602 | FEB 2007
Traders interested in the softs futures markets now have more venues than ever to trade them. The lines between exchanges, products, and platforms have blurred, and for you as a trader, figuring out what you want to trade and where can be a little confusing. The New York Board of Trade (NYBOT) recently launched electronically traded softs futures contacts on the IntercontinentalExchange's (ICE) platform, while the New York Mercantile Exchange (NYMEX) launched electronically traded softs futures on the Chicago Mercantile Exchange's (CME) Globex platform. The NYBOT and NYMEX contracts have different contract specifications, different symbols, and are NOT fungible with other. That means you must offset your trade on the same exchange (NYMEX or NYBOT) you initiated it on.
The NYMEX products are purely electronic and are cash-settled. NYBOT still offers its longstanding open-outcry softs contracts, but now they trade side-by-side during the daytime with duplicate electronic versions. NYBOT softs contracts are physically settled, and electronic and open-outcry NYBOT softs are fungible with each other. That means you can enter a trade in a NYBOT open-outcry contract, and offset with the corresponding electronic contract, or vice versa.
Deciding Which to Trade
As you explore trading any newly launched product, our Lind Plus brokers say liquidity is the first thing you should consider. If a market is lacking the necessary volume to allow you to execute your trades properly, you probably want to stay away.
For now, NYBOT's electronic softs, which trade side-by-side during the day with NYBOT's open-outcry softs contracts, are leading in the volume race. Volume on their ICE debut day of February 2, 2007, was 12,000 contracts, and had risen to more than 94,000 contracts by February 15, 2007. That represents just over 36 percent of the overall NYBOT softs volume–the rest being traded via open outcry. As of February 9, 2007, volume on the NMEX/Globex contracts was averaging less than 100 contracts per day.
"If a customer wants to trade softs, for now, I'd recommend sticking with the established NYBOT (open-outcry) contracts, because they are the most liquid. But I'd say let's look at the electronics in a few months and see how they develop," said Lind Plus Senior Market Strategist Carol Hurley.
Lind Plus Senior Market Strategist Matt Krupski said that while Globex is a great platform, it's not a surprise the NYBOT/ICE contracts have taken the early lead in terms of volume because large commercial interests (producers/hedgers) are more likely to require the physically deliverable NYBOT products. The speculators will then follow, driving up the volume overall.
Lind-Waldock offers access to trade all these electronic and open-outcry softs contracts, so ultimately, you have to decide which is right for you. Just because you can trade a contract electronically, doesn't mean it's the right choice for everyone, or the right time right now to trade it, said Greg Gulotta, Lind-Waldock's Director of Trade Center Operations. He said there is nothing "wrong" with sending orders to the floor for open outcry. "I'm in favor of letting the customer base decide where to trade," he said.
Clearly, if you want to trade softs futures, you need to pay close attention to choosing the correct contract and exchange that you want to trade. So, what are the differences?
Overview of NYBOT Softs Contracts on ICE
Electronic trading for the NYBOT contracts on ICE operates from 12:30 a.m. to 2:15 p.m. CT for NYBOT's sugar #11, sugar #14, cotton #2, coffee "C" and cocoa contracts. Electronic trading hours for frozen concentrated orange juice are 6:00 a.m. to 2:15 p.m. CT. NYBOT softs contracts are physically delivered. More contract details:
| Contract | L-W Symbol | Contract Size |
| Cocoa | ICC | 10 metric tons |
| Minimum price movement: $1 per metric ton, equal to $10 contract and approximately $.05 cent per pound. |
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| Coffee | IKC | 37,500 pounds |
| Minimum price movement $0.05 cent per pound, equal to $18.75 per contract. |
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| Cotton #2 | ICT | 50,000 pounds net weight |
| Minimum price movement is $.01 of a cent (one "point") per pound below 95 cents per pound; $.05 of a cent (or five "points" per pound per pound at prices of 95 cents per pound or higher. (Point value of $5/contract). |
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| Sugar #11 | ISB | 112,000 pounds (50 long tons) |
| Minimum price movement is $.01 cents per pound, equivalent to $11.20 per contract. |
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| Sugar #14 | ISE | 112,000 pounds |
| Minimum price movement is $.01 cents per pound, equivalent to $11.20 per contract. |
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| OJ | IOJ | 15,000 pounds orange juice solids |
| Minimum price movement is $.05 of a cent per pound, equal to $7.50 per contract. | ||
More information on NYBOT softs on ICE.
Overview of NYMEX Softs on GLOBEX
Electronic trading hours for NYMEX softs on Globex are from 5:00 p.m. - 4:15 p.m. Sunday through Friday, CT. These soft futures are financially settled (cash-settled) and include NYMEX cocoa, coffee, cotton, FCOJ (frozen concentrated orange juice), sugar #11, and sugar #14. More contract details:
| Contract | L-W Symbol | Contract Size |
| Cocoa | CJ | 10 metric tons |
| Price quotation is U.S. dollars per metric ton; minimum price increment is not less than $1 per metric ton. |
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| Coffee | KT | 37,500 pounds |
| Price quotation is U.S. dollars per pounds; minimum price increment is $.0005 per pound. |
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| Cotton | GTT | 50,000 pounds net weight |
| Price quotation is U.S. dollars per pound; minimum price increment is $.0001 per pound. |
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| OJ | FJ | 15,000 pounds orange juice solids |
| Price quotation is U.S. dollars per pound; minimum price increment is $.0005 per pound. |
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| Sugar #11 | GYO | 112,000 pounds |
| Price quotation is U.S. dollars per pound; minimum price increment is $.0001 per pound. | ||
| Sugar #14 | ISE | 112,000 pounds |
| Price quotation is U.S. dollars per pound; minimum price increment is $.0001 per pound. |
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More information on NYBOT softs on Globex.
Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com.
Futures trading involves substantial risk of loss and is not suitable for all investors.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
© 2007 Lind-Waldock, a division of Man Financial Inc. All Rights Reserved.
