Factors such as the war in Ukraine have contributed to the overall higher levels of price volatility as traders turn to the financial markets to manage risk. CME Group has been a beneficiary of this change with tight bid ask spreads and greater trading depth observed across the markets during European hours.

Defining the London trading day from 7:00 a.m. to 2:00 p.m. UK time represents a period when the trading activity from Asian markets typically slows and before America’s trading day begins.

European trading volumes tend to concentrate in the period from 11:00 a.m. UK time onwards, which is ahead of the daytime U.S. trading hours. On a typical trading day, there is a steady buildup in futures trading volume over the eight-hour period of the non-U.S. daytime trading session. Based on the trading volume data for 2022 for the core CBOT Agricultural futures contracts, volumes have averaged around 12,500 lots per hour, but the higher volumes are weighted towards the middle and end of the trading session ahead of the start of U.S daytime trading hours.

To further examine market liquidity in non-U.S. daytime hours, Table 1 shows the best bid/ask spread and quantity for Corn, Wheat, Soybeans, Soybean Meal, and Soybean Oil futures. The spread represents the difference between the best bid price and the ask price in the market, which has a direct impact on participant’s trading cost. In addition, the bid/ask quantity measures the size of trades needed to move the futures price. The bid/ask spread and quantity are effective measures of market liquidity and traders use these to determine the types of trading strategies they are going to implement.

Table 1 shows the best bid/ask price spread by hour of the most active contract month in each market during the month of February 2023. The spread is expressed in number of minimum price fluctuations (ticks) and represents the difference between the best bid price and best offer price in the market. This is also commonly referred to as the top of book bid/ask spread.

Over the 7:00 a.m. to 2:00 p.m. (UK hours) period, Corn futures exhibits the tightest overall bid/ask spread followed by Soybean and Soybean Meal futures. The Corn futures bid/ask spread was as narrow as 1.05 ticks and as wide as 1.07 ticks while the whole day average was 1.04 ticks, which represents a variance of 0.96% between the average bid/ask spread in European hours and the all-day average.

In Soybean futures, the bid/ask spread was as narrow as 1.26 ticks and as wide as 1.32 ticks while the whole day average was 1.26. This represented a variance of 3.1% between the all-day average bid/ask spread and the European hours bid/ask spread.

Source: CME Group data

The average top of book¹ bid/ask order quantity is robust. Table 2 shows the top of book bid/ask quantity by hour of the most actively traded contract month during the month of February 2023. It measures the average top of book bid and ask quantity in number of contracts. Typical order quantities observed during non-U.S. daytime hours remain comparable to those seen across the trading day.

In the Corn futures market, the average top of book order quantity measured across the trading day was 89.06 lots. By comparison the average order quantity during non-U.S. daytime hours from 7:00 a.m. to 2:00 p.m. London time was 68.29 lots. Similarly in the Soybean market, the average top of book order quantity measured across the trading day was 15.87 lots with the non-U.S. daytime hours volume averaging 12.79 lots, using CME Group data.

Source: CME Group data

The depth of non-U.S. daytime hours Grain and Oilseed futures liquidity on CME Globex – in terms of the volume per hour, bid/ask spread, and the bid/ask quantity – provides EMEA-based firms a platform to trade CME Group Agricultural benchmark contracts during their morning and early afternoon time zones.

Corn futures have seen the largest growth in European trading hours liquidity. Average daily volume (ADV) in Corn futures during non-U.S. daytime hours reached 29,000 lots per day in 2022, a growth of 11,000 lots since 2012. A similar picture emerged in Soybean Meal futures with an ADV of 10,644 lots per day, an increase of 2,000 lots per day since 2017. There has been an 8% compounded annual growth rate (CAGR) in volumes since 2012, CME Group data showed.

In aggregate, total CME Group Agricultural futures and options volumes across these five key products averaged 115,000 lots per day in 2022, an increase of nearly 55,000 ADV since 2012. About 10% of the total Agricultural futures and options volumes are traded outside of daytime U.S. hours, which is an increase from the 6% level seen 10 years ago.

Commercial hedgers have expressed a preference to be able to manage price risk for these trade flows during the European trading day, but a lack of liquidity had made this more difficult to achieve historically.

The depth of European hours liquidity has improved in CME Group Corn, Soybean, Wheat, Soybean Meal, and Soybean Oil futures, meaning that traders can turn to the markets to hedge outside of daytime U.S. trading hours. This deepening in liquidity provides a platform for clients to better manage risk in the non-core hours. The higher trading volumes and tighter traded markets in the European day has made greater participation possible from the region.

¹ Top of book refers to the best bid/ask quantity in the market