Leveraging CME Group Asia Trading Hours Liquidity for Cross Commodity Trading
Cross commodity trading is one of the strategies commonly adopted by proprietary trading firms, asset managers, and professional traders. By holding multiple assets at the same time, this strategy can help reduce exposure to a single set of market events that may affect one asset class more significantly than another. This trading strategy is possible with the CME Group markets offering global futures and options benchmarks across energy, metals, and agriculture.
Table 1. Daily return correlationsi – price movement relationships among major commodity futures at CME Group
Source: CME Group
Market participation in these major commodity markets, namely the WTI Light Sweet Crude Oil and Henry Hub Natural Gas in the energy market, Gold and Copper in the metals market, and Corn and Soybean in the agriculture market, has expanded over the past decade and this is particularly evident for the Asia time -zone. The effects of this have resulted in greater depth of market and higher trading volumes during the Asia trading hours (defined as 8:00 a.m. to 8:00 p.m. Singapore time).
Table 2: Asia hours take larger share of global volumes
Source: CME Group
Deep liquidity across Asia hours
When looking at recent activities by hour during Asia time zone, volumes concentrated at 09:00 hour Singapore time, partly reflecting the market open trading activity in Corn and Soybean futuresii
Volumes also tend to increase approaching the Asia afternoon when the European day starts, and greater number of firms enter into the market. Overall volumes reached more than 27,000 lots per hour during Asia hours in the first quarter of 2023.
Strong activities throughout Asia trading hours (Singapore time)
Source: CME Group
To further examine market liquidity during Asia hours, we have measured the best bid/ask spread and quantity in the six commodity futures.[i] The bid/ask spread has a direct impact on market participants’ trading cost. On the other hand, the bid/ask quantity measures the size of trades needed to move the market price.
Table 3 shows the average bid/ask spread by hour of the most active contract month in each market during the first quarter of 2023. For example, for the first two weeks in January, the WTI February contract was the most active contract where most trading activities reside. The liquidity gradually shifted to the next month as the February contract approached expiry and the March contract became the most active contract.
The bid/ask spread is expressed in number of minimum price fluctuations (ticks) and represents the difference in the best bid price and best ask price (i.e.,a.k.a. top-of-book bid/ask spread) in the central limit orderbook.
All six commodity futures markets exhibited competitive bid/ask spreads during Asia trading hours, with Corn futures showing the most consistent spreads. Hourly spreads in Corn futures active contract month averaged from as low as 1.02 ticks to its largest at 1.11 ticks. The 0.09-tick difference represents only about 9% of the average of all hourly spread (1.05 ticks).
Other markets also observed tight Asia hours bid/ask spreads. The difference in the widest and the narrowest spread in WTI, Gold, Copper, and Soybean futures ranged from 0.31 ticks to 0.51 ticks, showing consistent book quality with no single hour spread averaged more than 2 tick wide. The hourly spread size for Natural Gas futures varied in wider range of 1.02 ticks, but still averaged 2.47 ticks during Asia hours, only 11% more compared to the all-hour average, which was 2.22 ticks.
Table 3. Average of best bid/ask spread (ticks)
Corn and Soybean Globex trading is closed for the greyed-out hours.
Source: CME Group
Table 4. Average of best bid/ask quantity (lots)
Asian markets trade on U.S. futures liquidity
Share of Asia hours increased as global volumes grew
