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
12-M |
WTI |
Henry Hub |
Gold |
Copper |
Corn |
Soybean |
---|---|---|---|---|---|---|
WTI |
1.0000 |
|||||
Henry Hub |
0.1836 |
1.0000 |
||||
Gold |
0.3311 |
0.0937 |
1.0000 |
|||
Copper |
0.5086 |
0.1084 |
0.5533 |
1.0000 |
||
Corn |
0.3882 |
0.2030 |
0.1821 |
0.2701 |
1.0000 |
|
Soybean |
0.3735 |
0.0738 |
0.2363 |
0.4609 |
0.4636 |
1.0000 |
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
Year |
WTI |
Henry Hub |
Gold |
Copper |
Corn |
Soybean |
Asia Hours % |
---|---|---|---|---|---|---|---|
2012 |
46,843 |
12,320 |
42,584 |
19,014 |
17,829 |
21,474 |
10% |
2022 |
148,450 |
22,466 |
67,746 |
26,724 |
37,416 |
31,109 |
17% |
10-Year Growth |
217% |
82% |
59% |
41% |
110% |
45% |
|
10-Year CAGR |
12.2% |
6.2% |
4.8% |
3.5% |
7.7% |
3.8% |
|
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)
Hour Starting (Singapore Time) |
WTI |
Natural Gas |
Gold |
Copper |
Corn |
Soybean |
---|---|---|---|---|---|---|
0:00 |
1.28 |
1.72 |
1.32 |
1.39 |
1.02 |
1.11 |
1:00 |
1.27 |
1.70 |
1.31 |
1.38 |
1.02 |
1.10 |
2:00 |
1.29 |
1.71 |
1.35 |
1.50 |
1.02 |
1.11 |
3:00 |
1.28 |
1.82 |
1.40 |
1.56 |
1.03 |
1.12 |
4:00 |
1.30 |
2.02 |
1.39 |
1.49 |
|
|
5:00 |
1.43 |
2.29 |
1.41 |
1.48 |
|
|
6:00 |
1.73 |
1.96 |
1.82 |
1.84 |
|
|
7:00 |
1.49 |
2.72 |
1.55 |
1.58 |
|
|
8:00 |
1.41 |
2.53 |
1.40 |
1.55 |
1.11 |
1.41 |
9:00 |
1.42 |
2.46 |
1.40 |
1.62 |
1.09 |
1.37 |
10:00 |
1.37 |
2.51 |
1.38 |
1.61 |
1.07 |
1.31 |
11:00 |
1.33 |
2.46 |
1.37 |
1.60 |
1.05 |
1.32 |
12:00 |
1.27 |
2.37 |
1.34 |
1.56 |
1.06 |
1.34 |
13:00 |
1.30 |
2.42 |
1.36 |
1.60 |
1.06 |
1.31 |
14:00 |
1.39 |
2.43 |
1.43 |
1.59 |
1.04 |
1.28 |
15:00 |
1.34 |
2.61 |
1.36 |
1.59 |
1.06 |
1.27 |
16:00 |
1.33 |
2.46 |
1.37 |
1.66 |
1.06 |
1.32 |
17:00 |
1.31 |
2.56 |
1.36 |
1.62 |
1.08 |
1.31 |
18:00 |
1.31 |
2.49 |
1.36 |
1.61 |
1.06 |
1.28 |
19:00 |
1.29 |
2.36 |
1.33 |
1.56 |
1.06 |
1.27 |
20:00 |
1.28 |
2.25 |
1.33 |
1.51 |
1.06 |
1.29 |
21:00 |
1.29 |
1.97 |
1.35 |
1.45 |
1.06 |
1.27 |
22:00 |
1.28 |
1.74 |
1.35 |
1.44 |
1.02 |
1.14 |
23:00 |
1.29 |
1.70 |
1.35 |
1.44 |
1.02 |
1.12 |
Asia hours Average |
1.34 |
2.47 |
1.37 |
1.60 |
1.07 |
1.32 |
All hours Average |
1.35 |
2.22 |
1.39 |
1.55 |
1.05 |
1.25 |
Corn and Soybean Globex trading is closed for the greyed-out hours.
Source: CME Group
The average bid/ask order quantity recorded in Q1 2023 is also robust. Table 4 below shows by hour the average bid/ask order quantity in the most active contract month in each market. It measures the average top-of-book bid and ask order quantity in number of contracts on CME Globex.
Asia hour order quantity remained comparable to the rest of the hours. Among the different products, Corn futures order quantity shows the largest difference when comparing among different hours. This is due to high level of activities recorded during U.S. trading hours. That being the case, the average quantity in corn market was 46.84 for Asia hours and is the highest among all six markets.
Table 4. Average of best bid/ask quantity (lots)
Hour Starting (Singapore Time) |
WTI |
Henry Hub |
Gold |
Copper |
Corn |
Soybean |
---|---|---|---|---|---|---|
0:00 |
7.98 |
6.00 |
7.85 |
7.07 |
124.46 |
20.67 |
1:00 |
8.30 |
6.03 |
8.36 |
7.03 |
132.02 |
22.77 |
2:00 |
8.62 |
5.91 |
8.05 |
6.71 |
151.84 |
24.50 |
3:00 |
9.12 |
5.71 |
7.15 |
5.59 |
181.42 |
25.99 |
4:00 |
7.81 |
4.64 |
6.98 |
5.22 |
|
|
5:00 |
6.21 |
3.90 |
6.41 |
4.88 |
|
|
6:00 |
4.38 |
3.49 |
4.75 |
4.11 |
|
|
7:00 |
5.36 |
3.15 |
5.47 |
4.49 |
|
|
8:00 |
5.98 |
3.27 |
6.42 |
4.84 |
32.06 |
9.53 |
9:00 |
5.98 |
3.46 |
6.41 |
4.97 |
43.47 |
10.25 |
10:00 |
6.44 |
3.28 |
6.53 |
5.27 |
41.32 |
9.95 |
11:00 |
6.69 |
3.39 |
6.68 |
5.01 |
41.44 |
8.90 |
12:00 |
7.44 |
3.54 |
6.99 |
4.99 |
44.28 |
9.23 |
13:00 |
7.04 |
3.43 |
6.93 |
5.16 |
45.24 |
9.66 |
14:00 |
6.37 |
3.33 |
6.87 |
5.18 |
48.78 |
11.17 |
15:00 |
6.61 |
3.25 |
6.29 |
4.20 |
49.38 |
11.07 |
16:00 |
6.79 |
3.45 |
6.44 |
4.35 |
52.26 |
11.14 |
17:00 |
6.97 |
3.23 |
6.48 |
4.53 |
51.46 |
11.20 |
18:00 |
6.95 |
3.18 |
6.58 |
4.66 |
53.92 |
11.67 |
19:00 |
7.24 |
3.55 |
6.82 |
4.88 |
58.44 |
12.58 |
20:00 |
7.28 |
4.14 |
6.73 |
5.33 |
63.03 |
12.95 |
21:00 |
7.26 |
5.03 |
6.82 |
6.42 |
71.13 |
14.92 |
22:00 |
7.59 |
5.96 |
6.95 |
6.62 |
99.36 |
19.34 |
23:00 |
7.70 |
6.21 |
7.24 |
6.96 |
118.67 |
20.43 |
Asia hours Average |
6.71 |
3.36 |
6.62 |
4.84 |
46.84 |
10.53 |
All hours Average |
7.00 |
4.19 |
6.76 |
5.35 |
75.20 |
14.40 |
Corn and Soybean Globex trading is closed for the greyed-out hours.
Source: CME Group
Asian markets trade on U.S. futures liquidity
CME Group flagship commodity markets exhibited strong growth as activities outside of U.S. trading hours continued to increase. Daily volume in 2022 in both WTI Crude Oil and Corn futures during Asia hours registered 3-digit growth rate against 2012 figures. WTI futures averaged close to 150,000 lots during Asia hours in 2022 and a 12% compound annual growth rate (CAGR) compared to 2012. The contract is also the largest among the six in terms of number of contracts traded. In the case for Corn futures, Asia hour average daily volume (ADV) grew 110% (7.7% CAGR) in the past 10ten years, averaging 37,400 lots in 2022 compared to 17,800 lots in 2012.
In the other commodity benchmark futures, volumes have also risen substantially from the levels seen a decade ago. The six commodity futures markets averaged close to 2 million contracts per day in 2022. Importantly, the share of Asia hours accounted for around 17% of the global futures volumes.
So far in Q1 2023, global daily volume of the six markets reached to almost 2.2 million lots per day, with Asia hours accounting for about 15% of the volume.iii
Share of Asia hours increased as global volumes grew
Source: CME Group
Conclusioniv
The increase in volume and participants during Asia hours have seen markets trading at Asia time zone at competitive bid/ask spreads and order quantities across the benchmark commodity markets. This provides a platform for Asia based clients to better execute their trades with efficiency, and to deploy cross commodities trading strategies for those who seek portfolio diversification or spread opportunities.
i Calculated based on front futures contract month prices.
ii Based on 2023 Q1 data.
CME Globex open hours for agriculture markets: Sunday – Friday: 7:00 p.m. – 7:45 a.m. CT and Monday – Friday: 8:30 a.m. – 1:20 p.m. CT
CME Globex open hours for energy and metals markets: Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. /CT) with a 60-minute break each day beginning at 5:00 p.m. (4:00 p.m. CT)
iii The calculation is based on orders of outright trades. Spreads orders are not included
iv All data as of Q1 2023 unless noted otherwise in the article.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.