Hi guys, hi from Andrea Unger! Today, I’d like to introduce some markets that are not as popular as the most commonly traded ones. They belong to the Meat and Soft Commodity Markets and are very interesting.
The Meat Market includes the following futures:
- Live Cattle (LE or LC);
- Lean Hogs (HE or LH);
- Feeder Cattle (GF or FC).
As you can see, these markets can have different codes, so, you can have problems if you stick to one only.
Live Cattle is a very interesting market, especially for those who don’t have large trading capitals. In fact, you can find some interesting approaches also with tight stops ($400-$500).
As it’s quite difficult to find good models in intraday, you can consider overnight. In this case, too, tight stops can work pretty well.
However, keep in mind that these systems also have some cons. As a first thing, their operating session has changed more than once throughout the years. This means that, when you backtest your strategies, you may find some problems due to different operating times.
So, be aware of that and consider either to test on the same session that is valid today also in the past, or to take care of exploring all the different changes that have taken place throughout the years.
Another minor but important issue is that these futures are closed for many hours in the night. So, they can obviously experience some gaps. This may worry some traders, especially because overnight strategies work better on these systems.
You should also remember that these futures have some limit-up and limit-down that stop trading. So, it might happen that, at a certain level, you might not be even able to place your trade. This is particularly dramatic in case you have to place a stop-loss, because if you cannot exit at the desired level because it isn’t possible to trade over or below that level, you’ll obviously be quite frustrated.
Another thing to consider is that Lean Hogs and Feeder Cattle are cash-regulated. This means that, on expiration, they give you the money you gained or take that you lost directly on your trading account. This can cause some problems.
If you have an open position on Live Cattle, you can’t keep it open beyond a certain date. My broker normally sends me some emails when that date is approaching (first notice, last trading day, etc.), so that I can organize myself to roll the position into the new expiry.
In the case with Lean Hogs and Feeder Cattle, my broker doesn’t send me any email, because there’s no problem with the settlement of futures, as I simply cash it. The point is that, sometimes, when you have plenty of strategies working, you forget about your positions (it happened to me twice) and reach the expiry with an open position. So, you have to wait a couple of days before they pay or withdraw the money from your account for that specific position.
Sometimes, this makes you feel quite lost in the middle of nowhere. You don’t know exactly what to do and can’t roll into the new expiry, because the previous position is still open. This isn’t dramatic, but you should consider it when you trade these futures.
The Soft Market gathers some interesting commodities. These include Cocoa and Sugar, which are both interesting markets. Sugar is very liquid, whereas Cocoa is a bit less liquid. I think it’s better to trade them overnight. You can trade both of them – but Cocoa in particular – with tight stops, so you don’t need a large capital.
The Soft Commodity Market also includes Coffee. This is an interesting market as well, even if it’s very nervous. So, pay special attention and, if you’re a beginner, consider focusing on quieter and less dangerous markets.
Coffee is good for intraday but, as its moves are very fast and sudden, it can be hard to manage it, especially at the beginning of your trading activity. So, even if it’s very interesting, you’d better consider it at a later stage.
Another possible problem with Cocoa, Sugar and Coffee is that they are exchanged on ICE. Differently from Globex, which allows you to buy data at a lower fee if you are a non-professional, ICE requires a high monthly fee (over $100/month) that cannot be reduced. This may ruin your plans for this market, as you might feel that this cost is excessive, if you compare it to the benefits you might have in trading these futures.
Although we’re not talking about indexes, I remind you that the e-Mini Russell has recently moved to the ICE market.
To conclude, these are nice markets, but you have to pay an extra fee to get data. So, they may not be something that you want to consider at an early stage.
That’s all about the meat and soft markets. Stay tuned and look for other posts about markets in our blog.
Ciao from Andrea Unger!