Futures For YouQ&A
Futures For YouInside The Futures World
Want to find out how the futures markets really work? Carley Garner is the senior strategist for DeCarley Trading LLC, where she also works as a broker. To submit a question, post your question at https://Message-Boards.Traders.com.
Answers will be posted there, and selected questions will appear in a future
issue of S&C. Visit Garner at www.DeCarleyTrading.com and subscribe to her free e-newsletters. Her books Currency Trading In The Forex And Futures Markets, Commodity Options, and A Trader’s
First Book On Commodities, are available from FT
Press.
CME AND ITS CHANGES
The CME has made changes to the trading hours of various products. What was their motivation and what is the impact on traders and the markets?
The CME recently made two significant changes to the trading hours of some of their most popular contracts. The first was implemented in late May 2012 and greatly expanded the number of hours that traders could speculate in grain futures and options; the second went into effect in mid-November 2012 and altered the cutoff point between trading sessions in stock index futures and options.
What changes were made to CME Group grain trading hours, and why?
Following the changes implemented in the summer of 2012, CME Group grain futures and options trade 21 hours per day. Prior to the change, the markets were available 17 hours per day. Although 17 hours sounds ample, it was far less than most other commodity markets and failed to provide market access during the announcement of critical USDA reports, which are typically released early in the morning on various weekdays.
Under the new schedule, grain trading begins on Sunday afternoon at 5 pm Central time. The market then trades around the clock before pausing at 2 pm; trade then resumes at 5 pm Monday through Thursday; but trading halts for the weekend at 5 pm Central on Friday. In a nutshell, the market is closed only from 2 pm to 5 pm during the week but is open during all other times of the day.
I can’t speak on behalf of the CME Group, but from what I’ve gathered, there were two primary goals in expanding trading hours for grain products. First, the new hours created an opportunity for traders to immediately react to the USDA reports. Prior to the changes, traders were forced to digest the news for two hours before they were able to react in the marketplace. As you can imagine, inability to enter or exit a market following such an event opened the door to emotions running wild; this often triggered panicked trades on the market open.
There were hopes that the expanded hours would enable more efficient price discovery on announcement days and reduce market volatility. In my opinion, the move ended up being a success. However, it took traders several months to adjust to trading USDA reports in real time; in the short run, the result seemed to be higher price volatility.
The second premise behind the expanded hours was to compete with newly listed grain futures contracts on the competing Intercontinental Exchange (ICE). The CME’s move avoided any potential migration of traders from their grain products to ICE; this also seemed to be a successful tactic. The ICE grain futures have yet to see significant trading volume.
What changes were made to CME Group stock index hours, and why?
Stock index futures products such as the emini S&P 500, emini NASDAQ, and the emini Dow generally trade the same hours, as has always been the case. However, prior to the mid-November 2012 changes, stock index futures traded on the CME Group ended a trading day at 3:15 Central and began the next trading session 15 minutes later at 3:30 pm. After November 18, the current day’s session ended at 4:15 each day and the next trading session began at 5:00. Going forward, all trades taking place prior to 4:15 are applied to the current day’s activity, but any trade executed after the reopen at 5:00 is considered the next day’s business. To complicate the situation, there is a 15-minute pause in trading from 3:15 to 3:30 pm.
The trading hours for pit-traded stock index products such as the full-sized Standard & Poor’s 500 haven’t changed, and neither has the cutoff time between sessions.
The CME altered the cutoff time between sessions for stock index futures to comply with the SEC’s rule changes in regard to circuit breaker calculations. The changes are on a pilot program spanning from February 2013 to February 2014; thus, there are no guarantees the time changes will be permanent.
Why is it important to be aware of these time changes?
Being aware of the open and closing times can keep you in the good graces of your broker and help to avoid costly mistakes. After all, the closing time is the only point during a 24-hour period in which the exchange margin is levied and enforced. Accordingly, a daytrader going long emini futures contracts after the pause of trading from 3:15 to 3:30, but before the 4:15 close, might assume they are entering the position for the next day’s business (which was the case prior to November). The same trader might be shocked to receive a large margin call the next morning, along with a reprimand from his or her broker.
Similarly, a trader ignorant of the open and closing times might enter a stop or limit order to exit an open position with the assumption it will continue to work (be active) overnight. Unfortunately, if a trader enters an order between 3:30 and 4:15 it will “die” at 4:15. Only a good till cancelled order would continue to work into the next trading session. This is a simple fix, but to an unknowing trader, it might be an expensive lesson.