T2W Trading Community

Soybean Oil Futures
Soybean oil futures trade in contracts of 60,000 pounds and are quoted in cents per pound. If you see a price of 38.20 it is actually referring to $0.3820 or .38.20 cents per pound. If the daily change was a positive .10, this represents a tenth of a cent price appreciation. Each 1/100th of a cent is worth $6 to the trader; thus each full handle or cent is equivalent to a profit or loss of $600 in the futures market. For example, if a trader went long bean oil futures from 37.00 and was forced to sell the position at 36.20 at a loss, the total damage to the trading account of the speculator would have been $480. This is figured by subtracting the purchase price from the sale price and then multiplying by $6.

37.00 - 36.20 = .80
80 x $6 = $480 (minus commission and fees)

The Meats
The complex known as "the meats" consists of feeder cattle, live cattle, lean hogs and the infamous pork bellies. Although new traders are naturally drawn toward pork belly trading I typically don't recommend it. Pork belly futures are thinly traded, leaving wide bid/ask spreads and excessive volatility.

Each of the meats are quoted in cents per pound and there are one hundred points to each cent. With the exception of feeder cattle which have a point value of $5, the meats have a point value of $4. Therefore, a penny move (100 points) would be equivalent to $400 in profit or loss in live cattle, lean hogs and pork bellies. An equivalent move in feeder cattle would yield a profit or loss of $500.

The meat contracts are commonly quoted with decimals and can cause confusion. Don't assume that because there is a decimal in the quote that it is meant to depict dollars and cents. The digits beyond the decimal point are referring to the fraction of a penny in which the price is trading. For example, if feeder cattle are trading at 110.90 this is equivalent to $1.10 and 9/10ths of a cent.

Let's look at an example on how profit and loss would be calculated when trading live cattle. A trader long live cattle from 99.30 gets filled on a limit order working at 102.40. This trade was profitable by 3.1 cents or $1,240 and can be calculated subtracting the entry price from the sales price and multiplying the difference by the multiplier. In the case of live cattle it is $4 a point or $400 per penny.

102.40 - 99.30 = 3.10
3.10 x $4 = $1,240 (before commissions and fees)

Foods or Softs
Coffee, orange juice, cocoa and sugar all fall into a category often referred to as the "softs". With the exception of cocoa, each of these contracts are quoted in cents per pound. Accordingly, although the multiplier will be different the methodology in figuring out profit, loss and risk on a trade will be very similar to that of the meats. Cocoa, on the other hand is quoted in even dollar amounts per ton and prices are not broken down into cents. In other words, if cocoa is trading at 2100, it is actually going for two thousand one hundred dollars per ton. There are ten tons in a contract, so if the daily price change is +14, multiply by ten or add a zero to get the true dollar amount. In this case a trader would have either made or lost $140. If this confuses you, you can simply multiply the change in price by $10.

Coffee trades in contracts of 37,500 pounds making each penny of movement worth $375 to the trader. For example, if prices move from 120.00 to 121.00 a trader would have made or lost $375 before considering transaction costs. Similar to the meats, the decimal point isn't meant to separate dollars from cents it is a way of breaking each penny into fractions of a penny. Thus, if the price rises from 120.50 to 120.00 it has appreciated by half of a cent.

An orange juice contract represents 15,000 pounds of the underlying product. Therefore, each cent of price movement results in a profit or loss of $150 to a trader. Like the meats and coffee, orange juice is quoted in cents per pound with a decimal that simply represents a fraction of a cent. A trader long orange juice from 120.00 with the current market price at 118.50 has an unrealized loss of 1.5 cents or $225 (1.5 x $150).

Sugar #11 (not #14) futures are traded based on a contract size of 112,000 pounds. With that said, each tick in sugar is worth $11.20 to the trader and each full handle of price movement (or penny) is equivalent to $1,120. Once again, don't mistake the decimal for separation of dollars and cents. If sugar is trading at 12.20 cents it will be displayed by a quote service as 12.20. A trader long from 11.95 would be profitable at 12.20 by .25 cents, or $280, figured by multiplying the difference between the current price (12.20) and the purchase price (11.95) by the point value ($11.20).

Cotton isn't a food, it is a fiber. Nonetheless it is most often grouped with the softs due to the fact that it trades on the same exchange. Cotton futures trade in 50,000 pound contracts and are quoted in cents per pound; again, the decimal point isn't intended to separate dollars and cents. Rather it separates cents from fractions of a cent. In other words, if cotton is trading at 68.50 it is read as 68 1/2 cents. Due to the contract size, each tick of price movement is worth $5 to a trader; therefore if a speculator sells cotton at 65.40 and is stopped out with a loss at 67.30 the total amount of the damage would be 1.9 cents or $950 (190 points x $5).

Lumber futures are not traded on ICE with the other softs, but are often referred to in the same category. For reasons unknown, lumber futures attract beginning traders. Perhaps it is because it is the epitome of the definition of a commodity due to its widespread usage. Nonetheless, it is a sparsely traded contract by speculators and until liquidity improves I don't necessarily recommend trading it. I have only walked by the lumber trading pit once (at the CME before merging floors with the CBOT) and there were a total of three market makers passing the time by reading a newspaper. As a speculator, it is never a good idea to trade in a market in which your order will be one of a handful of fills in the entire trading day.

If you do insist on trading lumber you must be willing to accept wide bid/ask spreads and a considerable amount of slippage getting in and getting out of your position. The contract size for lumber is 110,000 board feet and it is quoted in dollars and cents. Accordingly each tick of price movement represents $11. In this case, the decimal is used in its usual context. If the market is trading at 246.80, it is interpreted as $246.80.