I'm new to trading Ag. Plan to trade wheat on cbot. Can anybody advise on the following: 1) Is it better to trade on open auction or electronically ? (I trade thru IB) 2) I am hoping to just focus on one contract month (at the most 2). Which contracts are the most liquid and tradeable ?
Electronically. Without a doubt. Unless you're going out to obscure back months, you'll find MUCH quicker fills and fewer surprises electronically. IB only offers CBOT wheat, they do not offer MGEX or KCBT, so you're kind of out of luck on any other wheat contracts. As for which months to trade, WN is the first new crop, WK is the last old crop. Both of those are always actively traded. The front month is probably the most liquid, however.
thanks for replies. I'm still looking thru the various contracts. Because I want to plot long term graphs, I'd prefer to use only 1 contract. Seems to me that the Z (dec) contract has the most volume over the contract life. Trading wise, I may trade different contracts, but I cannot be looking at several contracts for long term charts. Comments, advice ?
I'm not sure I understand what you're looking for. Are you trying to position trade wheat for 3+ months at a time? In general, you always want to be in the front month if you're speculating--it will have the most volatility and liquidity. Trading just the Dec contract will keep you from having to roll from month to month, but the moves will be smaller, and potentially even in a different direction from the front month. (New crop/old Crop is important--it's not just like a calendar in options, for example) Ideally, you should try to find a "rolling" data source for wheat. There are several places that will sell you data that is continuously back adjusted so that it there are no gaps or negative prices. I bought from these guys: http://www.pinnacledata.com/ I believe you can access rolled charts here: http://scarrtrading.com/front_tier/home.jsp
I guess I'm looking at the single month continuous contract - like the one found in scarrtrading website. I believe that there is more consistency in using a single month contract, that is over a long term period. That is more for analysis. I understand that when it comes to trading, it may be better to trade the front months as you mentioned. I don't hold position for 3 months or so. More like a few days, a week or so. I'm still trying to sort things out. Welcome any input.
For analysis, you should definitely find yourself a source of rolling contract data. It'll give you reliable support & resistance levels over months, even though those levels may span multiple contracts. I couldn't live without it. Looking at a single contract (like dec) and then making trading decisions using the front month is asking for trouble. Just look at some of the new crop/old crop activity this year in corn (wheat has basically dropped to carry this year, so the new and old crop are pretty much identical, but corn has been wild). Conceivably you could just trade the dec contract, but you'd probably get eaten alive in bid/ask spread and you wouldn't get the kind of moves you'd like. Also, trading off of news wouldn't work as well. (When supply changes, people come for the front month, not the back month. Back months follow when demand changes)
For analysis, I would still prefer a single contract (leaning towards Jul). However, I do agree with your point about using that to trade the front month - they don't always correlate well. Since the different contracts do not always move the same way, I don't feel comfortable using multiple contracts for long term analysis.
Maybe I'm misinterpreting this, but a rolling contract always uses the front month. When the front month is done (usually about the time liquidity starts to fall off), all back data is adjusted so it lines up with the new contract month, and the new month is added to the contract. In other words, it's kind of a rolling view of the front month. Historically, this analysis works extremely well. There have been many studies done that properly back-adjusted data performs much better on automated systems than non-adjusted, or single contract data. I don't trade automatically, but the results led me to believe the continuous data would be useful for discretionary trading. I've been using this type of data for years with success.