Metals Trade in Chicago?

The COMEX and CBOT futures markets share four common metals contracts: gold, silver, mini-gold, and mini-silver. Besides the four gold and silver contracts, the COMEX/NYMEX also offers metals futures contracts for copper, aluminum, platinum, palladium, uranium and steel. In comparing the gold and silver contracts for COMEX and CBOT futures, there are some similarities, as well as differences.

If you are planning on trading open outcry metals Chicago is not the place for you. CBOT futures for metals are only traded electronically while COMEX gold and silver are traded both electronically and in the pit; open outcry hours are from 8:20 to 1:30 ET for gold and 8:25 to 1:25 ET for silver. The electronic hours offered by the CBOT differ from those offered by the COMEX. COMEX first introduced 24-hour metals trading on its GLOBEX platform in December of 2007. COMEX electronic trading starts at 6:00 P.M. ET on Sunday and goes until 5:15 P.M ET on Sunday, with a break in trading from 5:15 P.M. to 6:00 P.M. ET, Monday through Thursday. CBOT futures electronic trading hours for gold and silver are from 6:16 P.M. to 4:00 P.M. CT, Sunday through Friday.

CBOT futures ticker symbols are ZG for gold and ZI for silver. For the COMEX metals, the gold ticker symbol is GC and the silver ticker symbol is SI. The contract months for the gold and silver futures contracts traded on the COMEX and CBOT are the same. Gold futures contract months are the current month, next two months, February, April, August, and October – within a 23-month period – and June, December within a 60-month period. For silver, the contract months are the current month, next two months, January, March, May, and September – within a 23-month period – and July, December within a 60-month period.

The gold and silver contracts offered for COMEX and CBOT futures have the exact same specifications relating to size. The gold contract equals 100 troy ounces and the silver contract equals 5,000 troy ounces. The minimum tick value for the gold contracts is also equivalent. Although the contract size is the same for both silver contracts, the minimum tick values differ. The smallest tick a COMEX silver contract can move is .005 cents/ounce or $25/contract. The minimum tick for the CBOT futures silver contract is .001 cents/ounce or $5/contract. Looking at the contract differences as well as discrepancies in volume, open interest, and volatility between the COMEX and CBOT futures contracts is essential in finding the right market for you.

Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

Metals Prices – Futures vs Cash Market

It is important to distinguish cash market from futures markets when looking at a particular commodity. Many people do not realize that there is a difference between the two. The futures market is essential to a producer’s need to hedge against the actual commodity that they hold in their warehouse. In the paragraphs to come I will discuss the differences between cash markets and futures markets, and their advantages as well as disadvantages.

There are two basic options that exist for producers who want to forward price: forward pricing through cash contracts, and forward pricing directly through the futures market. Producers have commonly used the cash contracts, but did you know that only 5% of all farmers in the US use the futures market directly? Why would this be? Are cash contracts that much better than the futures market? Probably not; the real reason lies in a lack of knowledge.1

Let’s take a brief look at the advantages and disadvantages of forward pricing in the futures market vs. forward pricing through the cash market. Perhaps the most important point to keep in mind when discussing cash contracts and the futures market is that each time a contract is offered to a producer, someone is making that contract available by using the futures market. Because of this, cash contracts – at any point in time – will usually be less in price than a forward price in the futures market. By using a cash contract, we are paying someone else to forward price in the futures market for us.

Another advantage offered by using the futures market as compared to cash contracts results from the added marketing flexibility offered through the futures market. You can usually offset your contract at any time, meaning you do not have to deliver on the futures contract. With cash contracts, however, you are locked into delivering the amount of product at the price specified. This can create problems when crops fail to meet contracted levels or when potentially profitable copper prices must be passed up because of the fear of over-contracting.

Of course, all is not gravy in the futures market. Some of the disadvantages include the need of putting up margin money (good faith money required in order to trade futures contracts), the complexity of the market, and the understanding required to trade contracts. Another disadvantage is the inability to lock in an exact price (the price relationship between futures and cash markets, called basis, will fluctuate within a small range making a precise determination of forward prices offered impossible). Also, many producers desire to price less than the minimum standard contracts called for in futures markets. An example of this problem would be the producer with less than 25,000 pounds of copper (smallest copper futures contact) or 44,000 pounds of aluminum (smallest aluminum futures contract).

Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.