Trading Psychology 101: Doing Away With The Concept Of ‘After The Market …

The CME’s little experiment in 21-hour grain-trading days offers more evidence that traders will trade on market-moving information immediately, given the opportunity.

Exchange operator CME Group Inc.’s controversial move last year to lengthen the trading day for its benchmark agricultural markets has led to “brief shocks” to prices around the release of key U.S. government crop reports, which previously came out when markets were closed, according to the Kansas City Fed paper….

In April, CME reduced its trading session for some agricultural markets to a 17.5-hour day from 21 hours, bowing to some customers’ concerns. But contracts still can be bought and sold during the release of market-moving reports from the U.S. Department of Agriculture. Prior to last year’s expansion, the market was open 17 hours per day, and key USDA reports came out early in the morning, before trading began.

Some traders say that permitting trading during the USDA release times enables electronic traders to abruptly shift futures prices before grain merchants and other commercial players have time to parse the often-complex reports, which detail the supply and demand of major agricultural commodities.

“There has been a fairly distinct pattern” of spikes in volatility after USDA reports hit the market, said Nathan Kauffman, an economist at the Kansas City Fed’s Omaha branch and the author of the paper, which was published on the bank’s website last week.

Mr. Kauffman wrote that the swings, which he found typically last 30 to 60 minutes, can be a headache for agricultural producers that manage their price risk throughout the day. Grain elevators and other commercial entities that don’t trade actively throughout the day may not notice much change under the new structure, Mr. Kauffman wrote.

Longer Hours Increased Corn-Trading Volatility [WSJ]

Leave a Reply