Analyzing the 5 Most Liquid Commodity Futures

Commodity traders thrive in highly liquid markets that provide easy access to the world’s most popular futures contracts. Lower bid/ask spreads in these venues reduce slippage during entry and exit, thereby increasing profit potential. Meanwhile, less erratic price action supports short-term intraday and swing trading, as well as long-term position trading and market timing.

New participants often confuse commodity futures with index and financial futures contracts including the S&P 500, Eurodollar, and 10-Year Treasury Notes. Commodities represent real physical substances that can be bought or sold on spot markets.

They originate inside the Earth or on top of it—rather than in the minds of Wall Street mathematicians. Commodities have physical supply and demand limitations that impact pricing, while financial instruments can be created from numbers on a spreadsheet.

Key Takeaways

  • The Chicago Mercantile Exchange (CME) Group is ranked as the top futures exchange in the world, handling an average volume of more than 7.3 million contracts per day.
  • Like all world markets, commodity futures volume and open interest fluctuate in response to political, economic, and natural events including the weather.
  • Commodities attract fundamentally-oriented players including industry hedgers who use technical analysis to predict price direction.
  • The top five futures include crude oil, corn, natural gas, soybeans, and wheat.

CME Group: An Overview

The Chicago Mercantile Exchange (CME) is ranked as the top futures exchange in the world, handling an average daily volume in 2022 of 7.3 million contracts. The group was formed after a decade of consolidation that added the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), the Chicago Mercantile Exchange (COMEX), and the Kansas City Board of Trade (KCBT).

The exchange was founded in 1898 as the Chicago Butter and Egg Board until the name changed in 1919. The first futures contracts were issued in the early 1960s, and later added financial futures and currency contracts followed by interest rate and bond futures.

Identifying Top Commodity Markets

Like all world markets, commodity futures volume and open interest fluctuate in response to political, economic, and natural events including the weather. For example, a Midwestern drought can generate strongly-trending agricultural futures, attracting capital from other futures venues. 

Volatility tends to gradually rise and fall over long time periods. That’s because commodity trends develop slowly, and can last for years and decades rather than weeks or months. The combined exchange reported the top five commodity futures contracts as of the end of trading on July 12, 2022, as follows:

  Commodity   Average Daily Volume (ADV)   Open Interest
Crude Oil (WTI) 961,051 1,613,519
Corn 428,542 1,333,340
Henry Hub Natural Gas 370,832 969,221
Soybeans 170,125 611,756
Gold 389,319 543,825

Source: CME Group

Long-Term View on Top Contracts

Ten-year price charts provide a solid technical foundation for traders and market timers looking to play these highly liquid instruments. While commodities attract fundamentally-oriented players including industry hedgers, technical analysis is widely used to predict price direction. In fact, modern charting has historic origins in the 17th-century Dutch tulip markets and 18th-century Japanese rice markets.

Technical analysis is widely used to predict price direction for futures contracts.

1. Crude Oil Futures

Crude oil futures hit an all-time high at $147.27 in June 2008 and sold off into the upper 30s during the economic collapse. It recovered around 70% of the steep decline into the 2011 top and eased into a trading range, bounded by $112 on the upside and $80 on the downside. The contract broke down in 2014 and entered a steep downtrend that tested the bear market low in the third quarter of 2015.

A new uptrend began in mid-late 2017, hitting the high 80s in Oct. 2018 before leveling off to the high 50s at the end of November 2019. In January 2022, crude oil broke $100 a barrel for the first time since 2014 and as of July 2022 was hovering around that level.

2. Corn Futures

Corn futures went to sleep between 1998 and 2006, carving out a long rounded bottom that attracted limited trading interest. It entered a strong uptrend in the second half of 2006, rising vertically into the 2008 peak above $7.00. The contract lost more than half its value during the economic collapse, finding support near $3.00 and entering a recovery wave that topped out above $8.50 in the middle of 2012.

The subsequent downtrend relinquished four years of gains, with price settling just above the 2008 low in the second half of 2014. Basing action lasted until 2020, and the next uptrend started. Prices went from below $6 to $7.30 in July 2022.

3. Natural Gas

Natural gas futures trade unlike other energy or commodity markets, with a 20-year series of vertical spikes that have been repealed as quickly as they appear. Rallies above $10 in 1996, 2001, 2006, and 2008 met with heavy resistance that triggered nearly 100% retracements over the next one or two years.

At the end of November 2019, natural gas futures contracts were trading around the $2.50-mark. Prices traded below $2 during 2020, before starting an uptrend. Natural gas prices moved above $8 in early 2022 and traded at $6.70 as of July 2022.

4. Soybeans

Soybean futures bottomed out at a multi-decade low between 1999 and 2002. The contract then entered a strong uptrend that posted vertical rally peaks in 2004, 2008, and 2012. It turned lower in the second half of 2012, in an orderly correction that accelerated to the downside in 2014.

The decline ended just above the 2009 low. By late November 2018, prices spiked above $27, but by November 2019, soybean futures were trading down at about $9 a bushel. As of July 2022, soybeans were trading at around $16 after seeing a spike in prices during 2020.

5. Gold

Gold futures have gone through boom and bust cycles that greatly impact open interest. It now stands as the fifth-most-traded commodity contract. For the 20 years between 1980 and 2000, Gold traded between $400 and $500. It started a decade uptrend that took the price to over $1,800 in 2011. Prices reverted and fell to $1,000 by 2015. Gold rallied in 2019 and the recent uptrend has pushed the price to over $1,700 as of July 2022.

Can Commodity Futures Contracts Be Bought and Sold on the Open Market?

Yes, futures contracts are traded on futures exchanges, such as the Chicago Mercantile Exchange (CME). Market orders are filled at the best possible price and executed almost immediately.

What Is the Commodity Futures Trading Commission (CFTC)?

The Commodity Futures Trading Commission (CFTC) is the regulatory body for the U.S. derivatives market, which includes futures, swaps, and certain options.

Why Are Commodity Futures Contracts Transferable?

Buyers or sellers can transfer ownership of their futures contract by trading on an exchange. The standardization of the contract makes them easily transferable. Contract specifications are the same for all participants. Only the contract price is variable.

The Bottom Line

Crude oil leads the pack as the most liquid commodity futures market followed by corn and natural gas. Agricultural futures tend to generate the highest volume during periods of low stress in the energy pits, while gold futures have gone through boom and bust cycles that greatly impact open interest.

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