Crude Palm Oil Futures Vs Soybean Oil Futures


Since Crude Palm Oil Futures on Bursa Malaysia Derivatives is actively traded in Malaysia Ringgit currency and Soybean Oil Futures on CBOT (under CME group at present) is in US Dollar term, many novice traders are seldom looking into details the correlation of the two futures products traded over the two Exchanges. They will always look at the up or down prices at close only without knowing that both futures products have huge differences in their respective contract specification.

Soyoil futures contract size is 60,000 pounds while Crude Palm Oil Futures contract size is 25 metric tons. Therefore, as an experience trader in both futures market, you may have been knowing well the basic conversion for both the futures products in order to know the discrepancy of the prices either at premium or in discount helping you to maximize your profits. However, majority of these two commodities futures traders have no idea how to work out the right and simple calculation of the conversion.

For ease of work, memorize this phrase “Price per pound x 2204.622 = Metric Ton Price”; For example, if soyoil futures price is closed at $0.50 on Chicago Board of Trade, under the contract specification of 60,000 pounds in contract size, soyoil futures price in metric ton is about $1,102.00 (i.e. 0.50 x 2204.622). If Crude Palm Oil Futures is traded at RM3,300 per metric ton and USD/RM currency rate is at 3.00, The price of Crude Palm Oil Futures is at $1,100.00 (i.e. 3300 / 3) in US Dollar term. At a result, we can assume that both futures products price is almost at par. Any huge premium or deep discount may encourage arbitraging strategy for experience traders to trade more.

Finally, remember to gauge the percentage instead of just on the price value of both futures products if both futures prices run in a volatile stage. Premium or Discount can help accumulate wealth in futures trading too.

Source by CP Yeoh

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