Soybean DFB

[Dillywolly]

Hi team

 

Please can you clarify what the Soybean DFB tracks? Is it the spot price, or a combination of futures contracts?

 

I’ve seen a few similar questions to this, where traders have been asking for clarity on what different DFB contracts are tracking. Is there a place where we can access this information, and if not, I would suggest this is created to provide clarity to your clients!

 

many thanks

alex

[JamesIG]

The spot price tracks the undated commodities model which can be seen here https://www.ig.com/uk/commodities 

Its a blend of the most liquid front month contracts. 

[Caseynotes]

4 minutes ago, Dillywolly said:

Hi team

 

Please can you clarify what the Soybean DFB tracks? Is it the spot price, or a combination of futures contracts?

 

I’ve seen a few similar questions to this, where traders have been asking for clarity on what different DFB contracts are tracking. Is there a place where we can access this information, and if not, I would suggest this is created to provide clarity to your clients!

 

many thanks

alex

Hi @Dillywolly  there are separate charts for dfb spot and futures, you just flick between the two, see pic.

 

[Guest dillywolly]

12 hours ago, Caseynotes said:

Hi @Dillywolly  there are separate charts for dfb spot and futures, you just flick between the two, see pic.

 

Hi Casey

Thanks for your response. My question is more around what index the DFB Soybean is tracking. I would expect the futures price to converge to the spot price over time, but this doesn’t seem to be the case with the DFB contract, which makes me think it’s not tracking the spot price. 

 

Is is there anyone from IG support who might be able to answer?

 

thanks

alex

[Dillywolly]

1 hour ago, JamesIG said:

The spot price tracks the undated commodities model which can be seen here https://www.ig.com/uk/commodities 

Its a blend of the most liquid front month contracts. 

Hi James

 

Thanks for your response. In the case of Soybeans, there is roughly a 6 point difference between the two front-month futures contracts, with the second month contract having a c.6 point higher price than the first month contract (using data from CME). Based on what you’ve said, the DFB should trade in this range (I.e. in this case, not exceeding 6 points above the front month contract, until the front month expiry date where it should be exactly equal to the second month contract price).  However, on IG, the DFB contract is trading at around 9 points above the front month contract, contradicting this.

Have I misunderstood something here, and if so, would you be able to provide more information? 

thanks

alex

[Dillywolly]

6 hours ago, Dillywolly said:

Hi James

 

Thanks for your response. In the case of Soybeans, there is roughly a 6 point difference between the two front-month futures contracts, with the second month contract having a c.6 point higher price than the first month contract (using data from CME). Based on what you’ve said, the DFB should trade in this range (I.e. in this case, not exceeding 6 points above the front month contract, until the front month expiry date where it should be exactly equal to the second month contract price).  However, on IG, the DFB contract is trading at around 9 points above the front month contract, contradicting this.

Have I misunderstood something here, and if so, would you be able to provide more information? 

thanks

alex

@JamesIG didn’t realise I could tag you in this, hence reposting. Any help on this matter would be greatly appreciated, thanks!

[JamesIG]

Hey - when we take the most liquid front month contracts this doesn't necessarily mean this month and next. As you can see from the volumes below, in the case of Soybeans this relates to Jul and Nov. The open interest and also volume are significantly higher in these contracts than in others, and therefore we're far more likely to get a good price when dealing in size for our clients. I hope this clarifies.  

[Dillywolly]

1 hour ago, JamesIG said:

Hey - when we take the most liquid front month contracts this doesn't necessarily mean this month and next. As you can see from the volumes below, in the case of Soybeans this relates to Jul and Nov. The open interest and also volume are significantly higher in these contracts than in others, and therefore we're far more likely to get a good price when dealing in size for our clients. I hope this clarifies.  

Hi @JamesIG - thanks for the clarification, that makes sense. Hopefully final question - how much turnover takes place in terms of switching between different futures contracts? E.g. Is liquidity measured on a daily basis, and hence contracts can be switched daily? 

 

The reason I ask is I’m trying to determine whether it makes more sense to short a futures contract in contango, or short the DFB and gain from the payments made to offset the movement on rolling up the futures curve

[Spook1304]

On 06/06/2019 at 10:46, Dillywolly said:

Hi @JamesIG - thanks for the clarification, that makes sense. Hopefully final question - how much turnover takes place in terms of switching between different futures contracts? E.g. Is liquidity measured on a daily basis, and hence contracts can be switched daily? 

 

The reason I ask is I’m trying to determine whether it makes more sense to short a futures contract in contango, or short the DFB and gain from the payments made to offset the movement on rolling up the futures curve

I realise this is a necro thread but really hoping to get an answer here. 

I've asked the same question and seen many others too but no one has replied with as much detail as this post has.

@JamesIG @Caseynotes Is there a specific criteria that the DFB/Undated contracts are based off of? or is there somewhere where we can view what futures contracts the Undated/DFB's are based off of?

EG, using James' screenshot above, it shows the most liquid contracts as JUL19 and NOV19, how often is this calculated? if the next day the ones with most volume and Open Interest was a different set of futures would the DFB change to reflect that?

The screenshot above is pretty clear cut but when nearing expiry, some futures have more volume, others have more OI. Look at Natural Gas, JUL24 and SEP24 have most OI but JUL24 and OCT24 have most volume (with JUN24 coming a close second to OCT).

Any clarification on this would be great as transparency is key when it comes to making trading decisions. Saying it tracks "liquid" futures with no definition of what the most "liquid" means leaves it open to interpretation which isn't what we want when making trading decisions.

@Dillywolly Did you ever figure this out? I've been looking for an answer to this questions for months now.

Thanks