Since crude palm oil futures on Bursa Malaysia derivatives are actively traded in the Malaysian Ringgit currency and soybean oil futures on CBOT (under the CME group today) are in US dollar terms, many traders Newbies rarely analyze the details of the correlation of the two futures products. traded on both stock exchanges. They will always watch prices go up or down at the close without knowing that both future products have big differences in their respective contract specifications.
The soybean oil futures contract size is 60,000 pounds, while the crude palm oil futures contract size is 25 metric tons. Therefore, as an experienced trader in both futures markets, you may have been well acquainted with the basic conversion for both futures products to understand the price discrepancy, whether premium or discounted, which will help you maximize your Profits. However, most of these two commodity futures traders have no idea how to perform the correct and simple calculation of the conversion.
To make the job easier, memorize this phrase “Price per pound x 2204.622 = Price per metric ton”; For example, if the soybean oil futures price closes at $0.50 on the Chicago Stock Exchange, based on the contract specification of 60,000 pounds in contract size, the soybean oil futures price in tons metric is approximately $1,102.00 (that is, 0.50 x 2,204.622). If crude palm oil futures are trading at RM3,300 per metric ton and the USD/RM exchange rate is 3.00, the crude palm oil futures price is $1,100.00 (ie 3,300/ 3) in US dollars. As a result, we can assume that the price of both future products is almost on par. Any huge premium or deep discount can encourage an arbitrage strategy so that experienced traders trade more.
Finally, remember to measure the percentage rather than just the price value of both futures products if both futures prices are in a volatile stage. Premium or Discount can also help build wealth in futures trading.
