Commodity Trading Strategies
Can any traders speak on some of the common trading strategies for commodities? How it differs when the curve is in backwardation/ contango? Does trading physical / futures make a difference?
99% of any trading, in my experience, is spread trading. calendar spreads or intermarket spreads. Not worth chasing flat price around except for rare circumstances.
Regarding calendar spreads, how people think about which points on the calendar to trade? E.g. when would you trade prompt spread vs deferred spread or Dec-Dec spread etc.
I understand if you're a producer and you have specific inventory to hedge and you have a timeline for when it comes to market - but as a speculator it seems a bit more disorganized regarding which points to trade on the forward curve
I think it comes down to the commodity, a lot of the time.
Like in ag markets there are the new vs old crop delivery periods which makes some spreads more common than others. In nat gas you have winter vs spring that gets a lot of trading volume. Not sure on other markets but that’s a trend I’ve noticed in those at least.
I think it also depends on the structure of the curve and what deliveries are the most out of line. If you went back and looked at the data I would be willing to bet some deliveries offer better trading opportunities, on average, than others.
Then of course the front vs 1st deferred gets traded a lot since guys will form biases on what the physical market looks like compared to what the carry/contango is as you approach any delivery date.
Live an Die by the sword. Same goes for flat price.
Truly will need to be more specific in your question to get real answers.
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