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November 20, 2006

E-Trade Of CBOT Corn Overtakes Open Auction Trading

By Joe Poncer

CHICAGO — Electronic trading of the Chicago Board of Trade corn futures contract has surpassed open auction volume over the past several trading sessions, and traders and analysts expect it will continue to grow as local traders and retail customers increasingly adopt screen-based trading.

Trading in the spot month corn contract has been higher on the e-CBOT system for the past several weeks. But since Nov. 14, overall corn volume has been higher on the screen than in the pit. On Nov. 15, electronic trading volume was over 25,000 contracts greater than open auction, according to data on the exchange's Web site.

"A lot of the trade is being done by the locals as they stand in the pit," a commercial trader said. The screen "eliminates out trades, and the liquidity on the screen is better than the pit at times, and people are beginning to lean on the screen instead of the order flow in the pit," he said. It appears the spreads are being done on the screen as the market rolls out of December and into March, the trader added.

Corn futures rallied to 10-year highs as strong domestic and export demand reduces the estimated 2006-07 carryover, or the amount expected leftover from this year's crop. In addition, late-season weather problems have added to the bullish tone, with the U.S. Department of Agriculture having trimmed its corn production estimate over the past several months.

Liquidity on the screen in nearby months is solid, but the deferred months are still lightly traded as the liquidity provided by locals is not seen in the back months, the trader added.

According to data from the CBOT, the volume of electronic trading executed by full members for their own accounts was 44% of the contracts traded electronically on Tuesday and 45% on Wednesday, when screen volume topped 179,000 contracts compared with the 153,726 contracts traded in open auction activity.

This is a marked increase from the volume traded on the screen in mid-October, when volume on the screen for members trading for their own account was near 30%, according to exchange data.

Retail Customers Rapidly Adopt Electronic Trade

Retail customers have readily adopted the electronic trading system, said Paul Kavanaugh, senior account executive at Peregrine Financial Group in Chicago. Since the CBOT introduced side-by-side agricultural trading on Aug. 1, retail customers almost immediately began using the electronic trading system, making it an overnight success, Kavanaugh said.

Joe Bedore, floor manager for FC Stone said he's noticed more retail market participants are putting their orders on the computer because customers know their orders are filled almost instantaneously.

Electronically traded corn volume increased quickly, and with clients being able to see the depth of the bids and offers, many people began to trade electronically exclusively, Kavanaugh added. "The e-CBOT system has increased access on a global level and increased opportunities for the trading community," he said. Since side-by-side trading was introduced, volume in the CBOT's corn futures contract has soared, with eight of the top 10 daily volume records established since day-session electronic trading was launched. "This is exactly what people expected electronic trading to do. More people have access to the marketplace, and information is more accessible to the traders," Kavanaugh said. "It's a tremendous tool for traders."

Through October, CBOT corn futures volume is up 63.5% compared with last year.