Oats Trading Strategy (Backtest And Futures Example)

Last Updated on May 27, 2023

Grown in Europe since the Bronze Age, oats are a species of cereal grain that is a major part of breakfast in many households around the world. Oats futures contracts are one of the popular soft commodity futures on the CME platform. If you want to successfully trade the contract, you must use the right strategy. Want to know about oats futures Trading strategy?

An oats Trading strategy refers to the methodologies and techniques you can use to trade oats futures contracts profitably. Oats futures are a legally binding agreement to receive or deliver the specified quantity of oats on a future date, at a pre-agreed price.

The contract trades on the CME Globex platform and is settled by the physical delivery of the specified quantity and quality of oats. An oats futures strategy would involve fundamental and technical analysis of the market to know when to enter and exit a trade profitably.

In this post, we answer some questions about the Oats futures Trading strategy and we provide you with an example and backtest.

What are Oats futures?

Oats are prepared for human consumption as oatmeal and rolled oats, and are often used for breakfast in many households. They are a great source of whole grains and contain a heart-protective starch called beta-glucan, which can help lower bad cholesterol. Oats are also used as livestock feed. Oats are commonly traded in the futures market.

Oats futures are standardized contracts that trade on a commodity exchange, which represents a legally binding agreement to receive or deliver the specified quantity of oats on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is settled by the physical delivery of the specified quantity and quality of oats.

Oats futures provides you with a way to diversify your portfolio into the soft commodity market or hedge your exposure in the market if you are an oats farmer. If you are a retail trader, you can also use the contract to speculate on the future price of oats.

What is an Oats futures strategy?

An oats futures strategy refers to the methodologies and techniques for trading oats futures profitably. It includes fundamental and technical analysis strategies you can use for market timing, as well as their techniques for position sizing and risk management.

It is important to have a robust trading strategy if you want to trade futures with any success. Your oats futures strategy must be able to tell you when to enter and exit a trade to make profits.

Oats futures strategy backtest

A strategy backtest with trading rules and settings is coming shortly.

What is the seasonality of Oats futures?

When it comes to futures trading, seasonality refers to the tendency of an asset’s price to move in a fairly predictable way during certain periods of the year. The periods here may refer to the months of the year or the four seasons (winter, spring, summer, and fall) of the year.

Oats futures have been noted to perform better during the months of February, September, and October than during the other months of the year. See the chart below:

Oats futures strategy
Source: Equity Clock

What moves the Oats futures market What affects the Oats market the most?

The factors that move the oats market include the following:

  • Monthly demand and supply reports from the USDA, which provides the details of the global production, stocks, trades, and consumption of oats and can show imbalances in demand and supply
  • The price of competing grains, especially corn prices — oat prices tend to correlate with corn prices in recent times
  • Adverse weather conditions, such as drought or a prolonged freeze, may reduce production and increase oat prices, while ideal weather conditions can boost yield and bring down the price of oats

How are Oats futures traded?

Oats futures contracts are traded on the CME Group’s CBOT exchange, and through the Globex electronic platform, they can be traded from anywhere around the world. The contract trades from Sundays to Fridays: 7:00 p.m. – 7:45 a.m. CT, and Monday – Friday: 8:30 a.m. – 1:20 p.m. CT. One contract unit is equivalent to 5,000 bushels of oats, and the pricing is in US dollars or cents per bushel.

There are monthly contracts of March, May, July, September, and December cycles listed for 10 months and 1 additional Jul and 1 additional Sep contract listed in September. The contract expires on the 15th day of the contract month, and settlement is by physical delivery. Trading terminates on the business day prior to the contract expiry.

How do you start trading Oats futures?

You trade oats futures through a futures broker that can grant you access to the exchange where oats contracts are traded and help to clear your trades. To get started, register with a futures broker and fund your account. Since futures contracts are leveraged instruments, you need not have the full dollar worth of the contract before you can trade it.

You may also trade the CFD of oats futures via a CFD broker like IG. With a CFD contract, you are in an agreement with the broker to exchange the price difference between the opening and closing of a trade. So, you don’t have to worry about contract expiry and asset delivery.

What is Oats futures trading at?

As of December 9, 2022, oats futures were trading at 371’4 USX (US cents) per bushel. See the chart here on the CME platform chart. You can check the chart on TradingView.

Note that since the price changes from time to time, what is quoted here may not be the price it’s trading when you are reading this post. To get the real-time price on the CME platform or directly from TradingView, click either of those links.

What’s Oats futures hour?

The trading schedule for the oats contract is as follows:

On the CME Globex platform: Sunday – Friday, 7:00 p.m. – 7:45 a.m. CT and Monday – Friday, 8:30 a.m. – 1:20 p.m. CT.

For CME ClearPort: Sunday 5:00 p.m. – Friday 5:45 p.m. CT, but there is no reporting Monday – Thursday from 5:45 p.m. – 6:00 p.m. CT.

Where can I find trading charts?

You can get the chart on any trading platform that offers chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts. You can also use TradingView, which offers free access to charts of different instruments. But to connect to your broker, you have to subscribe to the Pro services. Other sources of oats futures charts include the CME website and Yahoo Finance.

What are the trading symbols for Oats futures?

The trading symbol and clearing product codes for oats futures are as follows:

  • CME Globex: ZO
  • CME ClearPort: O
  • Clearing: O

What is the specification for the Oats futures contract?

One contract unit of oats futures is equivalent to 5,000 bushels of oats. The price quotation is in U.S. dollars or cents per bushel. The minimum price fluctuation is 1/4 of one cent (0.0025) per bushel, which translates to a tick size of $12.50.

There are monthly contracts of March, May, July, September, and December listed for 10 months and 1 additional Jul and 1 additional Sep contract listed in September. The contract expires on the 15th day of the contract month, and settlement is by physical delivery. Trading terminates on the business day prior to the contract expiry — the 15th day of the contract month.

Why should you start trading Oats futures?

There are many reasons to trade oats futures. These are some of them:

  • If you are an oats farmer, you can use the contract to secure good prices ahead of harvest
  • If you make oatmeal and other oat-based products, you would trade the contract to ensure a stable supply of oats
  • If you are an investor, you may trade the contract to diversify your portfolio
  • If you are a short-term trader, you may trade to speculate on price fluctuations or benefit from spread trading

What is the contract size?

One contract unit of oats futures is equivalent to 5,000 bushels of oats. Given the current price of 371’4 US cents, as of writing, the total USD worth of one contract would be 5,000 x 371.4 US cents = 1,857,000 US cents or 18,570 USD.

What is the tick size?

The tick size of one contract unit of oats futures is $12.50.

What is the minimum price fluctuation for Oats futures?

The minimum price fluctuation of one contract unit is 1/4 of one cent (0.0025) per bushel.

Are there any ETFs?

There is no ETF that offers pure-play exposure to oat prices, but there are many ETFs that track the general grain market. Some of them include:

  • iPath Series B Bloomberg Grains Subindex Total Return ETN (JJG)
  • ELEMENTS Linked to the ICE BofAML Commodity Index eXtra Grains Total Return (GRU)

What factors affect Oats prices?

Some of the factors affecting oats prices include:

  • USDA’s monthly reports of global production, stocks, trades, and consumption of oats — the data for clues of demand and supply imbalances, which can affect the prices of oat contracts.
  • The price of corn and other competing grains not only has some effects on oat prices but also seems to show some correlation.
  • Though less sensitive to weather situations than oats, oat production can be affected by weather events, as drought or a prolonged freeze may reduce production and increase oat prices.

What is the all-time high for Oats futures?

Based on the TradingView chart for oats futures, the all-time high of the oats futures contracts is 811’0 US cents, which it reached in April 2022.

What are the biggest risks in trading Oats futures?

When trading any type of futures, including oats futures, the biggest risks come from adverse price movement because it is a leveraged instrument. With leveraged instruments, losses are calculated using the actual value of the contract size traded, rather than the margin deposited. For example, if you trade with a 20x leverage, a 1% adverse movement would lead to a 20% loss, and a 5% negative movement would result in a 100% loss in your account (wipe out your account).

Another problem is the issue of liquidity. Oats futures may not be as liquid as other grain futures, and this can cause some difficulty when exiting a position. It may also lead to widened spreads.

What is the settlement method?

Physical delivery

What is the settlement procedure?

There is a normal daily settlement where CME Group staff determines the daily settlements in CBOT Oats (ZO) futures on trading activity on CME Globex between 13:14:00 and 13:15:00 Central Time (CT), the settlement period.

For the final settlement, CME Group staff determines the final settlement price of the expiring CBOT Oat (ZO) futures contract based on trading activity on CME Globex between 12:00:00 and 12:01:00 Central Time (CT), the settlement period, on the day of expiration. Those who want make or take the delivery of oats at expiry do so under the supervision of the exchange.

What is the block minimum for Oats futures?

The block minimum for oats futures is as follows:

  • RTH – 10
  • ETH/ATH – 5

What is the difference between Oats futures and the CFD for Oats?

The difference is that oats futures are standardized contracts that trade on a regulated futures exchange, whereas oats CFDs, which are offered by online CFD brokers, only try to track the price movement of the futures contracts.

Another difference is that while oats futures have expiry dates and may involve the delivery of the oats, the CFDs can be traded indefinitely, and you don’t have to worry about asset delivery.

Which forex pair is the same as Oats futures

Oats CFD

What are some important dates for this market?

Some important dates in the oats futures market include:

  • 1848 when the Chicago Board of Trade (CBOT) was formed
  • January 2, 1877, when the first oats futures contract was traded
  • April 2022 when it reached its current all-time high of 811 US cents

What is the highest price Oats have ever been its all-time high?

Based on the TradingView chart for the oats futures, the highest price oats futures contracts have ever traded at was 811’0 US cents, which it reached in April 2021.

What is the lowest price Oats have ever been its all-time low?

According to the TradingView chart for the oats futures, the lowest price oats futures contracts have ever fallen to was 102’6 US cents, which happened in January 2001.

Conclusion

Trading oats futures offers opportunities to hedge risks, diversify your trading portfolio, and potentially make money from speculation. However, if you want to trade this contract successfully, you have to use the right oats futures strategy.

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