Soybean Oil Trading Strategy (Backtest And Futures Example)

Last Updated on May 27, 2023

A vegetable oil extracted from the seeds of soybeans and used as a cooking oil, soybean oil has numerous uses — in paints, printing inks, and insect repellants. As a result, soybean oil futures are actively traded on commodity exchanges. You can trade them for speculation, hedging, or portfolio diversification. Want to know about a soybean oil futures trading strategy?

A soybean oil futures trading strategy is a trading method you can use to trade soybean oil futures profitably. Soybean oil futures refer to a tradable, standardized contract to receive or deliver a specified quantity of soybean oil on a future date, at a pre-agreed price.

The contract trades on the CME Globex platform, and at expiry, it is settled by physical delivery. Your soybean oil futures strategy should include 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 soybean oil futures strategy. After explaining the basics, we show you an example of a backtested trading strategy.

What are Soybean oil futures?

Soybean oil futures are futures contracts whose underlying asset is soybean oil — a vegetable oil extracted from the seeds of soybeans and consumed as a cooking oil but also used in making paints, printing inks, and insect repellants.

A soybean oil futures contract is a legally binding, tradable agreement to receive or deliver the specified quantity of soybean oil 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 soybean oil at the expiration of the contract — the seller of the soybean oil futures contract delivers the specified quantity and quality of soybean oil to the buyer through the exchange.

Traders who just want to speculate on the soybean oil price without getting involved in the delivery can close out their trades before expiry or roll over their contracts. Most people who trade the contract use it to diversify their portfolio or hedge risk exposure in the market.

What is a Soybean oil futures strategy?

A soybean oil futures strategy refers to the methods and techniques you can use to profitably trade the soybean oil futures market. Your soybean oil futures strategy should include technical and fundamental analyses to find appropriate entry and exit signals.

In performing fundamental analysis, you study the USDA reports for the soybean oil market and factors that affect the production and supply of soybeans. With technical analysis, you should be able to look at a soybean oil futures chart to determine the best entry point to purchase a contract so you don’t buy too high and risk a huge loss.

In addition to your analysis for entry and exit signals, you need to have some risk management and trade management techniques.

Soybean oil futures strategy backtest

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

What is the seasonality of Soybean oil futures?

When it comes to financial 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.

Soybean oil futures have been noted to perform better during the spring, late fall, and early winter seasons than during the summer, as you can see in the chart below:

Soybean oil futures strategy
Source: Equity Clock

What moves the Soybean oil market What affects the Soybean oil market the most?

What moves soybean oil prices the most is the price of soybean because soybean oil is extracted from soybeans. Other factors that can affect soybean oil prices include the availability and cheapness of other cooking oils, such as castor oil, corn oil, palm oil, and others.

China’s soybean oil demand and key soybean reports, such as USDA World Agricultural Supply and Demand Estimate (WASDE) Report, Crop Production Reports, Grain Stocks Reports, and U.S. Soybean exports, also have some effects.

How are Soybean oil futures traded?

Soybean oil 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 60,000 pounds of soybean oil, and the pricing is in US dollars or cents per pound.

There are 15 monthly contracts of January, March, May, August, and September, and 12 monthly contracts of July, October, and December listed annually after the termination of trading in the December contract of the current year. 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 Soybean oil futures?

To start trading soybean oil futures, you go through a futures broker that can grant you access to the exchange where soybean oil contracts are traded and help to clear your trades. 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 soybean oil 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 the Soybean oil trading at?

As of December 14, 2022, soybean oil futures were trading at 66.31 USX (US cents) per pound. See the chart here on the CME platform chart. You can also check the chart for the continuous futures on TradingView.

Note that the price changes from time to time, so 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 Soybean oil futures hour?

The trading hours for soybean oil futures on the CME Globex electronic platform are as follows: Sunday to Friday, from 7:00 p.m. – 7:45 a.m. CT, and Monday to Friday, from 8:30 a.m. – 1:20 p.m. CT.

For Trading at Settlement (TAS), the schedule is Sunday – Friday 7:00 p.m. – 7:45 a.m., and Monday – Friday 8:30 a.m. – 1:15 p.m. CT.

CME ClearPort’s schedule is 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 soybean oil futures charts include the CME website and Yahoo Finance.

What are the trading symbols for Soybean oil futures?

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

  • CME Globex: ZL
  • CME ClearPort: 07
  • Clearing: 07
  • TAS: ZLT

What is the specification for the Soybean oil futures contract?

One contract unit of soybean oil futures is equivalent to 60,000 pounds of soybean oil. The price quotation is in U.S. cents per pound. The minimum price fluctuation is 1/100 of one cent (0.0001) per pound, which translates to a tick size of $6.00 per contract.

There are 15 monthly contracts of January, March, May, August, and September, and 12 monthly contracts of July, October, and December listed annually after the termination of trading in the December contract of the current year. 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 15th day of the contract month.

Why should you start trading Soybean oil futures?

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

  • If you are an investor, you may trade the contract to diversify your portfolio into the soft commodity market
  • If you are a short-term trader, you may trade to speculate on price fluctuations or benefit from spread trading
  • If you are a soybean oil producer, you can use the contract to secure good prices for your products
  • If you use soybean oil for your business, you would trade the contract to ensure a stable supply of soybean oil
  • You can also trade the contract just to hedge against inflation as commodity prices tend to rise with rising inflation

What is the contract size?

One contract unit of soybean oil futures is equivalent to 60,000 pounds of soybean oil. Given the current price of 66.31 US cents per pound, as of writing, the total USD worth of one contract of soybean oil futures would be 60,000 X 66.31 US cents = 3,978, 600 US cents, or 39,786 USD.

What is the tick size?

The tick size of soybean oil futures contracts is $6.00 per contract.

What is the minimum price fluctuation for Soybean oil futures?

The minimum price fluctuation is 1/100 of one cent (0.0001) per pound.

Are there any ETFs?

There are no ETFs that specifically track the soybean oil market, but there is an ETF that offers exposure to soybean prices — Teucrium Soybean Fund (SOYB). The fund tracks an index of soybean futures contracts. SOYB reflects the performance of soybeans by holding Chicago Board of Trade soybean futures contracts with three different expiration dates.

What factors affect Soybean oil prices?

Some of the factors that affect soybean oil prices include:

  • The price of soybean: Soybean oil is extracted from soybeans, so the price of soybeans will affect soybean oil prices.
  • The availability of other cooking oils: If other vegetable oils, such as castor oil, corn oil, palm oil, and others, are available and cheap, the demand for soybean oil decline.
  • China’s soybean oil demand: When there is an increase in China’s demand for soybean oil, the price of soybean oil increases.
  • Key soybean reports: The release of important soybean reports, such as the USDA World Agricultural Supply and Demand Estimate (WASDE) Report, Crop Production Reports, Grain Stocks Reports, and U.S. Soybean exports.

What is the all-time high for Soybean oil futures?

Based on the TradingView chart for soybean oil futures, the all-time high of the soybean oil futures contracts is 87.65 US cents, which it reached in April 2022.

What are the biggest risks in trading Soybean oil futures?

When trading any type of 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.

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

What is the settlement method?

Deliverable

What is the settlement procedure?

At expiry, the seller is required to deliver the specified quantity of soybean oil to the buyer, and the process is supervised by the exchange. Meanwhile, daily cash settlement applies.

What is the block minimum for Soybean oil futures?

RTH – 100

ETH/ATH – 50

What is the difference between Soybean oil futures and the CFD for Soybean oil?

Soybean oil futures trade on standard exchanges and have expiry dates, while soybean oil CFDs are offered by forex brokers and do not have expiry dates.

Which forex pair is the same as Soybean oil futures

Soybean oil CFD

What are some important dates for this market?

These are some of the important dates in the soybean oil futures market:

  • 1920 when soybean oil extract started
  • July 17, 1950, when the first soybean oil futures contract was traded on CBOT
  • April 2022 when the market reached its current all-time high of 87.65 US cents (USX)

What is the highest Soybean oil has ever been its all-time high?

Based on the TradingView chart for soybean oil futures, the highest price level soybean oil futures contracts have ever reached was 87.65 US cents, and this happened in April 2022.

What is the lowest Soybean oil has ever been its all-time low?

Based on the TradingView chart for soybean oil futures, the lowest price level soybean oil futures contracts have ever fallen to was 8.64 US cents, and this happened in January 1970.

Conclusion

Whether you are trading soybean oil futures to speculate on price fluctuations, diversify your investment portfolio into the soft commodity market, or hedge your exposure in the market, you need a reliable soybean oil futures strategy!

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