Why Is Liquidity An Important Factor?
When considering a suitable and profitable commodity, liquidity is essential in increasing the probability of entering and exiting positions. Indeed, timely actions play an indispensable role in maintaining the consistency of profits. Also, high liquidity implies that more people are trading them, so it might be ideal for you to join the markets!
The volume and open interest metrics are among the essential elements when considering liquidity. It answers the question of whether a commodity is tradable or not!
Volume is the total number of active contracts for trading, while open interest is the sum of open long and short positions. If volumes and open interests increase, the risks you have to undertake might shrink. Common platforms publish these metrics, such as Chicago Mercantile Exchange (CME), the Intercontinental Exchange (ICE), etc.
The fast-paced futures markets do not usually get the list of top liquid commodities to stay still. Therefore, constant updates are the best recommendations to catch up with the present status. Also, you need to keep in mind the patterns of market trends and price actions to build a foundation for precise forecasting!
We will cover highly liquid commodities for your reference in the following sections. Hopefully, it can help you better understand the futures markets and choose the most suitable item for your investments!
Crude Oil
The West Texas Intermediate (WTI) Crude Oil futures have the highest liquidity in the market. Moreover, people love using such an oil contract to trade the light, sweet crude oil mix because of its effectiveness. Specifically, it is a powerful method to downsize the impacts of adverse movements on the value of oil-related assets or speculate the oil price actions!
There are around 1.2 million crude oil contracts per day, each of which has a value of approximately $44,740. Therefore, it implies the active status of the oil market for both hedgers and speculators.
Corn
Corn futures are the most active market with high liquidity in grains. There are around 350000 contracts per day, which people use to protect their business from volatile price movements!
Despite the sleep through the period from 1998 to 2006, Corn futures rose above with a robust increase, especially in 2008. Specifically, it reached a peak that was higher than $7. Yet, the economic collapse cut down the value to half the mountain.
The uptrend followed such a dark period as the recovery - outreaching $8.5 in the middle of 2012. After that, the ups and downs keep attaching to the corn futures. The latest update is that it now ranges around $5.9 (January 2022).
Natural Gas
Natural gas stands out among the other energy or commodity markets as the fast pace of formation and vanishing. Specifically, the rallies of over $10 in 1996, 2001, 2006, and 2008 did not go smoothly due to the heavy resistance leading to nearly 100% retracements. As a result, the latest value is about $3.5 in Jan 2022.
Soybeans
Soybean futures are also a liquid and simple tool for speculation on the views on price movements and risk hedging. The mounting rates of soybean futures were in the brilliantly blooming days of 2004, 2008, and 2012. Yet, the downward movements took place in the second half of 2012. It is like the downtime for the phenomenal growth of above $27 in 2018.
Wheat
Like any market and commodities, wheat futures experienced the ups and downs in the price actions. We will mention many highlights here for you to grasp the whole landscape.
The peak performance was around $12 in 2008. Yet, the value shrinks in the next few years. Specifically, the contract met two-thirds of the decline with a three-year double top pattern at $6 in 2014. Now it bounces back to $8.15 per bushel in January 2022.
Before You Go
This article is about the top 5 liquid commodities. It is essential to know the factors that determine the liquidity of a commodity. Moreover, it is a good idea to keep an eye on the current status of the futures markets to stay ahead of the price actions and trends.
References:
https://www.thebalance.com/the-most-actively-traded-commodities-809314
https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.html
https://www.benzinga.com/money/best-futures-to-trade/
https://www.cmegroup.com/markets/agriculture/grains/corn.html
https://www.cmegroup.com/markets/agriculture/oilseeds/soybean.html