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technical analysis
Fundamental analysis
term structure
The term structure contains two meanings. One is the relationship between futures and spot. The futures price is higher than the spot price, which is called the premium of futures to spot, or the discount of spot to futures. The second is the price difference relationship between futures contracts. The far-month contract The price of the contract is higher than the price of the near-month contract, causing the far month to be at a premium to the near month, or the near month to be at a discount to the far month. The spread structure composed of spot price, near-month price, and far-month price is called the term structure.
The most common are the contango structure and the backwardation structure (back structure). Under the contango structure, the spot price is lower than the futures price, and the near-month contract is lower than the far-month price, that is, near low and far high; under the back structure, near high and far low.
concept
Premiums and discounts
Premium and discount quotation refers to a quotation method of spot price, which is a quotation based on premium or discount on the futures price. For example, m2001+50 means adding 50 yuan/ton to the 2001 contract, that is, the futures discount is 50 point.
Changes in futures discounts often reflect disk profits and spot market transactions. Higher disk profits usually suppress demand in the spot market. Therefore, spot market transactions are not smooth, and futures discounts often narrow or even narrow. It is negative; the disk profit is low, the spot market transactions are good, and the futures discount often begins to increase.
When the basis difference switches between premiums and discounts , it often means that the entire market structure has changed, so the basis difference is also a leading indicator of market conditions.
Basis
Basis : refers to the spot price minus the futures price. It essentially reflects three price differences: time price difference, quality price difference and regional price difference.
The time spread refers to the many uncertainties in the time between the future and the present. The expected premium or discount caused by this uncertainty is the time spread; the quality spread refers to the quality difference between futures delivery products and spot goods, because the futures market reflects is the price of standard products, and there are quality differences between substitutes, so exchanges generally set premiums and discounts; regional price differences refer to the difference in price between the location of the benchmark delivery warehouse and the location of the non-benchmark delivery warehouse, which regional delivery warehouse Larger delivery volume better reflects the futures price on the market.
Strictly speaking, when calculating the basis, the spot price should be converted into the market price and then subtracted from the futures price. This step is to deal with the issue of quality and regional price differences. For example, when calculating the basis difference of rebar in East China, the spot price /0.97 is used, because the rebar delivery adopts weighing delivery and needs to deal with the pound difference problem. The rebar in North China also requires /0.97, because the delivery inventory in North China has a discount delivery problem; iron ore For stone, you need to convert wet tons into dry tons and then calculate the quality price difference, etc.
Spot price > futures price, which is a positive basis or spot premium. When the spot begins to be stronger than the futures, resulting in a larger and larger spot premium or a smaller and smaller discount, it is called a strengthening basis; otherwise, it is a negative basis or spot premium. water, and basis weakening.
Price trading
Assume that the contract stipulates that the price will be determined before a certain date, and the buyer will price 3 days before that date. The closing price on that day is 2,800 yuan/ton, that is, the final transaction price of the contract is 2,800+50=2,850 yuan/ton.
The point price model under basis trading helps sellers avoid risks. Take the crushing industry as an example. Raw soybeans are imported from abroad, and foreign premiums and discounts are accepted. At that time, the price will be marked on the CBOT board to determine the import cost of the raw materials. Once the crushing enterprise has marked the price, it will also lock the forward exchange in advance. , the future import costs are determined. At the same time, crushing companies short-sell soybean meal and soybean oil in domestic large merchants to lock in this part of the crushing revenue, and then add a rising discount quotation based on the market price to form a basis contract. Once a downstream buyer accepts the basis contract, and at some point in the future price, then the squeezing company will close the short order, deliver the spot, and cash in the disk profit. Spot gross profit = disk profit - spot basis.
Therefore, when market profits are high, in order to realize profits earlier, squeeze companies often quote very low futures premiums and discounts, so that downstream buyers can accept the basis contract and complete the price point. Therefore, in most cases, the disk profit and the spot basis are often negatively correlated. If the disk profit is higher, the spot basis will be lower. If the disk profit is lower, the spot basis will tend to be higher. The spot basis here is The magnitude of the futures discount.
profit
Industrial profits are divided into spot profits and disk profits. Spot profits are profits calculated based on the prices of raw materials and finished products in the current market. Disk profits are profits calculated based on the futures prices of raw materials and finished products in the current futures market. There are also different forms of term structures between spot profits and disk profits.
If the spot profit is lower than the disk profit, and the near-month contract disk profit is lower than the far-month contract disk profit, then the term structure of the industrial profit of this variety is a contango structure. On the contrary, if the spot profit is higher than the disk profit, and the near-month contract disk profit is If it is higher than the disk profit of the far-month contract, then the term structure of the industrial profit of this variety is the back structure.
Whether it is price difference or profit, under normal circumstances, the contango structure is best to go short or counter arbitrage on highs; the back structure is best to go long or arbitrage on dips; especially when the main contract in recent months is close to the delivery month, the recent The premium or discount of the main monthly contract is relatively large, and the success rate of trading based on the corresponding term structure is often very high.
For example, the disk profit calculation method of black varieties is:
- Rebar disk profit = rebar futures price-1.6×iron ore futures price-0.5×coke futures price-1200
- Hot coil disk price = hot coil futures price-1.6×iron ore futures price-0.5×coke futures price-1350
- Coke market price = coke futures price - 1.3 × coking coal futures price - 160
forward\reverse market
In a forward market, that is, the spot price is lower than the futures price, and the near-month contract price is lower than the far-month contract price. The term structure displayed is a contango structure. Forward market and contango structure have the same meaning. In an inverse market, that is, the spot price is higher than the futures price, and the near-month contract price is higher than the far-month contract price. The term structure shown is a back structure. Inverse market and back structure have the same meaning.
internal logic
The end of the term structure closer to the spot reflects the supply and demand relationship in the spot market, while the far end of the term structure reflects more expectations for the future.
From the perspective of recent months, the price of the contango structure is low, which means that the current spot market is oversupplied and the spot price is low. The closer to the spot price, the lower the price of the futures contract. From the perspective of the far month, the first is the holding cost theory. Due to the current oversupply in the spot market and large inventory, the holding cost of the far month contract will increase, so the price of the far month is higher than the price of the near month; the second is According to the expectation theory, due to oversupply and low prices, it is easy to stimulate demand, so the market expects that excess inventory will continue to decline, and the supply and demand relationship will improve in the future, and there will no longer be oversupply, so prices in distant months will be higher.
Therefore, the contango structure can be understood as a pessimistic reality and optimistic expectations, that is, oversupply in the short term, weak spot, buyers are unwilling to pay high prices for the current purchase and use of spot, and spot discount; while in the long term, low prices stimulate demand and restrict supply. , it is expected that the situation of loose supply and demand will improve in the future, and futures premium will rise.
The back structure is an optimistic reality and a pessimistic expectation, that is, supply exceeds demand in the short term, spot is tight, buyers are willing to pay a high price for the current purchase and use of spot, and spot premium; in the long term, high profits are unsustainable, high profits affect demand, and expectations for the future Supply and demand are loose, and futures are at a discount.
The contango structure reflects the bear market of the spot, and the back structure reflects the bull market of the spot. Under the contango structure, the supply of spot goods exceeds demand and traders sell goods. Spot prices tend to loosen and fall. However, downstream buyers tend to buy up but not down, and are unwilling to pay a higher premium to meet spot demand, so upstream sellers can only Excess inventory is stored, resulting in a certain holding cost, so the cost of these inventories is higher, which is reflected in the inventory, which is higher, which is reflected in the basis difference, which is the futures premium, which is reflected in the warehouse receipt, which is reflected in the higher The profit is lower; under the back structure, the supply of spot goods exceeds demand, traders stock up and are reluctant to sell, and spot prices tend to be strong and rise. Downstream buyers are willing to pay higher premiums to meet immediate spot demand, so spot prices tend to keep rising. This is reflected in inventory as low inventory, reflected in basis as futures discount, reflected in warehouse receipts as low, and reflected in profits as high.
In addition, in addition to normal supply, demand and expectations that can affect the term structure of commodities, exchange rules, relevant policy adjustments and the impact of unexpected events will also lead to changes in the term structure of commodities. For example, the exchange revise the delivery quality of a certain product, which results in the delivery range of the commodity after a certain contract becoming smaller, causing the futures contract to become higher from that month onwards; for another example, different warehouse receipt periods often also affect the The term structure has an impact. Varieties with a long validity period of warehouse receipts tend to have a contango structure, while varieties with a short validity period tend to have a back structure.
In addition to contango and back structures, term structures also include U-shaped, inverted U-shaped, and extreme ones include V-shaped and inverted V-shaped. Strictly speaking, the arrangement of the term structure should correspond to the market's expected monthly supply and demand balance sheet. When a commodity exhibits a contango structure and a supply and demand balance sheet results in tight supply and demand, then the balance sheet may be wrong.
cycle
Industrial product inventory cycle
There are two phases in the commodity cycle - the rising price phase during inventory rebuilding and the falling price phase during destocking. From the perspective of the big cycle, the K-line chart must develop according to this trend, and it reflects the appearance of the trend. To put it simply, the trend is judged through the inventory cycle and the trend is verified through the K-line chart.
| upstream raw materials | Midstream Futures | Downstream products | ||
|---|---|---|---|---|
| Replenishment cycle | Passive destocking | Inventories fall, supply remains unchanged | Profits fall, operations remain unchanged, inventories fall, prices rise | Inventories fall, demand rises |
| Actively build database | Inventories fall, supply rises | Profits rise, construction starts rise, inventories rise, prices rise | Inventories rise, demand rises | |
| Destocking cycle | Passive database building | Inventories rise, supply rises | Profits fall, production starts remain unchanged, inventories rise, prices fall | Inventories rise, demand falls |
| Take the initiative to go to the library | Inventories rise, supply remains unchanged | Profits are down, starts are down, inventories are down, prices are down | Inventories fall, demand falls |
The inventory cycle of industrial products is also called the Kitchin cycle. The inventory cycle of industrial products starts from the demand side. There are two major trends in this cycle. One is the upward trend of restocking and the downward trend of destocking. Each trend is divided into Two stages.
The industry is in a downturn, and supply and demand are very weak. Suddenly demand starts to kick in, procurement increases, and demand is transmitted from end users to retailers and manufacturers. There is a certain time lag, which brings about an increase in spot prices. However, manufacturers have not yet expanded production and dealers have not yet expanded production. Without active inventory replenishment, inventory consumption is declining at this time. Therefore, during the passive destocking stage, downstream demand increases, midstream and upstream inventory declines, and prices begin to rise.
When dealers and manufacturers see downstream demand rising, they will gradually expand production and increase product prices. Dealers will also actively build inventory. The downstream demand side expects that prices will continue to rise in the future, so it will accelerate purchases, demand will increase, and both supply and demand will With the end of the market working hard, prices continue to rise, inventories accumulate at the same time, and the entire industry chain begins to convert funds in hand into inventories that are about to appreciate in value. Therefore, demand increases, inventories begin to increase, and prices rise further.
When the price of goods is too high and the inventory on the market is also high, the demand side begins to reduce purchases due to sufficient early stocking. Demand drops and prices fall. However, the transmission lag is still there, manufacturers are still increasing production, and dealers are also stocking up. Downstream demand is declining, upstream supply is increasing, inventory is accumulating throughout the industry chain, and prices are falling. This is the passive warehouse building stage.
When dealers and manufacturers find that downstream demand is insufficient, in order to convert the resources in their hands into funds in a timely manner, they will sell at a reduced price. The demand side expects that subsequent prices will continue to fall, and purchases are delayed. At this time, commodity prices continue to fall, and inventory continues to decline. This is the decline in the process of destocking.
The spider web cycle of agricultural products
The demand side of agricultural products is relatively stable, and the main changes are on the supply side.
The basic assumption of the spider web model is that the current year's output depends on the previous year's price, thus obtaining a supply curve, and the current year's demand depends on the current year's price, thus obtaining a demand curve. Under the influence of supply and demand, an equilibrium price is obtained, and this price will affect the output of the next year. Due to the difference in elasticity between the supply curve and the demand curve, three forms of models will appear - divergent spider web, closed spider web, and convergent spider web.
In a divergent spider web, the elasticity of the supply curve is greater than the elasticity of the demand curve, and the actual price and actual output will fluctuate more and more. For this type of agricultural product, the price will often skyrocket after encountering a supply shock, and the price increase may be much greater than the decrease in output. Amplitude.
In a closed spider web, the elasticity of the supply curve is equal to the elasticity of the demand curve. The actual price and actual output change to a moderate extent, fluctuating around the equilibrium point with the same amplitude, and will not constantly deviate from the equilibrium point, nor will they continue to approach the equilibrium point.
In a convergent spider web, the elasticity of the supply curve is less than the elasticity of the demand curve, and the fluctuation range of actual prices and actual output will become smaller and smaller, thus moving closer to the equilibrium point.
Therefore, according to the spider web model, there will be a wave of market prices for agricultural products every year, but in fact, big market prices for agricultural products do not happen that frequently, usually once every 3-4 years.
Supply cycles due to growth characteristics
The most typical one is domestic white sugar. There are two types of domestic white sugar, one is cane sugar made from sugar cane, and the other is beet sugar made from sugar beets, of which cane sugar accounts for the majority. The sugar cane grown in China is mainly ratoon cane. Due to the dimensions and climate, the growth cycle of domestic ratoon cane is generally 3 years. As the year of ratoon cane increases, its sugar content will continue to decrease, so it generally reaches the third year. The crops are cut down and replanted every year, which leads to a three-year cycle of increase and decrease in domestic sugar production. The average price is also a three-year bull market and a three-year bear market.
Eggs also have a similar cycle. The fundamental reason is the profit-driven replenishment and laying hen growth cycle. When the profits of layer hen breeding are poor, the farmers' enthusiasm for breeding will decrease, and the replenishment will begin to decline, resulting in egg The number of chickens in the population has declined, and the decline in the number of chickens has reduced the supply of eggs.
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Eggs basically have a cycle of about 3 years. It takes about 120 days from hatching to laying eggs. The egg-laying ability begins to decline about 300 days after laying eggs. The complete life cycle of laying hens is about 520 days, which is basically In one and a half years, an active inventory replenishment cycle plus an active inventory depletion cycle takes about three years.
In addition, these cycles are alternating cyclical laws that naturally occur in the market economy, but sometimes the cycles are lengthened or shortened due to some national policy reasons, that is, policy factors may improve or break the cyclical laws.
Market cycles caused by weather factors
The cycles of some agricultural products are caused by weather. Periodic changes in weather are related to changes in the rotation speed of the earth.
Soybean meal has a relatively typical four-year cycle. Before 2004, there was no obvious weather hype. However, after 2004, the weather cooperated in the years when soybean meal surged. For example, there were floods in the main soybean-producing areas of the United States in 2008-2, and in 2012-1 Drought in South America, the 2016-2 El Niño led to production reductions in South America, etc. It takes about 4 years for El Niño and La Niña to change, so the four-year cycle of soybean meal is accompanied by weather factors.
Industrial chain
supply and demand balance sheet
In the supply and demand balance sheet, total supply - total demand = ending inventory. The higher the ending inventory, the more serious the oversupply. Total supply = beginning inventory + production + imports, and total demand = consumption + exports.
The basic assumption of the supply and demand balance sheet is that economics determines business behavior (new additions, withdrawals, substitutions, and even supply and demand conversion), and supply changes quickly while demand changes slowly.
Dimensions of the balance sheet:
- Time: Weekly - Monthly - Yearly
- Space: upstream, midstream and downstream (supply - demand - inventory)
- Maintenance schedule: Domestic and foreign upstream + domestic downstream key enterprises
- Production capacity schedule: domestic and foreign upstream + domestic downstream key enterprises
Generally, the level of the ending inventory is used to reflect the balance of supply and demand. Simply looking at the inventory level does not necessarily indicate the problem. If the ending inventory of a certain product is very high, it does not necessarily mean that the oversupply and demand are serious. It may also be that the annual consumption of this product is huge. Ending inventory is very small relative to annual demand. The inventory-to-sales ratio is also an indicator reflecting supply and demand.
The monthly supply and demand balance sheet calculates a reasonable output for the month from the perspective of total monthly production capacity, maintenance plan, operating rate, etc., and then combines the historical import volume for that month to estimate the import situation for this month.
When comparing data, we usually use year-on-year to judge highs and lows, and month-on-month to judge trends. ·
Inventory and profit
Profit is the lifeline of an industry. A high-profit stage in a certain link will often lead to an increase in supply in that link. In the short term, driven by high profits, it will lead to an increase in operating rates. In the long term, driven by high profits, it may lead to the release of production capacity. With the increase in short-term operating rates and the deployment of long-term production capacity, the pressure on the supply side will become greater and greater; high profits often represent high prices, and high prices will suppress demand, causing demand to begin to deteriorate and marginal changes on the demand side; the entire The structure of the industrial chain will also undergo corresponding changes, and prices will seek a new balance as a result; therefore, the most important thing to analyze the industry is to analyze the transmission of industrial profits upstream and downstream of the industrial chain, as well as the operating rate and expected production capacity in the process Delivery changes.
The result of the interaction between supply and demand is reflected in inventory. High profits will drive companies to expand production, increase operating rates in the short term, and increase production capacity in the long term, thereby increasing output. The demand side is affected by high upstream profits, and demand continues to decline, so inventory In theory, it will continue to accumulate, but because the inventory cannot be sold quickly to collect funds, it will gradually encounter pressure on cash flow, forcing companies to destock and lower prices. Therefore, whichever link has more inventory will face greater challenges. If there is cash flow pressure, we will face the problem of proactive destocking.
Profit and inventory are the two ultimate indicators, and operating rate and production capacity changes are intermediate indicators that need to be tracked to grasp the current pattern and main contradictions of the entire industry chain.
In addition, regarding inventory, it is important to note the changes in inventory in different links of the industrial chain. For example, when downstream demand is poor, social inventory continues to decline and factory inventory continues to accumulate. Since the decline in social inventory exceeds the increase in factory inventory, the total inventory also decreases. , but in this case, it often means that the market demand is not good, or the market demand is expected to be poor, so traders adopt a proactive destocking strategy, and social inventories continue to decline; at the same time, because production is profitable, upstream manufacturers still During continuous production, you can choose to sell hedging on the futures market. Therefore, the output of manufacturers continues to increase, and downstream purchases from warehouses are delayed, so factory inventories continue to increase. In this case, prices are often prone to fall under pressure.
focus
Conventional methods need to focus on inventory, basis, profit, production capacity, and operating rate. Upstream needs to focus on concentration, production capacity, operating rate, and inventory. Downstream needs to focus on cash flow, inventory, production capacity, and operating rate.
Because for the upstream, the degree of concentration is different and the logic of industrial pricing is also different. In a perfectly competitive market, high profits are unreasonable and unsustainable. In an oligopoly market, high profits are relatively unreasonable because oligopolies are characterized by instability. , will eventually return to normal profits. In a monopoly market, high profits are reasonable and last for a very long time.
For the downstream, the downstream mainly provides demand, and the quality of cash flow often affects downstream demand, thereby affecting the downstream purchase quantity. In addition to cash flow and inventory, you can also study its financing capabilities, related development plans, etc.
Industrial and agricultural products
Industrial products have stronger financial attributes, and at the same time, the supply cycle is short and can be supplied continuously. The demand side is greatly affected by the economy, so it is greatly affected by macroeconomics, monetary policy, and downstream demand; agricultural products have weaker financial attributes, and at the same time Demand elasticity is small, and the supply side is easily affected by weather and natural disasters. Therefore, we pay attention to the country's industry, tariff policies, and supply side conditions.
In addition, we should also pay attention to some small indicators, such as the expected production capacity of industrial products, operating rates, maintenance plans, import profits, etc., planting intentions of agricultural products, planting area, weather, disasters, harvest progress, USDA reports, MPOB reports, etc.
Value investing in commodity futures
In terms of results, value investing only loses time but not money.
For commodity futures, the price is the spot and futures price. For traders, the futures price is the production cost. When the futures price is significantly lower than the production cost, this is the safety margin of the transaction.
Therefore, for products with low prices, especially those with profit losses, if it is a back structure, you can go long or even make fixed investments, as long as you can tolerate losses better than the production company and do not liquidate your position. If it is a contango structure, there are corresponding commodity options. , you can go long futures and buy put options at the same time, and use the income from the options to make up for the loss of changing months.
However, this idea does not apply to energy chemical products, because energy chemical devices generally have multiple products, and production will not be discontinued due to profit losses of a single product, but the comprehensive profit of the entire device must be considered.
How to do
For commodity futures, the cost can be understood as the value of the commodity, and the cost can be divided into production and warehouse receipt costs. The production cost reflects the value of the commodity, and the warehouse receipt cost reflects the value of the contract.
The previous long-term contract based on low inventory + deep discount + low profit was essentially a deviation between the futures price on the market and the value of the spot warehouse receipt. It was judged that the contract value would not depreciate significantly in a limited time, and the price currently deviates The value is greater, and going long means restoring price to value. In the same way, if you have low inventory + deep discount + profit loss, you can boldly go long.
True value investment means that the price of the product is below the cost line, and the price is at a historically low level, and it depends on the ultimate cost of the product, that is, the cost of the entire industry chain. When the price of any link in the entire industry chain cannot be reduced, If it is lowered, the safety margin can reach the highest level, which is a real value investment.
Quantify
Commodities are classified using a two-dimensional and four-image approach. The horizontal axis is driving and the vertical axis is valuation.
In valuation, spot can be expressed by profit rate, futures can be expressed by disk profit and basis rate, and profit can also be expressed by profit quantile in addition to profit rate. From a valuation perspective, we should go long on low-valuation varieties and short on high-valuation varieties.
Basis rate = (spot price - futures price) / spot price.
In the driver, you can find it from relevant data such as inventory-to-sales ratio, inventory, operating rate, and capacity utilization. From a driving perspective, we should go long on varieties that drive upwards and short on varieties that drive downwards.
Pricing model
Four pricing models: cost pricing, supply and demand pricing, macro pricing, and policy pricing.
- Cost pricing : Futures prices are sensitive to costs, but not sensitive to supply and demand . For example, prices of many varieties have been falling due to excess supply and demand. After falling below the cost, supply and demand are still in excess, but the price cannot fall. On the contrary, once there are many favorable factors on the cost side, the market will often ignore the objective reality of excess supply and demand and continue to rise. The most typical example is that when some chemicals have excess supply and demand and low profits, they tend to follow the original fluctuations and deviate from the relationship between supply and demand at a certain time.
- Supply and demand pricing: Futures prices are sensitive to supply and demand, but not to cost . For example, due to tight supply and demand, prices of many varieties have been rising, and profits have been high. This high profit is transmitted upstream, causing raw material prices to rise. However, rising raw material delivery does not necessarily further promote the rise of this variety, because high profits have no impact on costs. Sensitive, more sensitive to supply and demand, so cost support is a false proposition in high-profit situations.
- Macroeconomic pricing: Futures prices are sensitive to macroeconomics but not to industries . For example, when we conduct fundamental analysis of products, we analyze more from the perspective of valuation and driving. Valuation is cost/profit, and driving is supply and demand. These are all things at the fundamental level of the industry. But many times, when major macro changes occur, futures are not sensitive to industry fundamentals, but are more sensitive to the macro. The most typical examples are the general decline in commodities during the financial crisis or the outbreak of the epidemic, and the general rise in commodities after global quantitative easing. This At that time, the entire commodity was macro-sensitive and insensitive to differences in the fundamentals of the respective industries.
- Policy pricing: That is, futures prices are sensitive to policies and not sensitive to others . For example, when the price of thermal coal rises to a particularly high level, no matter what the supply and demand situation is, what the profit situation is, or what the macro situation is, once the policy starts to suppress it, the market will only be sensitive to the policy side, but not to the fundamentals or the macro side. .
supply and demand pricing
When the supply of a certain variety exceeds demand and is in a situation of excess supply and demand, futures prices continue to fall, eroding spot profits and market profits. Eventually, the entire situation becomes excess supply and demand + profit loss . From a normal perspective, there seems to be no sign of improvement in supply and demand. At this time, the market consensus is bearish. As a result, the market begins to switch logic, first adopting cost pricing, and then adopting supply and demand pricing in the opposite direction.
In this case, since the goods are no longer profitable, for agricultural products, natural disasters may occur, resulting in production reductions, which suddenly changes the original supply and demand relationship; for industrial products, it is easy for relevant manufacturers in the industry to join forces to cause trouble: The first step to cause trouble is definitely to open a large number of long orders on the market. Under the circumstances that everyone is baffled by, the market goes out of the upward trend that violates the supply and demand pricing model; the second step to cause trouble is that manufacturers start to close the market and hesitate to sell, reduce production and raise prices, and even The repurchases were thought to have caused a tight spot situation, and then the futures and spot prices began to rise together.
For another example, when supply exceeds demand and supply and demand are tight, commodity prices continue to rise, spot profits and market profits are high , especially when the market prices rise to the point where many downstream or industrial traders lament, and then various reporting letters come out, and then the exchange Or the relevant departments come out to suppress. The market is often insensitive to the exchange's suppression, but it often reacts violently to higher-level suppression, especially in the first wave.
At this time, the market switches from supply and demand pricing to policy pricing. No matter how good your fundamentals are, how big the gap between supply and demand is, or how tight the spot is, it will have no effect, because the previous rise in the market has largely reflected part of the Due to the above-mentioned supply and demand factors, the market will follow policy pricing and then fall. This is also a potential risk.
Especially in recent years, the frequency of policy pricing in the commodity futures market has increased. For example, varieties such as dates, thermal coal, iron ore, and glass have all been guided by policies, and the market will follow the policy pricing logic at certain times.
Warehouse receipt
The delivery of futures requires registration of warehouse receipts, whose quantity implies the seller's willingness to deliver. By comparing the cost of the warehouse receipt with the market price, the profit and loss of the buyer's delivery and the seller's delivery can be judged.
When there are few warehouse receipts, a squeeze market may occur; when there are many warehouse receipts, it is easy to follow the delivery logic.
Warehouse receipts are divided into three types: standard warehouse receipts, registered warehouse receipts and valid forecasts. Standard warehouse receipts refer to standard warehouse receipts issued after passing the warehousing inspection. Registered warehouse receipts refer to standard warehouse receipts that are registered and become registered warehouse receipts. Only after registration Only warehouse receipts can be delivered. Effective forecasts refer to warehouse receipts that enter the delivery warehouse but are not registered and warehouse receipts that are registered and then cancelled.
Relationship with futures premiums and discounts
When the number of registered warehouse receipts is very high, the product is likely to be in a state of loose supply and demand or even excess. When the number of registered warehouse receipts is low, it means that the spot supply and demand are tight, because if the spot market is booming, the warehouse receipts can be sold directly in the spot market.
When the quantity of warehouse receipts is high, it is often a contango structure; when the quantity of warehouse receipts is low, it is often a back structure. When futures prices are high, a large number of warehouse receipts are often generated, and spot traders will sell in the futures market to lock in profits. When futures prices fall, warehouse receipts often overflow. Because sales profits in the futures market are low, warehouse receipts are canceled one after another.
Therefore, the substantial increase or decrease in the number of warehouse receipts reflects the price difference between futures and spot prices.
The significance of forced cancellation of warehouse receipts
Registered warehouse receipts need to be canceled in two situations. One is when the ownership of the goods is transferred at the time of delivery and the warehouse receipt needs to be canceled. The other is that on the expiry date of the warehouse receipt, it must be canceled forcibly for EPC. After that, this Some warehouse receipts can no longer be registered for warehouse receipts.
The reason for mandatory cancellation of warehouse receipts is that some varieties have a certain shelf life, and product quality cannot be guaranteed after a period of time.
virtual/real ratio
The logic that dominates the market in different stages of futures contracts is different. Shortly after the contract is launched, speculative funds often dominate the market. Any expected fluctuations will be amplified under the influence of speculative funds. As the futures contract continues to be closer to the delivery month, As the market approaches, industrial funds gradually intervene in near-month contracts, so the main contracts in recent months begin to be dominated by industrial funds. At this time, futures contracts tend to follow industry logic, with smaller fluctuations and stronger trends.
The real offer refers to the positions used for delivery, and the virtual offer refers to the futures contract minus the positions that can be delivered. Strictly speaking, the virtual offer ratio is the ratio between the virtual offer positions and the real offer positions. In the actual process, the main contract position is often divided by 2 to obtain the unilateral position as the virtual offer, and the number of warehouse receipts is converted into the number of lots on the market as the actual offer amount.
The larger the actual-to-empty ratio, it means there are fewer goods and more funds. In this case, the price is easy to rise. The smaller the ratio, it means there are more goods and relatively less funds. In this case, the price is easy to fall.
intertemporal arbitrage
Arbitrage from the time dimension is intertemporal arbitrage, arbitrage from the industrial chain dimension is cross-variety arbitrage, and arbitrage from the trade flow dimension is cross-market arbitrage.
The intertemporal arbitrage is to go long on the near month and short on the far month; the intertemporal counter arbitrage is to go long on the near month and long on the far month; the industrial arbitrage is long on raw materials and short on finished products, that is, short industrial profits, and the industrial counter arbitrage is short on raw materials. , go long on finished products, that is, go long on industrial profits; the cross-market forward move is to go long on exporting countries and short on importing countries, which goes along the trade flow; the cross-market reverse move is on short exporting countries and long on importing countries, which goes against the trade flow.
Four Logics of Intertemporal Arbitrage
Forward contracts refer to contracts that are more than 2 months away from the delivery month. The core driving logic is the changing trend of costs and inventory. Near-term contracts refer to 1-2 months away from the delivery month. The core driving logic is the convergence of basis and inventory. In terms of absolute level, the spot contract refers to the one within one month from the delivery month. The core logic driving it is the delivery of warehouse receipts and the repair of the basis.
Cross-variety arbitrage
Arbitrage logic based on industrial profits
Based on the logic of industrial profits, that is, high profits and high losses are unsustainable, and arbitrage can be done to return industrial profits.
For example, in the soybean crushing industry, the raw material is imported soybeans, and the finished products are soybean meal and soybean oil. For arbitrage funds, long crushing profits can also be shorted in disguised form, shorting the oil-to-seed ratio, that is, long soybean meal and short soybean oil. The reason is the profit of the crushing company. It mainly comes from soybean meal. When oil mills have poor profits, they will choose to increase the price of meal. Others include corn and corn starch, cotton and cotton yarn. For the black series, the raw material for coking enterprises is coking coal and the finished product is coke. For steel plants, the raw material is iron ore and the finished product is rebar. In the energy and chemical industry chain, MTO profit arbitrage, that is, the raw material is methanol and the finished product is polypropylene.
Arbitrage logic based on associated relationships
The associated relationship means that the finished products are processed from the same raw materials and are always produced together. The prices of such products often have a trade-off relationship, that is, if one commodity strengthens, the other commodity tends to weaken.
In the soybean crushing industry chain, imported soybeans are used as raw materials, and soybean oil and soybean meal are simultaneously produced during the crushing process, which are companion products. In the black series, there is competition from molten iron between rebar and hot-pressed coils. When the profit of the thread is high and the hot coil is losing money, more molten iron will flow to the rebar, and the coil difference begins to change (but if both products are profitable, it will not There is competition logic because steel mills are not sensitive to high profits).
Arbitrage logic based on substitution relationship
Among the three major oils, rapeseed oil has the highest price, followed by soybean oil, and palm oil has the lowest price. When the price difference between soybean oil and palm oil exceeds its normal price difference range, it will cause palm oil to substitute demand for soybean oil, causing the price of palm oil to strengthen relative to soybean oil and the price difference to return. The same is true for other oils.
Arbitrage logic based on macro hedging
When we choose a cross-variety hedging combination, we need to analyze the factors that affect the two varieties, hedge out the common influencing factors, and then leave different factors. What we do is hedging of different factors. The most common macro hedging is the hedging between industrial products and agricultural products, or the hedging between PPI and CPI.
Because industrial products have stronger financial attributes and are more affected by the overall macroeconomic and monetary policies, while agricultural products have stronger commodity attributes and are less affected by the overall macroeconomic and monetary policies, the demand is relatively stable. Therefore, when allocating different varieties, when the economy is down, we often choose an allocation that is high in agricultural products and short of industrial products; when the economy is up, we often choose a configuration that is high in industrial products and short of agricultural products.
Different sectors of industrial products can also be hedged, such as hedging between black series and colored series. Colored series are global varieties, and the price difference between domestic and foreign prices will not be too large. Black is a unique domestic variety. When the economy goes down, non-ferrous products tend to It will continue to fall under the influence of macroeconomics, while black will have favorable policies due to the country's countercyclical adjustment.
Energy can also be hedged. Coal and crude oil are the two most important energy sources in the world. Theoretically, the ratio of kerosene to oil represents the cost-effectiveness of the two energy sources. Traders who are bullish on coal and short on crude oil tend to favor black, Empty energy transforms varieties, and vice versa.
Arbitrage logic based on term structure
For varieties with a back structure, go long, and for varieties with a contango structure, go short. At the same time, it is best to choose products with greater correlation, especially those in the same sector and industry chain.
Transaction logic
| Basis | term structure | in stock | profit | Warehouse receipt | Valuation + Drivers | Strategy |
|---|---|---|---|---|---|---|
| Futures premium | short | |||||
| Futures discount | Go long | |||||
| back | back | Go long on dips | ||||
| contango | contango | Short on rallies | ||||
| The main discount in recent months | back | high | Not suitable to chase high | |||
| The main force has raised prices in recent months | contango | Low | Not suitable for short chasing | |||
| Futures deep discount | Low | Low | Go long on dips | |||
| High premium on futures | high | high | Short on rallies | |||
| Futures deep discount | Low | high | Inter-temporary package | |||
| High premium on futures | high | Low | intertemporal counter arbitrage | |||
| same direction | unilateral strategy | |||||
| inconsistent direction | Arbitrage Hedging | |||||
| Futures deep discount | The virtual to real market ratio is large | Go long unilaterally | ||||
| High premium on futures | The virtual to real market ratio is small | Unilateral short selling | ||||
| Futures deep discount | Increase in warehouse receipts | Reduce long positions | ||||
| High premium on futures | Warehouse receipts decrease | Short position reduction | ||||
| back | Small amount of warehouse receipt | Inter-temporary package | ||||
| contango | Huge warehouse receipt | intertemporal counter arbitrage |
There are two core factors that determine whether trading can make money in the long run: winning rate and profit-loss ratio.
Safety margin : One is to look for it from the basis point of view, and the other is to look for it from the perspective of the actual to virtual market ratio, that is, do not go short when the futures discount is high, do not go long when the futures premium is high, do not go short when the actual market ratio is high, and do not go long when the virtual to actual market ratio is low. .
The risk of intertemporal forward arbitrage is less than that of intertemporal reverse arbitrage. The reason is that the impact of various unexpected events in transactions are often weather, strikes, policies, etc., which often have a relatively large expected impact on the supply of recent months, and the near-month contract is prone to strength. , it is easy to lose money if you do the opposite. Also, when using this as a trading logic, try to choose contracts whose warehouse receipts cannot be resold upon expiration. In this way, the warehouse receipts will soon lose their financial attributes, and long-term buyers will be less willing to take delivery.
Basis trading
Basis trading, that is, shorting the futures premium and going long the futures discount.
Basis trading can bring about an objectively high profit-loss ratio. There are two directions for basis repair, one is for futures to rise to repair the basis, and the other is for spot prices to fall to repair the basis. Through fundamental analysis or technical analysis, it is more subjective to judge the direction of basis repair, thereby improving the winning rate of the transaction.
Assume that the current spot price of rebar is 4,000 yuan/ton and the futures price is 3,700 yuan/ton. Assume that the probability of repairing the basis in both ways is 50%. If you trade long futures along the basis, if you do it right, eventually If the futures and spot prices are both 4,100 yuan/ton, you can make a profit of 400 yuan/ton; if you make a mistake, the final futures and spot prices are both 3,600 yuan/ton, and you will lose 100 yuan/ton. Therefore, the profit-loss ratio of this transaction is 4:1.
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However, the basis only determines a relatively favorable trading direction and does not guarantee a high trading winning rate. For example, when market expectations are optimistic, even if the futures premium is high, futures will lead the spot price to rise. In 2017, rubber futures have always been futures premium to spot prices. As a result, the rise in futures prices has widened the premium, and then the spot price has followed suit. Basis repair. For another example, when market expectations are pessimistic, even if futures are at a discount, futures will lead the spot price to fall. In 2018, rebar has always been at a discount to spot prices. At that time, RB1801 followed the rise of spot prices, and eventually a squeeze market occurred. , RB1805 did not follow the rise but fell instead. As a result, the futures price fell and the discount widened, and then the spot followed the fall and repaired the basis.
term structure
Under the back structure, as the futures and spot prices rise together, when the price rises from low to high, if the discount of the main contract in recent months is large, it is often a signal that the market has peaked and is about to reverse, and then the futures will no longer follow the spot. Instead of rising, it starts to fall before the spot price, thus driving the spot price to fall together.
Therefore, the conventional trading idea under the back structure is to go long on dips. When the price (strictly speaking, profit) is at a high level, if the discount of the main contract in recent months is large, you should not blindly pursue the high and go long. When the term structure changes from When back changes to contango, the trading idea needs to change to short selling.
The conventional trading idea under the contango structure is to go short on rallies. When spot profits are at a loss, if the futures contract is at premium, it is not advisable to blindly chase the short position. When the term structure changes from contango to back, the trading idea needs to be mainly long. .
However, the contango structure does not mean that commodity prices will not rise all the way, nor will they fall all the way under the back structure. If you want to continue to rise under the contango structure, you must have enough speculative funds to take over. Otherwise, once the price rises, you will provide industrial customers with A good hedging opportunity.
From the perspective of capital game, the contango structure means more goods than money, and the back structure means more money than goods.
Inventory + Basis + Profit
Low inventory + deep discount, long on dips, high inventory + high premium, short on highs.
When futures are deeply discounted, there are two directions for future basis restoration. One is that futures will rise to repair the spot, and the other is that the spot will fall and the futures will be restored. The spot price of commodities is determined by supply and demand. If supply exceeds demand, the price will rise, and if supply exceeds demand, the price will fall. The result of the interaction between supply and demand is reflected in the inventory. Therefore, if the inventory is low, the spot price will easily rise, and if the inventory is high, the spot price will easily fall.
Low inventory + deep futures discount + low profit, go long on dips; high inventory + high futures premium + high profit, go short on highs.
The market often sees sharp premiums in futures and high spot inventory, resulting in sharp rises in futures and spot prices. The fundamental reason for this situation is that spot profits are low or even losses. Low profits and losses are unsustainable, and the market expects spot prices. Bottoming out, so futures will lead the spot to rise.
When these three indicators meet our conditions at the same time, the strategy is to go long or short unilaterally, but sometimes they conflict with each other, and it is necessary to change from unilateral to intertemporal arbitrage.
Futures have a deep discount + low inventory + high profits, which is a cross-temporal arbitrage; futures have a high premium + high inventory + low profits, which is a cross-temporal reverse arbitrage.
The positive set refers to long the near-month contract and short the far-month contract. The near-month contract is the spot logic and the far-month contract is the expectation logic. The front-month contract faces the main contradiction of basis repair. When the contradiction between reality and expectations becomes larger and larger, The price difference of the positive arbitrage will become larger and larger, the risk is less than that of one side, and the return may even be higher than that of one side; the reverse arbitrage refers to shorting the near-month contract and going long on the far-month contract. The logic is the same.
Valuation + Drivers
When valuations are consistent with drivers, a unilateral strategy is adopted; when valuations are inconsistent with drivers, arbitrage or hedging transactions are adopted.
| Quadrant | Condition | Strategy |
|---|---|---|
| Quadrant 1 | Low valuations drive downwards | Counterattack |
| second quadrant | Low valuations drive upwards | Go long |
| Quadrant 3 | High valuations drive upwards | Formal set |
| Quadrant 4 | High valuations drive downwards | short |
Term structure + warehouse receipt
If the deep discount + the ratio of actual and virtual orders is large, go long on one side; if the high premium + the ratio of actual and actual orders is small, go short on one side; if the deep discount + the warehouse receipts increase, the long orders will be reduced, and the high premium + the warehouse receipts will decrease, and the short orders will be reduced.
The back structure + a small amount of warehouse receipts, inter-temporal positive arbitrage; the contango structure + a large amount of warehouse receipts, inter-temporal reverse arbitrage.
In essence, this trading method is also a deformation of the "inventory + basis + profit" framework, because a small amount of warehouse receipts often implies low inventory, a large amount of warehouse receipts implies high inventory, and at the same time, a small amount of warehouse receipts also implies Indicating that spot market sales are good, the huge amount of warehouse receipts also implies that spot market sales are poor.
Important signals for market reversal
- Prices are at high or low levels, and caution is required after the basis is repaired.
- When the price is at a high or low level, caution should be exercised when the basis frequently changes between premiums and discounts during the day.
- Be cautious when prices are high or low and positions drop significantly.
- The scam of basis difference. When the price or profit is at a historical high, a large discount on futures is often a false discount, because the spot price peaks in advance. The same is true on the other hand. At this time, it is inappropriate to go long according to the logic of basis difference premium and discount. Or go short.
Determine market reversal based on main positions
Net long order rate = (top 20 long positions - top 20 short positions) / top 20 long positions.
Net short order rate = (top 20 short positions - top 20 long positions) / top 20 short positions.
When the net long order rate is high + the price is high, the long market is about to end; when the net short order rate is high + the price is low, the short market is about to end.
If the net long order rate decreases + price decreases + open positions decrease, the long market has ended; if the net short order rate decreases + price rises + open positions decrease, the short market has ended.