Can Money Be Made Based on
Difference Between Closing and Settlement Prices?
Did you now that the official commodity exchange settlement price and the actual closing price are frequently different and quite often are changed some time after the actual trading ceases?
Some of our CTCN Traders Club Members may not be aware of that fact. However, if you have a quote machine I am sure you have noticed this regular occurrence.
The market stops trading and perhaps Soybeans last tick at
exactly 679. Usually, about 10 to 20-minutes or so AFTER all trading stops, the
Exchange gives the day's so called settlement price, of say 678-1/2.
Official Closing Price Not Necessarily Based
on The Last Actual Trade That Took Place
Thus, even though the last actual trade was at 679, the
official closing price will be 678-1/2 that will be published in newspapers and
market data vendors.
Another example is T-Bonds last trading at say 113-04, but
about 15-minutes AFTER trading stops the Exchange reports they settled at
113-03.
Why does that occur? The exact reason is somewhat unclear.
However, it seems to be related to the fact the Floor Traders amd Floor Brokers do some type of
settlement between themselves after the actual close of public trading.
It's Possible To Make Money
Based On Close/Settlement Phenomenon
Is there any way money could be made based on this common
settlement procedure? Quite possibly! We tested this concept in the Live Cattle
futures market and discovered the following:
A total of 30 closes were observed where the final
settlement price was higher than the last tick actual trade price. On 22 days
the next day's closing price was bullish, or 73% of the time!
A total of 28 closes took place that resulted in the days
final settlement being lower than the day's last tick. On 21 days the next
day's close was lower, or 75% of the time!
Our technical market analysis is far from complete. Additional markets and
a greater time period need to be analyzed and additional futures markets need to be researched.
However, there's a reasonable chance consistent money could be made trading by using these commodityfuturestrading observations and trading concepts.