You'll soon be able to trade Chinese iron ore futures

Photo by Kevin Frayer/Getty Images
  • Chinese iron ore futures are already one of the most liquid commodity contracts in the world.
  • Foreign investors will be able to trade in Chinese iron ore futures from May 4.
  • Citibank expects strong interest from day one, and volatility to remain at elevated levels.

Dalian iron ore futures have taken China by storm, seeing the once-dull market become one of the most exciting commodity contracts in the world.

Daily price swings are huge, liquidity is ample, technicals are often influential and there’s no shortage of speculators willing to take part, creating an ideal scenario for anyone looking to day trade.

Just take a look at the charts below from Citibank for evidence as to how massive Chinese iron ore futures have become.

It’s already among the top 10 most actively traded futures contracts by average daily turnover, only surpassed by a handful of other commodities including rebar futures traded in Shanghai.

Source: Citibank

And average daily turnover sits well above aggregate open interest in all iron ore contracts, indicating that speculative activity is extremely high.

Source: Citibank

However, until this point, only Chinese punters could take part in the mayhem, leaving those outside of the country to use other proxies to bet on movements in futures markets.

But that’s now about to change.

On May 4, foreign investors will granted access to trade in iron ore contracts, opening the door to anyone wanting to have a dabble in Dalian.

Citibank expects foreign participation won’t take long to ramp up.

“Major iron ore miners and physical traders are likely in a good position to participate from day one,” it says.

“Speculators historically trading the Singapore Exchange (SGX) iron ore swap contract should also be interested in participating in the Dalian Commodities Exchange (DCE) contract, partly to express their views on Chinese onshore-offshore price differentials.

“Ex-China steel mills might also join at some stage.”

And while activity from abroad will help boost overall market turnover, Citi expects volatility levels will likely remain as normal.

“Broadly speaking, we expect Chinese market participants to continue dominating the DCE iron ore flows going forward, with elevated speculative positioning driving high price volatility,” it says.

“As such, the market is unlikely to trade too differently to how it is now.”

Here’s the Dalian iron ore contract specification for anyone who is interested in joining in.

Source: Citibank

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