ICE Sugar Futures Price
The sugar price in the cash (physical) market is different than the sugar futures
price. Generally, the price of a commodity for future delivery is higher than the cash price due to carrying costs (insurance,
interest, and warehousing fees). This is called contango. The opposite of contango is backwardation. Backwardation is when
the price of a commodity for future delivery is lower than the cash price. Backwardation occurs in a “seller’s
market.”
When you trade sugar futures, your futures
price depends on where you get into the market. After you post your initial margin, your profit or loss depends on where you
enter and exit the market (minus transaction costs).
For
example:
The contract size for sugar is 112,000lbs.
So each $.01 move equals $1,1200. As the market moves, your account value adjusts. If your account value drops below the maintenance
margin, a margin call is due. A margin call can be met by offsetting positions or adding money to your account.
If you have very deep pockets or deal with the physical sugar product then
futures may be for you. Trading sugar futures is like driving a car without insurance. You may save the insurance premium,
but if you crash you will wish that you were insured.
