WEEK 10 (Part 1): The Went Right/Wrong

This is probably the first time since the beginning of this trading game that I didn’t make any new transactions. After last Friday (Nov 9^th)’s major stumble, soybean futures prices further tumbled on Monday (Nov. 12^th) by another 3%, and reached its 5 months low. This was largely due to USDA’s estimation for a bigger U.S. soybean crop. Soybean future prices were pressured by speculators selling future contracts to offset their previously LONG contracts. As a result of the hasty price drop, I received a margin call on all 5 soybean LONG contract, and had a potential loss of -$5950.00 – $5400.00 – $5400-$5000-$2675 = -$24425 on Monday (Nov. 12^th). This caught me completely off guard; while knowing that the chance of the soybean prices to rebound to above $1500.00 was less than 0.10%, I did not want to offset the contracts right away. I decided to wait for the soybean prices to rebound, to minimize my loss as much as possible. Fortunately, soybean future prices did increase slightly on Tuesday (Nov. 13^th), and Wednesday (Nov.14^th) as expected. However, the price spike was so insignificant compared to the drastic price drop. The November 2012 Soybean contract liquidated on Wednesday (Nov. 14^th), and led to a loss of 5000 bushels*($1427.00 – $1464.50) = -$1876.00. Soybean future prices further weakened on Thursday (Nov.15^th) and Friday (Nov.16^th) as a result of the increase in global supply due to South American crops’ positive outlooks, as well as China’s cancellation on previous orders for U.S. soybeans.

To conclude this peaceful-in-terms-of-making-transactions, but dramatic-in-terms-of-losses week, I was traumatized at the beginning of the week, and for the following few days, I simply did not want to accept the losses by refusing to offset the remaining of the LONG soybean contracts. For as long as the contracts were not offset, my losses remained “potential”. This denial of false judgment in soybean futures prices, which led to a major loss, also meant that I couldn’t move on from this soybean failure, and bid on a new contract. This insight hit me on Friday (Nov.16^th) morning, after seeing the soybean prices further dropped again. At the realization of this, I have decided to offset all 4 LONG soybean contract early next week, and have a fresh, new start on the trading game.

End of Week 10 Balance:$20017.88

Reference

http://www.agriculture.com/markets/analysis/soybeans/soybes-slip-on-wear-ccelled-ders_10-ar27583

http://www.albertafarmexpress.ca/news/u-s-soybeans-dip-on-renewed-supply-pressure/1001859813/

http://online.wsj.com/article/SB10001424127887324439804578114913699779162.html