Agricultural commodity trading – where to start


You might already be trading in oil and gold and thinking about other commodity markets. Agricultural commodity trading is very popular in the United States, which has very sophisticated agricultural futures markets based in Chicago, but it is also possible to trade other agricultural commodities in Europe and Asia, for example wool. in Sydney, Australia.

Start trading in agricultural commodities

Getting started in agricultural commodity trading is easy, although if you are new to commodity trading, we suggest you switch to gold or oil and later switch to agricultural commodities. These are not markets for the novice trader.

There is a wide variety of futures contracts based on agricultural commodities, including futures contracts on wheat, corn, pork belly, frozen orange juice, soybeans, cocoa and coffee.

Agricultural products often have a very seasonal dynamic, as harvests depend on the quality of the crops in both hemispheres, which in turn depend on a number of other factors, but often on the weather. Parasites can also have a big impact.

Success in agricultural commodity trading depends on your homework: In my experience, the most successful traders in these markets that I have encountered are those with an informational advantage. For example, a very profitable hedge fund had employees working for it in West Africa who carried out first-hand field research in cocoa plantations, and were in fact involved in the physical cocoa trading, and not just in the cocoa plantations. futures contracts.

How to trade agricultural products

Most traders in North America will use futures contracts to trade agricultural commodities. If you are in the UK, you might want to look at financial spread betting platforms for agricultural commodities trading: these bring with them the advantage of leverage, but also come with additional risks. Elsewhere, you may want to consider CFD trading, as most CFD brokers will offer CFDs based on agricultural futures prices.

The trading of agricultural commodities is based on futures prices, so you will need to study how the futures markets work. Futures contracts were originally developed to make it easier to buy agricultural products like grains – they allowed buyers to price crops more efficiently before they were harvested.

If you are trading futures contracts, you will need to know the pricing of the different delivery contracts. Each product will have its own suite of futures contracts that determine its price.

What agricultural commodities to exchange

Agricultural commodity markets vary in popularity: in my experience, European traders seem to prefer trading in soybeans, coffee and cocoa.

For each commodity, it’s important to do a basic reading on the dynamics of that market – find out what the main risks and price drivers are. Before making live trades, study the price performance over a period of weeks or months to familiarize yourself with this market. This makes it easier to decide where to set your stop losses and to manage your risk.

Some commodity traders focus only on an agricultural market – the best seem to know and stick to a futures market. Others look for opportunities for dynamics between different agricultural commodities, depending on when specific price action cycles occur. It is a matter of personal preference.

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