Trading CFDs on Wheat
One of the most widely traded commodities on the global markets is wheat, a staple foodstuff across the world that is used in a variety of manufacturing processes. In virtually all societies worldwide, from east to west, wheat is a central component of some of the most common food types, and the market for buying wheat is dominated by several massive multinational players who depend on consistent, affordable supplies of wheat to run their business. As a commodity that responds to factors as diverse as the weather, global food demand and even oil prices, wheat can be a volatile trading base, and one that paves the way for exciting opportunities for commodities traders.
Why Trade CFDs on Wheat?
Wheat can be a good commodity for traders to engage in, provided they are willing to put in the leg-work as far as keeping on top of the market is concerned. Because certain price triggers, such as the weather, can be read ahead of time, there are significant opportunities for traders to capitalise on especially strong or weak production levels, and the markets respond in a logical way to announcements of this kind.
With CFDs, these opportunities suddenly become much more vast. With the high degree of leverage that comes from trading contracts for difference on margin, traders who take CFD positions in the wheat market can often benefit from the significant rises and falls in underlying wheat prices many times more than would be the case with a direct wheat purchase. Because wheat pricing is relatively transparent, and comparatively moreso than, say, stock prices, CFDs are the ideal instrument for accelerating the gains from predicted price movements.
Similarly, because wheat pricing is sensitive to the four seasons, using contracts for difference to ramp up your exposure when the time is right can be a strategy that delivers significant returns for CFD traders, particularly when compared to those taking a position in the wheat market directly. For this reason, wheat CFDs are relatively widely traded, both by price speculators looking to make a quick buck and large scale, professional investment organisations with all-powerful investment clients to answer to.
Who Trades CFDs on Wheat?
Even traders who tend to steer clear of CFDs as a rule have been known to take CFD positions in the wheat market, simply because of the sweet-spot that arises between market predictability and leverage. Unlike hard commodities, wheat is responsive to triggers that apply both now and in the future, allowing traders to more closely read the likely behaviour of wheat prices. For this reason, individual investors and investment funds alike tend to take exposure to the wheat market in CFDs when the opportunity arises, in order to augment the profits to be had from dealing in this essential commodity.
But aside from price speculation, wheat CFDs can also have an important role as a hedging instrument, particularly for manufacturing businesses that may depend on certainty of pricing. Hedging works by taking market positions that offset other liabilities, in this case the price of wheat, and for a business relying on wheat as a raw material, hedging with a long position on wheat CFDs can help to offset the costs of any rise in wheat prices, thus enabling them to lessen the impact of price volatility in the wheat market.
How To Trade CFDs on Wheat Effectively?
As a soft commodity, wheat is tied intrinsically to global weather patterns, and the potential impact of climate change and global warming will probably lead to a steady growth in wheat prices long-term. Indeed, an analysis of wheat prices in recent years suggests that prices are rising overall, and with an increasingly violent volatility that is enabling traders to cash in on the international wheat markets.
For CFD traders, the triggers that tend to be most relevant are those which hold a shorter-term sway over how wheat prices might be interpreted. Whether that's the regular reports of national wheat stockpile levels, which could show either a surplus or a shortage when compared to demand, or news of the weather playing a role in farming and wheat production in key areas of the world, trading wheat effectively requires you to keep your eye on the ball at all times. By ensuring you know what factors could possibly play into the pricing of wheat supplies, and by keeping on top of the news and official announcements regarding wheat production and stock levels, you can give yourself the best chance of effectively trading wheat CFDs.