According to commodity trader – Rowan Relton, soft commodities are one of the older assets that are being traded but not as much as hard commodities. Agricultural products such as coffee, cotton, sugar, wheat, soybeans, rice, and different types of livestock are grouped under soft commodities.
The soft commodities market comprises all the agricultural products groups under soft commodities and is not a market for everyone due to the risk involved. Commodity markets affect every area of our lives daily and the global economy at large. Many traders that want to diversify their portfolio of bonds and stocks have been considering soft commodity trading.
Soft commodities play a very important role in the futures market. Futures contracts are used by farmers to lock in the future price of their products and traders that want to make a profit. The uncertainties of pathogens, weather, and other risks involved in soft commodities make it more volatile than other futures. Seeding/harvesting reports and weather can significantly affect the price of grain and oilseeds and as a result, impacting contracts value based on the delivery dates.
Today, Rowan Relton will discuss more about the soft commodities trading.
How to Trade Soft Commodities
Soft commodities trading in the physical market includes the growing and selling of commodities in their normal form after undoing primary processing. Normally traders specialize in a certain soft commodity and markets from which they can sell to and buy from. Soft commodities trading can be done both in future and spot markets.
Future Markets
Soft commodities trading can be done in future markets where people make use of futures contracts to buy or sell commodities at a certain price and time in the future, Rowan Relton says. So traders can decide either to hold their positions or release them early to make a profit. Commodities traded with futures are more volatile and at higher risk, because there can be huge fluctuations in price. Reason being that it is quite difficult for traders to make a precise prediction of the future market price.
