The commodity market is divided into two main categories: hard and soft commodities. Soft commodities are agricultural products like sugar, wheat, corn, palm oil, soybeans, and livestock, which are grown or cultivated. In contrast, hard commodities are natural resources like gold, oil, copper, and natural gas that are extracted or mined from the earth.
Soft commodities, essential for daily sustenance, present opportunities for traders and investors to anticipate market movements due to their inherent supply risks. Factors such as unpredictable weather conditions and soil degradation introduce uncertainty in their availability, influencing market dynamics.
This section focuses on soft commodities, including what they are and how to trade them.
Why Trade the Soft Commodities Markets?
There are several reasons why traders are drawn to soft commodity markets, one of which is the sector's inherent volatility due to the unpredictability of agricultural production. For those who thrive in such volatile trading environments, soft commodities offer numerous trading opportunities thanks to frequent price swings.
However, this volatility also means that soft commodities are inherently high-risk. Adverse weather events, such as floods or droughts, can disrupt production and lead to sudden, significant price changes. Additionally, fluctuations in import and export volumes can directly impact prices.
A recent example of this volatility is seen in the impact of the Ukraine-Russia conflict, where corn prices surged as Ukrainian crops were 54% smaller than in 2021, severely limiting supply.
Trading soft commodities on leverage heightens these risks, making it crucial for traders to employ effective risk management strategies when using derivatives.
Where to Trade Soft Commodities
Soft commodities are typically traded on major exchanges like the ICE, CBOT, and Kansas Board of Trade (KCBT). However, trading soft commodities doesn’t have to be confined to formal exchanges; they can also be traded over-the-counter (OTC) through brokers, offering access to a wider range of opportunities but also carrying certain risks.
When trading OTC, you can execute trades using a broker, allowing you to access commodities listed on multiple exchanges from a single platform. With this approach, you can trade commodities on the spot market, through our undated market, or via options and futures. Spot trading allows for immediate execution at current market prices, while options and futures provide the flexibility to trade soft commodities at predetermined prices on specified future dates.
How to Trade Soft Commodities
Decide on Spot or Futures Trading: Choose between trading spot prices or futures.
Pick a Commodity: With over 100 agricultural products available, it's best to focus on a select few to start.
Analyze Price Drivers: Consider factors like supply and demand, which influence commodity prices, to decide whether to take a long or short position.
Close Your Trades: Always ensure you close your trades, whether buying or selling. Use risk-management tools like stop-loss orders to exit positions you can no longer sustain.
Start Trading with Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG). Starting August 2023, corporate clients can also gain access to the B3 Exchange through us, opening additional trading avenues.
Expect streamlined processes and an easy-to-use interface designed for minimal latency, accompanied by our team's round-the-clock availability on trading days to provide assistance for all your trading needs.
