Thursday, September 8, 2011

Trading Wheat - Winning at the Bread and Butter Commodity!

Agricultural commodities has been surging since early 2007, and has remained rather resilient to the turmoil of the financial sectors of today. The United States Stock Exchange GSCI agricultural commodities index rose by 30% on an average, with wheat and rice prices hitting record high level prices as a result of increasing demand and dwindling supplies. In comparison, the US stock market had relatively low returns with the S&P increasing by a mere 7%, while the NASDAQ was up 10% for the year. The huge disparity in performance returns between the agricultural commodities and stocks is a good reminder to investors to value the concept of diversification.

It is a well known fact that commodities and stocks has a negative correlation, which basically means that when the stock market takes a plunge, commodities tend to move in the opposite direction, and vice versa. In these times of financial hardship, stock market worldwide has taken its fair share of beating, and as predicted, the commodities markets has held its grounds. Notably, the most stable commodities are the ones in the agricultural sector, and wheat is one of the more stable futures of today. At current time of writing (Aprio 2009), wheat prices are trading at $5.50 per bushel, and investors are calling wheat the next corn.

The prices traded on Forex affects the price of staple food we purchase daily, and this affect is more far reaching than the price of anything else traded on the market. Wheat can be traded based on futures, very much like any other commodity or agricultural crop, and trading for agricultural produce began before it is even planted, let alone harvested and consumed.

Like all traded commodities, wheat prices are sensitive to many natural occurring systems. Weather and insect infestations heavily changes the prices of wheat on a dizzying day to day basis. Many natural events can also affect the wheat prices, and one of the main ones would be an economically based reason which the country's political situation. These situations can change at a moment's notice, and can severely affect supply and demand, thus causing wheat prices to soar or plunge dramatically.

Many investors who have not taken the time to study this sensitive commodity have taken on massive losses. Wheat market is a highly volatile market. However, being volatile in nature, what futures can be a huge gainer as well! If you plan on trading wheat futures, do study the markets of at least the last 5-10 years to properly understand how the cycles have run, before you put in a large portion of your hard earned cash.




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Knowledge is power, and in relationship to commodities, we need all the knowledge we can before making a decision in Commodity Trading. Find out more about Making Money in Stocks, Bonds, Forex, Commodities and Agriculture.

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