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How to Trade Wheat for Beginners in 2020

Wheat is traded around the world as a critical food crop for humans and animal feed. In this article, we’ll explain everything you need to know to get started trading wheat.
Michael Graw
Author: Michael Graw

Last Updated: May 19, 2020

Wheat is one of the most important crops around the globe. Historians point to it as the crop that enabled human civilization to develop over the last 10,000 years. Today, wheat is the second most-consumed crop in the world, behind only rice. It’s also widely used as animal feed for meat production.

What makes wheat different from other crops for traders is that its price is strongly tied to the US dollar. That’s not just because the US is a major producer of wheat, but also because wheat is priced in US dollars around the world. So, wheat allows traders to speculate on the future of US currency.

If you’re interested in trading wheat, this guide will explain everything you need to know to get started. We’ll highlight two of the best brokerages for trading wheat contracts and help you understand what moves the price of wheat. By the end, you’ll have the information you need to start developing a successful wheat trading strategy.

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    How to Trade Wheat in 3 Quick Steps

    Want to get started trading wheat right away? Follow these three steps to set up a brokerage account and start making trades.

    1. Open a Trading Account

    eToro Best Broker for Buying Gilead Stock

    Open a free trading account with our recommended broker. As part of the registration process, you will be required to submit your personal details for KYC.

    2. Deposit Funds

    Fund your account

    Once you have completed the registration and your account has been approved, you can transfer funds to your account by one of the provided payment methods.

    3. Demo and Live Trading

    Begin trading on a demo account. A demo account allows you to trade in real-time but also learn about the mechanics of wheat trading and understand basic terms.

    With your account funded, you’re ready to start buying and selling wheat. We recommend you start trading with a demo account so you can learn the ropes and develop a strategy.

    Step 1: Open a Wheat Trading Account

    There are a number of ways to trade wheat. You can buy and sell physical wheat directly, buy and sell agricultural stocks, or buy and sell wheat contracts for differences (CFDs). We’ll focus on trading platforms that offer CFDs, since you don’t have to deal with any of the logistics of wheat purchases to speculate on the future price of wheat. With a CFD, your return is the difference between the price of wheat when you buy a contract and the price of wheat when you sell it.

    Most online brokerages that offer commodity trading allow you to trade wheat CFDs. Let’s take a closer look at our top two brokerages for trading wheat.

    1. eToro - Best for Social Trading

    eToro is one of the most popular brokerages for commodity trading in large part because it brings traders together. The platform allows you to set aside a portion of your cash to automatically copy the positions of profitable traders. This is an easy way for beginners to develop profitable strategies for trading wheat CFDs. The social aspect of the platform also allows you to see what other traders think about current trends in the wheat market.

    Of course, you have the option of forming your own opinion thanks to an interactive charting interface. Just note that eToro’s technical analysis tools aren’t quite as robust as what other brokerages offer.

    eToro makes money off the spread, which is the difference between what you pay for a wheat CFD and what the seller receives for it. That means there are no trading commissions, and spreads are reasonably low for wheat CFDs. The brokerage has a $200 account minimum, but you’ll want to have around that much to successfully trade wheat in any case.

    Our Rating

    • Social Trading: Copy other traders’ wheat positions automatically
    • Technical Charts: Customizable charts to help inform your trades
    • Low Spreads: Buying and selling wheat is relatively inexpensive
    • Limited Analysis: Research tools are limited in scope
    75% of investors lose money when trading CFDs.

    2. Plus500 - Best for Low Spreads

    Plus500 is one of the most cost-effective online CFD brokerages for commodity trading. Like other brokerages, Plus500 makes money by pocketing the spread on every CFD trade. But, Plus500’s spread for wheat CFDs is impressively low—just 0.10%. If you place a lot of trades, that small spread can save you a significant amount of money.

    Another benefit of using Plus500 is that the platform automatically rolls over your contracts each month. That takes away some of the stress of dealing with expiration dates or holding CFDs for periods longer than a week or two.

    But, you do get what you pay for to some extent with Plus500. This broker is weak on charting and analysis tools. Whereas many online brokerages offer Metatrader charting software to clients, Plus500 limits you to its own clunky software interface.

    OUR RATING

    • Low Spreads: Save money every time you place a trade
    • Automatic Rollovers: Less stress about contracts expiring
    • Trustworthy: Listed on London Stock Exchange
    • Weak Charting Tools: Proprietary software isn’t easy to use
    CFDs are complex financial instruments and 80.5% of retail investor accounts lose money when trading CFDs.

    Step 2: Learn How the Wheat Market Works

    The key to trading wheat successfully is to understand what moves the price of wheat on a short-term and long-term basis. Essentially, there are four major things that drive wheat prices up or down.

    Strength of the US Dollar

    It may come as a surprise that the strength of the US dollar is one of the biggest factors affecting wheat prices. After all, this has nothing to do with wheat production or demand. But, it’s important to remember that wheat all around the world is priced in US dollars.

    That means that when the US dollar becomes more expensive relative to other currencies, that is, when the dollar is strong, wheat prices fall. That’s because wheat sellers receive fewer dollars for their product when the dollar is expensive. When the US dollar is weak relative to other currencies, the price of wheat goes up.

    Keep in mind that this means monetary policy in the US can have a big effect on wheat prices. For example, changes in interest rates by the Federal Reserve can send shockwaves through the global wheat market.

    Wheat Demand

    Of course, supply and demand also plays an important role in wheat pricing. Demand depends in large part on global population growth. As the population grows, the global demand for wheat, and thus its price, will naturally rise.

    Since wheat is also used for animal feed, demand for wheat also depends on the demand for meat products around the world. Demand for meat goes up when the global economy is booming and developing nations are gaining economic strength. So, the trajectory of the global economy can also impact wheat prices.

    Another thing to consider is that countries can impose tariffs on wheat to protect domestic agriculture. When this happens, the effective demand for globally traded wheat drops, bringing the price down along with it.

    Wheat Supply

    Wheat supply can be surprisingly variable, since production depends on good weather. When the growing season is good around the world, the supply of wheat increases and the price falls. But, when poor growing conditions hit a major wheat-producing country, supply can drop suddenly and prices can spike. Keep in mind that since wheat production is global, better-than-average years in some areas can offset worse-than-average years in other areas.

    Government Subsidies

    Government agricultural subsidies can also move supply and demand for wheat. In the US, for example, subsidies for ethanol production have encouraged farmers to switch their fields from wheat to corn. That reduces the global supply of wheat and pushes up prices.

    Governments can also take away existing subsidies for other crops or incentivize wheat production with tax incentives. In that case, the supply of wheat would be expected to increase and prices would go down.

    Step 3: Choose a Wheat Trading Strategy

    Developing a strategy that fits your risk tolerance and target for profit is essential to succeeding as a wheat trader. There are numerous ways to build a personalized strategy, but we’ll cover some of the basic ideas you should think about.

    Day Trading vs. Swing Trading vs. Long-term Trading

    What’s your timeframe for trading wheat? You may be most interested in buying wheat CFDs and selling them the same day or the next day. In that case, you can capitalize on small changes in the price of wheat or speculate on agricultural forecasts and news reports.

    Swing traders may hold wheat contracts for a period of several days to several weeks. In this case, you can profit off of a trend in wheat prices that results from developments over the course of the growing season.

    Long-term traders will hold wheat CFDs for several months or longer. This strategy allows you to speculate on long-term forecasts for major wheat-producing countries or on the future strength of the US dollar.

    Technical vs. Fundamental Analysis

    You also need to choose whether you want to trade based on technical analysis, fundamental analysis, or a combination of the two.

    With technical analysis, you’ll primarily look at price charts and mathematical indicators to identify potential trends in past price data. These trends, along with new price data arriving in real-time, can help you decide whether the price of wheat will go up or down in the near future.

    With fundamental analysis, you’ll primarily work to figure out what the consensus price for wheat should be in the global market based on supply, demand, and currency values. Once you’ve figured out this price, you can buy wheat CFDs when the price of wheat drops below it and sell CFDs when the price rises above it.

    Of course, you’re not limited to one or the other strategy, and most traders use a combination of both to figure out at what prices to buy and sell wheat CFDs.

    Step 4: Open a Wheat Trade

    To illustrate the process of opening a wheat position, we’ll walk you through how it’s done in Plus500. Keep in mind that many online brokerages offer trading for wheat CFDs, and the process should be largely similar between all of them. Before getting started, you’ll need to open an account with your brokerage and deposit money. 

    When you’re ready, search for wheat CFDs by entering ‘wheat’ in the search box or select ‘Commodities’ from the drop-down menu. The platform will display the current purchase and sale prices for wheat.

    Wheat Trading

    illustrative prices*

    Click ‘Buy,’ and the platform will display your options for purchasing a wheat CFD. You can choose how many contracts you want, preset sell points if the price rises or falls, and whether to add an automatic percentage-based trailing stop. When you’re ready, click ‘Buy’ to purchase your wheat contracts.

    Wheat Trading

    illustrative prices*

    Conclusion

    Wheat is produced and traded on a global scale, which makes it an exciting asset for trading. The price of wheat depends not only on supply and demand but also the strength of the US dollar. There are a number of factors to consider when trying to decide whether wheat prices will go up or down in the future.

    Trading wheat is straightforward thanks to online brokerages that offer CFDs. Make sure to choose a reputable brokerage that you can trust with your money and that offers the analysis and research tools you need to be successful. With this guide, you have the information you need to decide whether wheat trading is right for you and to get started trading wheat today.

    FAQs

    Which countries produce the most wheat?

    The countries responsible for producing the majority of the world’s wheat are China, India, and Russia. The US, EU, Canada, and Australia are also major wheat producers and changes in supply from those countries can impact wheat prices.

    What are the hours for wheat trading?

    Wheat CFDs are traded from 8pm to 8:45am and 9:30am to 4:15pm Central Standard Time, Monday to Friday.

    How much money do I need to start trading wheat?

    Most brokerages don’t have a minimum deposit required to open an account. But, there is typically a minimum number of CFDs you can purchase for wheat. The price of wheat and the available leverage from your broker thus determine the minimum amount of money you’ll need to start trading. Typically, you’ll need several hundred dollars at the very least.

    Why should I trade wheat CFDs instead of other wheat assets?

    The advantage to trading CFDs instead of wheat futures, agricultural stocks, or wheat itself is that you get exposure to wheat prices without having to deal with physical commodities. The price of wheat CFDs depends solely on the price of wheat, so you truly are speculating on market wheat prices rather than on a company or the price of wheat on a specific date. You could get the same exposure by buying wheat itself, but you’d also have to ship and store the wheat you purchased.

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    All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
    Michael Graw

    Michael is a writer covering finance, new markets, and business services in the US and UK. His work has been published in leading online outlets and magazines.