Differences between Investing vs Trading
Differences between Investing vs Trading
Soybeans are a staple soft commodity. They have long been an excellent protein source. Soybean cultivation has been in existence throughout East Asia for more than five millennia, but it wasn’t until the 1900s that soybeans were successfully exported to the western world.
Soybeans are grown in a similar environment to other soft commodities such as corn. Consequently, farmers can rarely harvest soybeans and corn simultaneously and need to focus on one or the other throughout the course of a planting season.
Almost three-quarters of all soybeans produced are not consumed by humans. In fact, they are used as livestock feed. There are many other uses of soybeans, including the extraction of soybean oil for cooking oil. A tiny fraction of soybean production is also used to generate biofuel, while it’s also used in the creation of eco-conscious, non-toxic product alternatives such as soy-based crayons. The global soybean marketplace is forecast to be worth $215.7 billion by 2025, according to Transparency Market Research.
As with most other soft commodities, the soybean price today is largely driven by the market forces of supply and demand. However, there are multiple drivers of the supply and demand of soybeans.
America is one of the biggest exporters of soybeans today. Adverse weather conditions in rural USA can have a lasting effect on soybean yields, resulting in demand outstripping supply. Soybean producers will also receive smaller profits when the US dollar is strong and greater profits when it is weak, given that soybean prices are quoted in USD. Soybean is also in increasing competition with other alternative oil producers, including cottonseed, rapeseed and linseed. If demand weakens for these competitor products, it could strengthen the soybean market.
The strength of the US dollar against many other fiat currencies during the current cost-of-living crisis has seen soybean prices reach over $1,500. In fact, since the onset of Covid-19, the price of soybean has risen from a relatively stable price of $813 and has not traded lower than $1,097 since the pandemic began.
With significant price volatility a key feature in the soybean market, many soft commodities traders look to take short-term positions. They will buy and sell the price of soybean quickly to take advantage of brief fluctuations in the market – a trading technique known as scalping.
Investors in soybean for the medium-to-long term may do so if they believe the US dollar will remain strong against other leading fiat currencies. However, the uncertainty surrounding geopolitics and climate conditions makes this a risky ploy. Futures and options contracts are an alternative. Futures give you the ability to set a future date to buy soybean for a pre-agreed price. Options allow you to speculate on the price of soybeans without owning the underlying asset. Put and call options give you the right but not the obligation to trade the price of soybean prior to the expiry of the contract.
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* The spreads provided are a reflection of the time-weighted average. Though Skilling attempts to provide competitive spreads during all trading hours, clients should note that these may vary and are susceptible to underlying market conditions. The above is provided for indicative purposes only. Clients are advised to check important news announcements on our Economic Calendar, which may result in the widening of spreads, amongst other instances.
The above spreads are applicable under normal trading conditions. Skilling has the right to amend the above spreads according to market conditions as per the 'Terms and Conditions'.
What affects Soybean prices?
Past events that have had an effect on soybean prices include weather conditions such as droughts (which can lead to decreased supply), increases in demand for animal feed or other products derived from soybeans, government subsidies designed to promote the production of certain crops, and changes in trade agreements.
In addition, economic cycles and geopolitical tensions can also affect the global market for soybeans. For example, when the United States imposed tariffs on Chinese imports in 2018, it made it more difficult for countries like Brazil to export their goods and impacted the price of soybeans. Additionally, rising oil prices can also push up the cost of production and transportation which can inflate soybean prices.
How to trade Soybean CFD?
Trading soybean CFDs is a great way to take advantage of price fluctuations in the global market without having to physically purchase and store large quantities of the commodity itself. Here are some tips for trading soybean CFDs:
Do Your Research: Before trading, it is important to understand the factors that can impact soybean prices.
Set Risk Limits: It's important to set realistic limits on your risk exposure when trading CFDs.
Monitor The Market: Staying up-to-date with price trends and market news can help you make informed decisions when trading soybeans CFDs.
Use Leverage Carefully: Leverage allows traders to open larger positions than their actual capital, which means potential profits (or losses) can be amplified significantly.
What are the other options for trading Soybean?
Aside from trading CFDs, there are a few other ways to take advantage of price movements in the soybean market. Some investors invest directly in soybean futures contracts; this option allows you to buy and sell positions with a guaranteed set price at a future date. Additionally, certain exchange-traded funds (ETFs) and stocks of companies heavily reliant on soybean production can also be used in order to gain exposure to the market.
Companies that highly depend on soybean production include AGRI International LLC, Agromeris LLC, Anderson International Corp., Unilever and AMAGGI Group.
Why Trade [[data.name]]
Make the most of price fluctuations - no matter what direction the price swings and without the restrictions that come with owning the underlying asset.