What Is a Soft Commodity?
Understand Soft Commodity
Agricultural commodities play an important role in the futures market and are used both by farmers who want to set future prices for their crops and by speculative investors who want to make a profit. Due to uncertainties in weather, pathogens, and other risks associated with agriculture, commodity futures tend to be more volatile than other futures forex trading platforms in India. For example, weather and the seed/harvest ratio can cause large fluctuations in the prices of grains and oilseeds, which have different effects on contract values depending on the delivery date.
Soft Commodities vs. Hard Commodities
Alternative Classifications of Soft Commodities
Trading Soft Commodities are
Cocoa
Cocoa is traded in dollars per ton and a contract is for 10 tons. So if cocoa costs 1,500 USD / month. The total value of the contract is $ 15,000 and the markets are moving at $ 1,555 / lb, a move of $ 550 ($ 1,555 - $ 1,500 = $ 55 and 55 x 10 million tons = $ 550). The minimum price movement or tick size is one dollar or $ 10 per contract. Although the market often trades in sizes greater than a dollar, a dollar is the smallest amount you can move.
Coffee
Coffee is marketed for pennies a pound. A coffee contract controls 37,500 pounds of coffee.4 If the price of coffee is trading at $ 1 / pound, the present value of that contract is $ 37,500 ($ 1.00 x $ 37,500 = $ 37,500). The tick size is 5 cents per pound or $ 18.75 per tick.4 For example, if a trader took a long position at $ 1.1000 and the markets rose to $ 1.1550, he would have made a profit of $ 2,062.50 ($ 1.1550 -). $ 1.1000 =). $ 0.0550 and $ 0.0550 x 37,500 = $ 2,062.50.
Cotton
Cotton is the subject of contracts for 50,000 pounds. It is also quoted in cents per pound. So if the market is trading at 53 cents a pound, the contract is worth $ 26,500 ($ 0.53 x 50,000 = $ 26,500). cotton equals a profit or loss of $ 1,000. When the price of cotton exceeds 95 cents per pound, the minimum tick movement is extended to $ 0.0005 to allow for higher daily margins.
Sugar
Sugar trading contracts sometimes called "Sugar # 11" that represent 112,000 pounds of sugar and are expressed in cents per pound.7 If the futures price is $ 0.1045, the contract is worth $ 11,704 ($ 0.1045). / lb x 112,000 pounds = $ 11,704. If the market goes from $ 0.1000 to $ 0.1240, that equates to a dollar move of $ 2.688. The minimum price movement for sugar is $ 0.0001 or $ 11.20 per contract.
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