Wheat trading: what is it and how does it work?

What is wheat trading?

Wheat trading is the act of speculating on the upward or downward price movements of wheat without taking actual ownership of the underlying commodity. You can trade upward and downward price movements.

Wheat is classified as a soft commodity because it’s a naturally occurring raw material that’s grown, harvested and processed for human consumption. This is unlike hard commodities, which are mined or extracted from the earth and used in manufacturing.

Commodities are mass-produced and the pricing is standardised – meaning it remains the same the world over. Like all other stocks, commodities are bought and sold over dedicated exchanges.

The only difference, however, is that commodities can be bought and sold at current or future prices – a key factor to consider for traders who want to add wheat to their portfolios. Other factors that could have an impact on wheat prices include breaking news or political events, seasonal cycles and weather.

Learn more about commodities and how to trade or invest in them

How to trade or invest in wheat

There are a few ways you can start trading or investing in wheat with us. CFDs and spread betting are a popular choice if you’re looking for leveraged, short-term exposure to wheat price movements without taking ownership of the underlying asset. You can trade wheat on the spot, or get exposure via futures or options.

If you’re more interested in longer-term growth, our share dealing platform is the vehicle for investing in wheat stocks and ETFs.

To get started, follow these simple steps:

1. Create a commodity trading account
2. Find out how wheat trading works
3. Decide how you want to trade or invest in wheat
4. Identify your opportunity
5. Take a position
6. Monitor your trade

Learn more about how to trade or invest in commodities

Wheat futures

Wheat futures are contracts that enable traders to place leveraged bets on the commodity for a fixed price at a pre-determined date in the future.

By entering into the contract, both the buyer and seller are obligated to either buy or sell on or before its expiry date.

To start trading wheat futures with us, you need to decide whether to use CFDs or spread bets, then follow the steps below:

1. Create an account
2. Learn how to trade futures
3. Pick wheat commodity futures
4. Decide if you want to go long or short
5. Take your first position
6. Remember to set your stops and limits
7. Monitor your trade

Learn more about trading futures

Wheat options

Wheat options are contracts that give you the flexibility to trade wheat without the obligation to buy or sell at the underlying asset at a set price within a set timeframe. With CFDs and spread bets, you can gain exposure to wheat prices while paying zero commission or stamp duty.¹

Here’s how you can start trading wheat options today:

1. Create an account
2. Learn how options trading works
3. Pick wheat commodity options
4. Decide if you want to buy or sell options
5. Choose your strategy
6. Open your first trade
7. Monitor your trade

Learn more about how you can trade options with us

Wheat stocks

Investing in wheat stocks gives you ownership of the actual assets – ie wheat company shares. Plus, you’ll get voting rights and earn dividends if the company grants them – since you own the stocks. You can invest in wheat stocks using our share dealing platform or by opening an ISA, which gives you tax-free access to shares as well as ETFs.¹

To start investing in shares, you need to:

1. Create a share dealing account
2. Understand how share dealing works
3. See our fees and full commission rates
4. Decide if you want to buy or sell your shares
5. Buy or sell your shares
6. Monitor your investment

Once you’re ready to invest in wheat shares, you need to decide how you’d like to buy or sell your stocks:

• At quote – by telling us how many shares you want to buy or sell, and we help find you the best price
• On exchange – where you buy or sell directly from the market, giving you access to market orders

Our share dealing platform give you access to a wide range of wheat stocks, including:

• Teucrium Wheat Fund – gives investors exposure to wheat futures in a brokerage account
• WisdomTree Wheat – gives investors exposure to wheat prices by tracking the Bloomberg Wheat subindex
• Chicago Wheat – possibly the largest wheat futures contract, trading over 15 million tons daily

Learn more about share dealing with us

Wheat ETFs

Wheat ETFs (exchange traded funds) give you diversified exposure to multiple wheat shares by tracking the performance of the stocks contained withing that ETF. Like wheat stocks, you can invest in wheat ETFs through a share dealing account or by opening an ISA to invest tax-free.¹

Our platform gives you access to a range of ETFs from world-leading providers, including:

• WisdomTree Wheat – designed to give investors exposure to a total return investment in wheat by tracking the Bloomberg Wheat subindex
• WisdomTree Wheat 3x Daily Leveraged ETF – gives investors three times leveraged exposure to a total return investment on wheat futures by tracking the Bloomberg Wheat subindex
• Teucrium Wheat Fund – gives investors exposure to wheat futures in a brokerage account

Learn more about investing in ETFs with us

To start investing in wheat ETFs, follow the steps below:

1. Create a share dealing account
2. Find out how investing in ETFs works
3. Buy and sell wheat ETFs directly on our platform

Is wheat a good investment?

Wheat commodities remain a popular investment, especially in times of economic and market uncertainty, where they’re seen as an inflation hedge against the US dollar, as they’re priced in USD. So, if dollar performance weakens, inflation often rises, which boosts wheat prices.

For investors looking to diversify, wheat commodities are also a common breakaway from the ‘traditional’ company stocks and bonds.²

Grain markets, a growing performance?

Although the Russia-Ukraine conflict’s caused turmoil to global markets, wheat commodities, in particular, took a hard hit. This is because both Russia and Ukraine (who account for close to a third of all global exports) seized production, sparking fear of possible food shortage.

Despite the chaos caused by the conflict, demand for wheat is predicted to increase over the years. This is due to its diverse use as a source of food for both human and animal consumption, as well as the ease with which it grows, compared to other grains.³

While wheat commodity prices may have dropped sharply over recent months, they still remain 30% higher than before the Russian conflict put a halt to most European exports. Although the discord’s caused great disruption to European exports, it’s opened up opportunities for other emerging markets like India, whose pricing is seen as more competitive than the current high global prices caused by the current shortage.⁴

Wheat trading and investing summed up

• Wheat trading involves speculating on the price of wheat without taking actual ownership of the underlying asset or commodity
• In times of economic or market uncertainty, wheat commodities are a good hedge against a weak dollar
• The demand for wheat commodities is predicted to increase over the years
• There are a few ways to trade or invest in wheat with us, for example CFD trading, spread betting and share dealing

Footnotes:

¹ Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
² Live Mint, 2022
³ Commodity.com, 2022
⁴ Trading Economics, 2022