How to trade soft commodities: Coffee, sugar, and cocoa

Soft commodities are vital assets to the global economy. It encompasses a range of grown agricultural products rather than mined or manufactured. 

The most popular soft commodities traded worldwide are coffee, sugar, and cocoa, which hold significant positions in the financial market. 

This article will delve into soft commodities, explore their importance in the market, discuss the factors influencing their prices, and provide valuable tips for successful trading. 

Let’s get started!

The role of soft commodities in the global market

Coffee, sugar, and cocoa are three of the most widely traded soft commodities in the market. The reason for its importance lies in its extensive use and worldwide popularity.

Coffee, for instance, is the second most traded commodity in the world after oil. It is consumed in various forms, from traditional morning coffee to specialty brews and gourmet blends. 

Sugar, a common ingredient used as a sweetener in a wide range of food and beverage products, has been an integral part of the food industry for centuries. Its versatile nature and ability to enhance the taste of food and drinks have made it a go-to ingredient for chefs and manufacturers. 

On the other hand, cocoa, with its rich, indulgent flavour and aroma, has become a key ingredient in the baking industry. The demand for cocoa has steadily increased as more people indulge in chocolate-based products. The use of cocoa in various food items has also contributed to its popularity and widespread use.

Factors influencing the prices of soft commodities

The prices of soft commodities are influenced by a multitude of factors, including weather conditions, disease outbreaks, geopolitical events, and global economic trends. 

For example, adverse weather conditions such as droughts or floods can impact the yield and quality of crops, leading to a decrease in supply and an increase in prices. Similarly, disease outbreaks like coffee rust or cocoa pod rots can devastate plantations, affecting the supply chain and causing price fluctuations.

Geopolitical events such as trade disputes, political instability, or changes in government policies can also highly impact the prices of soft commodities. For instance, trade tariffs on sugar imports can affect the global sugar market and lead to price volatility. 

Furthermore, global economic trends and exchange rates can influence the demand for soft commodities, particularly in emerging markets where high-income consumers and changing buyer preferences are apparent.

3 easy steps to trade soft commodities using CFDs

Here are three detailed steps to help you get started with soft commodity trading:

1. Choose a reliable CFD broker

You must ensure a recognised authority regulates your broker, has a user-friendly trading platform, and provides competitive spreads and leverage options. You can also compare brokers to find the best one that suits your needs.

One of the best platforms that is known for reliability, regulated in five different major markets, and offering a demo account is markets.com. This trading platform has more than a decade of experience helping beginner and professional traders. 

2. Open a trading account

Once you’ve chosen a broker, you must open a trading account. It typically involves providing personal information, verifying your identity, and agreeing to the broker’s terms and conditions. 

You may also need to deposit funds into your account. However, if you need more confidence, use a demo account and practise trading virtual funds before using real money. 

3. Place and manage your trades

You can start by selecting your preferred commodities on your broker’s trading platform, ensuring you’ve conducted thorough research and analysis. 

Next, you must determine the size of your position, consider the amount of capital you can risk and implement stop-loss and take-profit orders. 

You can now execute your trade on the broker’s platform, specifying whether to buy (go long) or sell (go short) the soft commodity and double-check all order details. 

As your trade progresses, vigilantly monitor the market to adjust stop-loss and take-profit levels if needed. 

Tips for trouble-free soft commodities trading

If you desire to excel in trading soft commodities, follow some helpful tips that can enhance your trading success:

Before you decide to trade, take the time to do some detailed research. Learn the basics and technical details of the soft commodities you want to trade. You must understand the volume of available commodities, the impact of weather on crop production, and important events around the world that might affect the prices. 

Next, it’s essential to establish a complete risk management strategy. You can start by defining the amount of capital you’re comfortable risking. You can also use tools like a commodity profit calculator to precisely compute your financial objectives, providing a detailed understanding of the potential returns of your trades. 

Finally, it can be immensely beneficial to seek advice from seasoned traders. Experienced traders can provide you with valuable insights into the recurring challenges of soft commodities trading, sharing their wisdom on timing, market trends, and potential pitfalls to avoid. 

Begin trading with your preferred soft commodities on markets.com 

As the world population grows and consumer demand increases, trading soft commodities is expected to remain vital to the financial markets. 

The three popular soft commodities you can trade through CFDs are coffee, sugar, and cocoa. Each has unique characteristics that you must determine to have a successful trading. 

Suppose you are a beginner soft commodities trader. In that case, you must look for a regulated CFD broker with active customer support who offers you a demo account. You can practise trading with virtual funds to make you more confident when transitioning into a real trading account. 

Learn the basics of CFD commodities trading at markets.com. We provide various educational resources to help you become a skilled CFD trader. 

Our platform also offers a selection of more than 20 popular commodities frequently traded by experts, giving you many options to choose from. 

Become a member of markets.com and access a cutting-edge trading platform!

When considering "Commodity CFDs" for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.