Guide: Raw Materials and Food Trading

Traders and fund managers have the same goals at heart. Namely, make money for their firm and their clients.

However, there are obstacles within some of the most lucrative trade markets that may provide a barrier to entry for some investors.

What if you, as a trader, could participate in one of the fastest growing global commodities markets with the security and reliability of a Bitcoin transaction?

Well, my friend, that day is upon us. The global food trading market presents the opportunity, and blockchain technology provides both security and transparency.

Here, we explore the raw materials and food commodity markets, how to participate, and what to expect when investing.

The Food and Raw Material Sector

Raw materials and food trading make up a significant portion of the commodities exchange markets.

While you can invest in commodities trading through the purchase of physical raw materials such as gold or oil, purchase futures or exchange-traded products (ETPs) tied to commodity indexes, or buy stock in industry-related businesses, the processes can be speculative and so complex that it is typically reserved for only the most sophisticated investor.

However, new emerging technology allows private investors and fund managers to participate in this market while reducing risk and exposure for themselves and their clients.

The futures and options market is regulated by the Commodity Futures Trading Commission (CFTC), which is tasked with promoting a transparent marketplace free from fraud while protecting consumers and investors.

The Food Trading Revolution

Over two trillion dollars flow through the international food and raw material markets annually. This amount is higher than the GDP of most countries.

Couple the food trading market with indirect raw materials, such as those used for food harvestings or food processing (gas, oil, fertilizer, packaging), and commodity market volume multiplies exponentially.

What if you had equal access to any commodity contract from around the world with the ability to invest from anywhere on any device?

Developments in transactional technology have provided a more secure and transparent process for conducting commodity transactions, helping to create an environment more suitable for small firms and private investment.

This process also opens doors for more traders, bankers, and fund managers to participate in a market once suited for sizeable institutional investment firms and only the most sophisticated private investors.

Rethinking How We Buy and Sell

Common ways to participate in this market include the physical purchase of raw materials or participating in the highly-speculative commodity indexes. There is a better way!

Blockchain technology is here, and it is changing the way transactions are placed, seeking to disrupt the marketplace in ways that were once unthinkable.

Chaintrade utilizes a blockchain technology used for Ethereum transactions, one of the world’s most secure and popular cryptocurrencies.

The blockchain system is used in the formation of “smart contracts,” which are successive records that document and encrypt every aspect of a food trading transaction.

Unlike a typical market transaction performed through a central clearing house, a smart contract is a peer-to-peer computer protocol that is visible to all participants in the trade, making it reliable, transparent, inexpensive, and unbreakable by third parties.

Simply put, it is the way business should be conducted, and Chaintrade looks to be in the forefront as this protocol is standardized across trading markets.

Commodity Trading Advantages

Investing in commodities futures or food trading can offer certain advantages over other types of trading.

Diversification

The raw materials and food markets are so extensive that they offer much more potential for diversification.

This diversification allows traders to offset commodity purchases with purchases of related or unrelated material that can potentially reduce risk exposure for certain transactions.

Growth Potential

As new products enter the commodity marketplace, more opportunity awaits.

The potential on returns is enormous, as currency valuation, inflation, conflict, government changes, and political maneuvering may contribute to a rise in prices for specific commodities.

Food trading often acts as a hedge against inflation, as inflation typically drives up the prices of commodities while driving down of prices of bonds and stocks.

Global Development

The world is going through a transformation that is unique to most of human history.

We are seeing high-rises going up across the Far East, new power plants being developed using emerging renewable energy technology, and numerous agricultural projects being developed.

These projects all use raw materials in their development and construction.

The global demand for raw materials is increasing as more urban projects continue to take shape and innovation marches forward.

Commodity Trading Disadvantages

As with any investment, there are also some disadvantages to trading commodities versus stocks and bonds.

Risk of Volatility

Drought, floods, insects, disease, and other natural events can affect harvests or production and cause immediate shortages that drive up prices.

Likewise, fewer natural disasters, increased competition, or a glut in supply can result in increased production which may cause a drop in specific commodity prices.

Significant world events can also affect the commodities market, and occur with relative frequency. Trade wars, currency fluctuations, and forced migration all place a strain on the market.

Diversification and a sound strategy for identifying and spreading investment across multiple commodities can help mitigate risk and lower volatility.

Options and Futures

Mutual funds heavily concentrated in commodities engage in futures and options trading that could affect overall index prices.

While certain types of commodity funds produce results better than other stock funds, this kind of commodities trading is highly speculative and volatile.

In Closing

While commodities are traded all over the world, most of the major exchanges are located in the United States.

Major U.S. exchanges include the Chicago Board of Trade (CBOT), New York Board of Trade (NYBOT), New York Mercantile Exchange (NYMEX), and Kansas City Board of Trade (KCBT).

International exchanges include the London Metal Exchange and Tokyo Commodity Exchange.

Whether you choose to invest in physical commodities such as gold, corn, or oil or invest in futures and options contracts, a savvy investor must balance risk and reward.

Engaging in food trading or investing in raw materials and food commodities can prove a rewarding, yet challenging endeavor.

By conducting the proper amount of due diligence on the market, balancing your investment with appropriate hedges, and by utilizing emerging cutting-edge tools that allow you to compete with institutional investors, you can stake your claim to this very lucrative market.