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How to trade canola online
This beginner’s guide to canola introduces you to the market and explains what you need to look out for. Find out how and where to trade, as well as the key factors that affect supply and demand for canola.
Compare the best platforms for trading canola
You can start trading straight away by using one of the brokers below. These are some of the best platforms as chosen by our team of commodities experts. If you don’t want to trade yet, keep reading to learn more.
How to trade canola online – a step-by-step guide
The basics of trading commodities are fairly simple, so don’t worry even if this is your first time in the market. Use this step-by-step guide to help you get started.
- Find a broker. You need to have an account with a broker to be able to trade. Each platform has slightly different features and fees, so use the table above to pick one that suits you.
- Create an account. To set up an account you need to provide some contact details along with a form of photo ID. A passport or driving licence is fine, and it’s just a way to verify your identity.
- Deposit funds. You can fund your account with a bank transfer or by paying into it with a credit or debit card. Virtually all brokers accept those two payment methods. If you want to deposit a different way, perhaps using PayPal, you need to check your platform’s rules first, in case they don’t accept it.
- Decide whether to go long or short. When you trade you have to choose whether you think a commodity is going to go up or down in price. If it’s the former, then you want to take a long (buy) position, otherwise a short (sell) one.
- Execute trade. Head to your broker platform, search for the canola market, and hit buy or sell to execute the trade. Now you’ve opened your first commodities position!
- Set stops and limits (optional). Stop-loss and order limits are pre-planned trades that you can set to execute as soon as the price hits a certain level. This is a way of minimising losses if the price goes against you, or guaranteeing profit if it moves with you.
What is canola? And why does it have value?
Canola is a crop and its seeds are used to make cooking oil and animal feed. It’s versatile and hardy, and farmers often swap between it and wheat depending on which one offers the best price.
What affects the price of canola?
Weather conditions, emerging market demand, and the price of alternative food crops are some of the biggest drivers of price. Most of the world’s canola crops are grown in Canada or the European Union, so extreme weather events there can cause bad harvests and drive up the price.
On the demand side, developing economies tend to want more grains and crops to feed both their population and livestock as they grow. Similarly, canola can be used to develop biofuels, which are becoming more popular over time. The mitigating factor is how easy it is to switch between crops, and if prices get too high then demand tends to move elsewhere.
How has canola performed in recent years?
Its price hit all-time highs in 2021, mainly as part of a broader turn towards green energy solutions. Canola is sold in 20 tonne contracts, and its crucial role in the development of biofuels meant the price of those contracts soared up more than 30%, all the way up to $1000. Before then, it had traded relatively flat since 2013.
As an example of how there are often multiple factors affecting the price at any one time, the demand surge was exacerbated by a supply side issue as well. The expectation of poor future harvests helped push the price up even more.
Should I start trading canola now?
It depends on how you feel about trading with the price at historically high levels and what your ultimate goals are. Canola has lots of potential as a source of biofuels, and demand from emerging markets shows no signs of abating, so it is likely to become an ever more active market with lots of trading opportunities.
For beginners looking to trade for the first time, however, it might be a good idea to start with other grains, such as corn or wheat, first as a way to learn how the agriculture market works. Commodities can be volatile, and beware of getting stuck in any position where there aren’t enough other traders to sell to if you need to close a position.
A less risky, alternative way to invest in canola is by buying stocks in companies involved in the production process. These are more stable and are easier to buy and sell whenever you want. If you do decide to invest this way, then keep tabs on our latest market analysis to find the best companies to buy:
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Trading canola for beginners
If you’re new to commodities trading, it can be daunting to know where to start. Follow the tips below to learn how to biome a successful trader.
What to do before starting to trade
The path to success starts well before you make your first trade. Here is a list of things to do in advance so that you’re prepared when you enter the market.
- Research the commodity. Learn what makes canola valuable, who’s most likely to buy it, and what drives changes in its price. That way, you’ll know the signs to look out for once you have started trading.
- Make sure you understand the basics of commodities trading. Commodities are often traded a few months ahead of time using futures contracts. Or you can trade on the current price using CFDs (contracts for difference). It’s important to understand the basics of each one so you can choose a method that works for you. Learn more about the different ways to trade below.
- Decide between long term and short term trading. Are you trying to build wealth over time, or do you want to try to make a quick profit? Your timescale affects how you should trade, and the sooner you want to see returns the more risk you have to be willing to accept.
- Set a budget. Choose an amount you can afford and never risk more than you can safely lose. This also plays into how you should trade, as a bigger budget can give you more options. If you have a smaller budget, it can be best to put it in a stock or an ETF rather than risk it all on a handful of trades.
- Find a broker platform. To make trades or invest in stocks, you need a broker. Choose one that suits your trading style and budget, for example find one with low trading fees if you’re going to be very active.
The different ways to trade canola
Agricultural commodities are traded in lots of different ways. Below we’re run through all the most popular ways to trade so that you can use the information to make an informed decision about what works for you.
- Spot trading. The ‘spot’ price is today’s market price. The most popular way to trade it is using CFDs, which you use to predict that the price will go up or down by a certain date in the future. This is the easiest way to trade, as it’s just trading on canola’s value and can be very short term.
- Futures contracts. A futures contract is an agreement to buy a commodity at a set price on a fixed date in the future. Usually they work on fixed time frames, so you can buy a 1-month, 3-month, or 6-month future. The idea is to buy a future if you expect the actual price to be higher in a few months than the agreed price.
- Options contracts. An option gives you the right to buy a commodity at a set price in the future, rather than the obligation to. You essentially put down a deposit to give you the opportunity to buy at a certain price later on. Again with the idea that the actual spot price is more than the value of the option by then.
- Spread betting. Spread betting is a way of predicting market moves by betting your stake per point in either direction. If you’re right, you win your stake multiplied by the number of points moved, while if you’re wrong you lose your stake multiplied by the move.
- Stocks. Buying shares in a company in the canola trade is a simpler alternative to trading yourself. These companies are usually less volatile, but are a way of tracking the industry’s performance without needing to understand the real nitty-gritty of how it works.
- ETFs. ETFs are exchange-traded funds, and they are funds that own a basket of stocks from within a particular industry or sector. They are publicly-traded, so you can buy shares in an ETF like you would a regular stock. The big advantage is that it gives you an instant portfolio, so you can own a bunch of companies – therefore reducing some of your risk – without needing a big budget yourself.
To learn more about any of these methods, head over to our commodities education section. To start trading right away, sign up with your favourite broker platform.
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Fact-checking & references
Our editors fact-check all content to ensure compliance with our strict editorial policy. The information in this article is supported by the following reliable sources.
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