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How to Trade Canola oil Futures and the Risks Involved

You can trade futures by opening a trading account with a trusted broker who handles futures trading. A broker is also known as a Registered Futures Commission Mercahnt (RFCM). CME Globex, CME Clear Port, AmeriTrade and Etrade are some well known online platforms for trading futures. Canola futures contracts are traded in Canadian dollars, so they would usually be traded using separate trading accounts.

Most brokerages will charge the National Futures Association fees, which is roughly around $0.02 per side, along with a commission (which can range from $0.025 to $3 and more, per contract per side). You will also have to pay an exchange fee, which will vary depending on the exchange and the specific contract you are trading. Be sure to look at the fine print and add up all the fees into your cost.

Canola Oil futures trading is accompanied by several risks affecting the underlying commodity and the accompanying financial markets:

  • Canola competes for space with wheat, corn and other grains. As the prices of these other grains increase too, farmers may well start reducing the amount of land available for canola plantation.
  • Canola suffers from pests, just like other crops. However, genetic engineers are working on developing stronger, more pest-resistant varieties of canola.
  • Canola yield suffers whenever there is inclement weather.
  • Canola is undergoing several genetic experiments and as stronger, herbicide-resistant, better-yielding strains of the crop are developed, they will impact the prices of canola futures. Thus, traders should keep an eye out for advances in canola production and related research by life science companies.
  • Canola seeds are subject to strict standards and regulations in European countries, as they are genetically modified. EU grows non-GM version of canola too, while NAFTA and CUSTA levy tariffs on canola trading. These can also impact the demand of canola, and thus impact the prices of canola oil futures.
  • Since canola is an edible oil, and closely related to the soybean market, traders should follow the soybean industry and edible oil markets to track consumer demand and preferences.
  • There are also the risks typical to financial trading. Canola oil futures have a lot of leverage, which allows traders to control a large amount of commodities for a small amount of investment. However, it also means that even a small, unfavorable change in the prices of canola oil can drastically impact a traders’ entire equity.
  • Traders should be aware of Canadian holidays, as Canola trading may be closed or interrupted on these days.
  • Canola futures are less liquid than other oils and crops.
  • Traders can consult publications from the Canola Council of Canada, Northern Canola Growers Association, Oil World and the USDA for updated details on the canola industry.
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