Selling (Going Short) Wheat Futures to Profit from a Fall in Wheat Prices

If you are bearish on wheat, you can profit from a fall in wheat price by taking up a short position in the wheat futures market. You can do so by selling (shorting) one or more wheat futures contracts at a futures exchange.

Example: Short Wheat Futures Trade

You decide to go short one near-month CBOT Wheat Futures contract at the price of USD 5.7000/bu. Since each Wheat futures contract represents 5000 bushels of wheat, the value of the contract is USD 28,500. To enter the short futures position, you have to put up an initial margin of USD 3,375.

A week later, the price of wheat falls and correspondingly, the price of CBOT Wheat futures drops to USD 5.1300 per bushel. Each contract is now worth only USD 25,650. So by closing out your futures position now, you can exit your short position in Wheat Futures with a profit of USD 2,850.

Short Wheat Futures Strategy: Sell HIGH, Buy LOW
SELL 5000 bushels of wheat at USD 5.7000/buUSD 28,500
BUY 5000 bushels of wheat at USD 5.1300/buUSD 25,650
ProfitUSD 2,850
Investment (Initial Margin)USD 3,375
Return on Investment84.4444%

Margin Requirements & Leverage

In the examples shown above, although wheat prices have moved by only 10%, the ROI generated is 0.0000%. This leverage is made possible by the relatively low margin (approximately 11.8421%) required to control a large amount of wheat represented by each contract.

Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.

Learn More About Wheat Futures & Options Trading

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