Cotton trading: how can you invest in cotton?
It can be very attractive to invest in cotton. The price of the raw material cotton can vary a lot and you can benefit from this! Thanks to the new options of online trading, it does not matter if the price rises or falls. In both cases, you can make a profit with an investment in cotton. In this article you can read how this works.
How do you trade in cotton?
The best way to invest in cotton is by investing with CFDs or contract for difference. By using a CFD you can speculate on price rises and falls. In this way you don’t have to physically receive or deliver the cotton, and you can also take advantage of fluctuations in the price of cotton with smaller amounts.
You can trade in cotton CFDs at the broker PIus500. PIus500 is an easy-to-use broker which is regarded as one of the most popular choices. With Plus500 you can try trading in cotton for free with a demo, and because you can use leverage it is possible to invest in cotton with a small amount of money.
Use the button below to instantly open a free demo account with PIus500:
Investing with a fund
You can also choose to invest in cotton using a fund or ETF. An ETF tries to follow the price of cotton as closely as possible. An example of an ETF that follows the price of cotton is the iPath Series B Bloomberg Cotton Subindex Total Return ETN.
Long-term investment in cotton stocks
If you want to invest in cotton in the long term, it is not wise to buy CFDs. However, you can buy shares of cotton companies. You will then look for companies in which cotton plays an important role. By physically buying shares in these companies, you can also keep investments in the raw material cotton for a longer period of time. But remember that other factors also play an important role, such as the quality of the management.
You can invest in cotton quite directly by buying shares of a company that produces cotton. Examples of this type of company are Albany International, Unifi and Culp. However, it is important to remember that these companies are often involved in other industries as well. For example, Albany International also makes composites for the space industry.
You can invest even more indirectly in cotton shares by buying Ralph Lauren or Hanesbrands shares, for example. Of course, clothing companies use a lot of cotton. However, the raw material price only has a limited influence on their operating results.
Fashion and sales are more important factors in determining the share price. If you want to buy this type of stock, you have to apply a more extensive and broader analysis.
Do you want to buy cotton shares? It’s best to do it at a cheap broker. At eToro you pay absolutely no commissions on all your stock transactions. Use the button below to open a free account immediately:
Is it smart to invest in cotton?
Before you trade in cotton, it is wise to consider whether this is wise. There are both arguments for and against buying cotton. Cotton is a raw material that is always in demand, and demand will continue to rise due to emerging economies such as China and India. At the same time, climate change can limit production, which can lead to scarcity and higher prices.
However, there are also plenty of risks. For example, there are alternatives to cotton if the raw material becomes too expensive. For example, garment makers can switch to synthetic materials such as polyester. Governments also regularly influence prices and stocks of cotton are built up in some countries. It is therefore important to make an extensive analysis of the situation before you open a trade on cotton.
What is the price of cotton?
Are you curious about the current price of the raw material cotton? In the graph below you can directly consult the CFD price of cotton.
Taking advantage of rising and falling markets
There are two ways to get into cotton. The first possibility is to buy the raw material; you then make a profit when the price of cotton rises. It is also possible to take a short position: you make a profit when the price of cotton drops. Because you have two options you can achieve a good result in any market situation. If you make the wrong decision, you obviously lose money.
When investing in cotton, it is essential to consider in which direction the price will go. You can do this by analysing the market situation. Check whether the news predicts a drop in the harvest of cotton. When this is the case, the price will probably rise under the influence of supply and demand. You can respond to this by quickly buying large quantities of cotton.
Trading in cotton can be risky. This is because the price of cotton can change at any time. It is therefore important to implement a good strategy so that you can take full advantage of the changes in the price of the raw material. However, these strong price changes that can occur also offer opportunities.
If you invest on the short term, you can take advantage of any small movement by opening small positions. In addition, you can make use of leverage, which makes it possible to earn a larger amount with cotton investments, even with a small deposit.