eToro Cotton Trading

Introduction

Cotton is a sought-after material that investors can invest on through buying of stocks, ETFs, futures and CFD trading. Widely used in the textile industry as an integral component of clothing and household items, the fibers created from it also produces cottonseeds which also has its own variety of uses. For comparison, the worldwide production of cotton can supply each human being on Earth at least 20 t-shirts made from it every year.

History of Cotton

Cotton is harvested as a soft staple fiber that grows around the seeds of the genus Gossypium, a plant from the mallow family Malvaceae. These plants are often grown in tropical regions around the world with the widest diversity of wild cotton species found in Africa, India, Mexico and Australia.

The first recorded cultivation of cotton for fabric use dates to prehistoric times. Archeological finds of fabric remnants preserved in copper beads was found at the Neolithic dig site of Mehrgarh in Pakistan is believed to date back to 5500 BC.

Today, world production of cotton averages 25 million tonnes every year with India being the world's largest producer.

Cotton as an Investment Option

Investing on commodities help diversify and lower the risk of one's investments. By adding a commodity to your portfolio, you end up owning an additional asset that acts differently in the market. Another reason that makes this commodity as an appealing investment is because it serves as a hedge against a weak US dollar currency and the inflation. Regardless of market devaluation, it will continue to be harvested and demand for this commodity will remain thus making it retain its steady value even in times of inflation.

How to Trade Cotton?

• Futures: The most popular platform to invest using the futures route is through the New York Mercantile Exchange (NYMEX), which is part of the CME or the Chicago Mercantile Exchange and the Intercontinental Exchange (ICE). Each NYMEX Cotton Futures contract comprises 50,000 pounds of this commodity.
  
  For example, if the value of this futures contract is $23,000, you will need to deposit an initial margin to open the long futures position. Assuming that some time later, the value jumps into $0.5060 per pound, the contract futures becomes $25,300 worth. Therefore, by selling the futures contract you can get out of the long position on your futures investment with a $2,300 profit.
  
  
• Options: For starters, options is a derivative instrument that provides a leverage to trade in commodities. Investing on Options requires you to pay a value known as a premium to purchase contracts. A bet on option succeeds when the price of futures increases over the stake price by an equivalent amount higher than the premium paid for the contract.
  
  Because of this, options investors must be sure of the timing and size of the movement of futures in order to profit from this trade.
  
  
• ETFs: Instead of investing on stocks of different companies engaged in cotton trading, you can invest on ETFs—which is a collection of assets. ETFs provide a simpler option of investing in the market. Operating like normal stocks, ETFs are shielded from market protection by its diversification system that does not rely on the performance of a single company.
  
  Since cotton has been a giant industry mover for more than a century, ETFs serves as a great avenue to start investing.
  
  Here are some cotton ETFs to consider:
  • iPath Series B Bloomberg Sub Index Total Return ETN.
  • Elements Agriculture Total Return (RJA)
  • Invesco DB Agricultural Fund (DBA)
    
    One advantage of investing in ETFs is that it gives you a wider access to a bigger chunk of an industry because it bundles together stocks from various companies.
    
    
• Stocks: Because cotton plays a key role in a number of giant industries, there are several companies engage in producing and distributing this commodity, which you can invest on. Investing on stocks is the most common option investors partake in because it provides less risks than Futures investment. Some of the most well-known companies related to cotton includes: Albany International (AIN), Ralph Lauren (RL), Columbia Sportswear (COLM), Culp (CULP) and Unifi (UFI).
  
  
• CFD (Contracts for Difference): Trading using contracts-for-difference is becoming a popular method of investing on the market. Thanks to the advent of social trading platforms such as eToro, investors can easily speculate on the price of stocks and commodities alike. The price of the CFD is the difference between the price of the asset at the time of the purchase and its present value.

Trading via CFDs

Many investors are trading via contracts for difference (CFD) and by using this method, investors can speculate on the value of a commodity without needing to own a physical asset.

How to Start CFD Trading of Cotton?

There are several ways of engaging in CFD trading of cotton. All you need to do is find a reliable broker or CFD trading platform such as eToro to open an account and deposit your fund.

Trading this commodity in eToro's CFD trading platform doesn't require any storage fees since you won't be trading any physical assets.

How to Trade Cotton on eToro?

1. Create an account on eToro / Log-in your account for existing users.

   

2. Click "Discover".

   

3. Select "Commodities".

   

4. Choose “COTTON”.

   

5. Select BUY or SELL.

   

6. Key in your desired amount to invest or the number of cotton units you want to trade.

   

7. Review and set the stop loss, leverage, and take profit parameters.

   

8. Select “Open Trade”.