Differences between Investing vs Trading
Differences between Investing vs Trading
Cotton is another popular soft commodity to trade. It is harvested as a soft fibre from the seeds of the plant known as genus Gossypium. This type of plant is most commonly found in India, Africa, Australia and Mexico. Some 25 million tonnes of cotton are produced annually today.
Cotton has become an invaluable commodity in the textile and clothing industry. Cotton fibres have been spun into garments for thousands of years. The Industrial Revolution then turbo-charged the role of cotton and the clothing industry, with woven and knitted cotton becoming a multi-billion-dollar industry worldwide. It’s not just clothing garments that cotton seeds have transformed. Cotton seed is often used to cost-effectively feed livestock and the oil from cotton seed is also an alternative form of cooking oil and is even found in cosmetics like soaps and cleansers.
The fibres left behind in cotton seed production, known as linters, are also repurposed for use in everything from bank notes to bandages. There are four main types of cotton produced – upland cotton, levant cotton, extra-long staple cotton and tree cotton. Upland cotton accounts for 90% of global production. India and China compete as the world’s leading cotton producers, with the latter said to have 100,000 active cotton farmers today.
The price of cotton hit all-time highs of $227 per pound in March 2011. This summer, the price fell from almost $160 per pound to $101 per pound, as the global economy displays signs of a retraction. Poor economic conditions are a negative for cotton prices, with consumers more likely to seek cheaper fabrics like polyester garments instead of cotton.
There’s no doubt that cotton prices are also heavily influenced by global oil prices. Cotton requires substantial oil for production, with high crude oil prices driving costs up for producers. As with many other soft commodities, cotton is traded in US dollars per pound. A strong US dollar can help to underpin the cotton price, relative to other major fiat currencies.
As with many other soft commodities, the price of cotton can be highly volatile at times. With unpredictable climatic and trading conditions, it may be easier to scalp the short-term price volatility than invest in the price of cotton for the long term. Some cotton traders may have access to long-term weather patterns and forecasts to anticipate likely yields for the coming year, which could be an option for medium-term cotton investors.
Cotton futures and options trading can also be carried out via the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE). Futures contracts allow you to profit from future price rises or falls without having to own the underlying asset. Options contracts are another derivative instrument, giving you the option to buy or sell the price of cotton if it hits a certain price within a set timeframe.
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* The spreads provided are a reflection of the time-weighted average. Though Skilling attempts to provide competitive spreads during all trading hours, clients should note that these may vary and are susceptible to underlying market conditions. The above is provided for indicative purposes only. Clients are advised to check important news announcements on our Economic Calendar, which may result in the widening of spreads, amongst other instances.
The above spreads are applicable under normal trading conditions. Skilling has the right to amend the above spreads according to market conditions as per the 'Terms and Conditions'.
What affects Cotton prices?
The Civil War had a major impact on the price of cotton, as it was a major conflict fought over the rights of states to own or not own slaves and what could be done with them. This disruption in a production led to a drop in supply and an increase in demand, which consequently drove up prices.
The Great Depression also had an effect on cotton prices, as the decrease in economic activity and purchasing power meant that demand for cotton was much lower. This resulted in an oversupply of the commodity, leading to a significant drop in price.
Given these two historical events, it is clear to see how major events can significantly impact the global cotton market. As such, traders need to pay attention to current events and be aware of how they might affect the price of cotton. This could help them to make more informed decisions when trading this commodity.
How to trade Cotton CFD?
To start trading cotton CFDs, you will need to sign up with a broker that offers the instrument. Once you have an account, you will need to make sure it is funded with enough capital to cover your trading position.
Next, you will need to research cotton prices and decide which direction you think the market is headed in order to formulate your trading strategy. This could involve looking at fundamental data such as news and supply/demand factors, or technical analysis such as charting patterns.
Once your research is complete and you feel confident with your strategy, it's time to place a trade. You can choose to go long (buy) if you think the price of cotton will increase, or short (sell) if you think the price might decrease. After you have placed your trade, you can monitor it and close it out when you reach your desired profit or loss level.
What are the other options for trading Cotton?
If you're looking to invest in cotton, you have several options beyond just buying the raw commodity. You can invest in companies that produce and distribute cotton, such as Cotton Incorporated or Cargill, which are publicly traded stocks on major exchanges like the NYSE and US100.
Alternatively, you could also look into purchasing ETFs (Exchange Traded Funds) that track the cotton market or futures contracts for cotton. All these options offer a way to gain exposure to the cotton markets and potentially profit from price movements in the commodity. Ultimately, it's important to do research and understand all your choices when deciding how to invest in cotton.
Why Trade [[data.name]]
Make the most of price fluctuations - no matter what direction the price swings and without the restrictions that come with owning the underlying asset.