Differences between Investing vs Trading
Differences between Investing vs Trading
Did you know that cocoa was once traded as a form of currency? Today, this soft commodity now forms a key ingredient in some of our most popular sweet treats, most notably chocolate. What’s it like to partake in online cocoa trading?
The global cocoa market is said to be worth more than $2 billion. The biggest producers of cocoa reside in West Africa, with Cote d’Ivoire (Ivory Coast) and Ghana proving the world’s biggest producers, totalling 1.45 million tonnes and 0.84 million tonnes respectively.
There are three varieties of cocoa beans grown and produced worldwide – Forastero, Criollo and Trinitario. Almost four-fifths of production is reserved for Forastero beans, while the rarest cocoa bean is the Criollo bean, accounting for just 5% of all beans grown. Trinitario is a ‘hybrid’ variant, designed to provide a middle ground between high and middle-range cocoa beans at an acceptable price point for consumers.
The price of cocoa is influenced by multiple factors, which can cause demand to outstrip supply and vice versa. Plantations of cocoa beans are particularly susceptible to harsh weather conditions. These environments demand consistent rainfall and hot temperatures. Not enough rain or too much can yield poor crops, causing cocoa supply to diminish and prices to rise. Cocoa production has also been a notoriously cheap labour industry. If labour laws improve working conditions for cocoa plantation workers, this can eat into the profits of cocoa producers and the eventual market price.
There are almost two centuries of price data on cocoa, but this soft commodity dates back much further than this. In fact, cocoa was used as a unit of currency in the Aztec and Mayan society.
Throughout the mid-to-late 19th century, the price of cocoa remained stable at around $400 per tonne. The commencement of cocoa production in Africa during the early 20th century saw cocoa prices fall by more than 50% due to the increased supply. The 1970s brought what’s now affectionately known as the ‘Great Cocoa Boom’. The price of cocoa soared from $500 per tonne in 1971 to more than $5,700 per tonne in 1977. This was driven by two factors – the rising demand of chocolate bars, in particular Hershey’s milk chocolate, and shortfalls in production from Ghanaian cocoa plantations.
The post-millennium era has seen the cocoa price rise significantly, due largely to political instability. Civil war and a potential military coup in the Ivory Coast saw prices rise again, with more political tensions in West Africa seeing it peak at $4,200 per tonne in March 2011.
Cocoa trading is often made using futures contracts. These contracts state a date and price at which you are obliged to buy the underlying commodity. Futures contracts for cocoa are usually traded via the Intercontinental Exchange (ICE).
If you decide not to own the underlying asset of cocoa, you can also buy or sell the share price of companies heavily invested or susceptible to cocoa production. Chocolatiers like Lindt would be an intriguing stock to trade. There are also exchange-traded funds (ETFs) that comprise a basket of equities inspired by soft commodities like cocoa.
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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 Cocoa prices?
Cocoa prices are heavily impacted by market events, such as demand and supply trends in the global cocoa market. In addition, historical events can also impact cocoa prices; for example, if there was a particularly bad harvest season in a major cocoa-producing region, this could cause price changes.
As with any commodity, it is important to keep an eye on the market and be aware of any major events or news that can affect cocoa prices. Traders should use historical data to help inform their trading decisions, while also analyzing current market trends to anticipate future prices. Being informed could help traders make sound decisions when trading cocoa.
How to trade Cocoa CFD
Trading Cocoa CFD requires a few simple steps. Firstly, open a trading account with Skilling. This will involve providing us with personal information to identify and verify yourself as the owner of the account. After this, you'll need to deposit funds into your account in order to begin trading.
Once you've opened and funded your account, you can start trading Cocoa CFD. To do this, simply select the “Cocoa” asset from our list of markets and enter a buy or sell order using the our platforms. You will need to specify how much of the asset you want to trade, as well as your desired “take profit” and “stop loss” points. Once you have set up your order, simply click on the “Place Order” button to submit it.
At this point, you can monitor your trades and make adjustments to them as needed. If the market moves in your favour, then you should consider taking profits at your “take profit” point. Likewise, if the market moves against you, then you should consider closing out your position at your “stop loss” to limit any losses.
What are the other options for trading Cocoa?
One such alternative is investing in companies that rely heavily on cocoa but do not directly trade in it. These companies may include chocolate manufacturers, cocoa processors, or other companies that use the commodity in their production process.
By investing in these firms, investors can benefit from the price fluctuations without having to directly buy and sell cocoa stocks. Additionally, many of these firms offer compelling dividend yields and have a long history of consistent performance. For those looking for an alternative investment option with a lower risk profile, investing in cocoa-dependent companies is a great place to start.
Investing in cocoa stocks can be a lucrative endeavour when done correctly. However, it’s important to remain aware of the risks associated with this type of investment. Before jumping into the market always remember to do your due diligence and research every company you plan to invest in. Doing so will help ensure that you make the most informed decision possible when investing in cocoa stocks or other alternatives.
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.