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How to invest in cotton

Cotton trading is historically one of the most popular investments for traders around the world. This commodity is in fact traded on an international level and offers excellent perspectives for profits over the short, medium and long term.

But firstly, before launching into speculating on the price of cotton, you should know the major stock market characteristics of this popular commodity as well as the factors that influence movements in its price, both major and minor.


General presentation of cotton:

Cotton is an agricultural commodity used principally in the textile industry for the creation of material. Although the use of cotton in the textile industry has dropped from 71% to 40% since 1950 it is still a favoured material in this industry.

Concerning production, several large countries share the honour with China at the head followed closely by the United Sates, India and Pakistan. In total 30 million tons of cotton are produced each year. It is however China that produces a quarter of the global production as the market leader. This country therefore plays a primordial role in the quote of the cotton price as a commodity.


Quotes and historical rates for the price of cotton:

As with all commodities, cotton is traded in the form of ‘futures’ and options. It is mainly quoted on the NYBOT (New York Board of Trade) in the United States of America. But it is important to note that the way in which the price of cotton is fixed does not uniquely depend on supply and demand as the American market includes subventions from the government on this sector of production.


The indicators to follow for trading in cotton:

There are only a few agricultural commodities that unite as many pertinent indicators as cotton. If you are thinking of beginning trading in this commodity you will need to mainly take into account the following elements:

  • Demand from the textile industry worldwide.
  • The appearance and popularity of new textile materials (for this, you will need to follow the market trends and the major fashion designers collections).
  • The climatic conditions that affect the producing countries.
  • For the largest consumer countries that are also producers, such as China, it is important to study the difference between imports and exports.
  • The quality of the harvest, in terms of fibre quality, is also an important criterion.
  • Finally, to trade in cotton from the American agricultural sector it is also important to take into account government assistance and therefore the price that is specific to this production.