Cotton CFDs Trading
The creamy white colored fiber filled material known to us as cotton, has been cultivated in India for over 6000 years. Produced from the cotton plant, it is ideally suited to warm, semi-tropical climates, the leaves are each divided into three parts, accompanied by cylindrical seeds where the cotton fiber blooms, for processing and later used for cotton and cotton fibers.
Advantages for trading Cotton with AvaTrade
- Up to leverage on Cotton CFD trades
- Trade on a 17.5 hours a day market
- 24/5 support in 14 languages
- An internationally regulated broker
- Both manual and automated trading platforms available
Cotton trading market
Cotton as a commodity has many features, its strong, absorbent and durable, used to make light and hard wearing clothing and fabrics, becoming the worlds most commonly used fabric for clothing manufacturing to date. With this, the demand for cotton is a substantial one.
Cotton trading take place on the New York Board of Trade exchange (NYBOT), but is traded on other major exchanges also, such as the Zhengzhou Commodity Exchange (ZCE) and Intercontinental Exchange.
- Cotton trading hours: 02:00 to 19:19 (GMT)
- Minimum trade size: 10
- Contract size: 100 lbs
- Ticker symbols: COTTON#2
- Price Quote: cents per lbs.
- Tick size: $0.0001
What influences the cotton price
Primarily the climate and weather patterns are what affect the price of this commodity, as with most agricultural underlying assets. Both floods and droughts will have a massive impact on crop yields, and should be worked in as a factor when looking to trade on cottons CFD. Cotton prices can also be influenced by competing textiles such as it’s main competitor wool and some synthetic fibers such as polyester. Polyester for example is much easier to attain as well as cheaper and could lower the price of cotton considerably such as the 2003 cotton futures price move.
Main countries that contribute to the cotton market for cotton trading: in first place is China which produces 6,532 thousand metric tons, a close second is India that produces 6,423 thousand metric tons of and U.S cotton producers with over 3,553 per year.
Countries that consume the most cottons are China with a USE domestic consumption of 35,500 (1000 480 lbs. bales) annually, India with 24,000 and Pakistan 10,200. These countries are said to consume the most cotton however most of their end products are then resold to Europe and across the world.
Understanding cotton trading
Remember to always trade on commodities that you are able to keep abreast of their key components such as contract value, margin requirements and know the ticker symbol (for this example we will use this: COTTON#2 @ 70.39).
The value of the commodity contract is based on the current price of the market, which is multiplied by the the actual contract size. For the example we will say that the cotton contract equals the equivalent of 10,000 pounds multiplied by $0.7039 per pound. A price move from 70.39 to 72.24 would yield
($0.7224 – $0.7039) x 10,000 = $185 profit on a long position or an equivalent loss on a short position.
Cotton Trading Main FAQs
- What makes the price of cotton change?
Cotton prices are primarily driven by weather. Floods and droughts can have a significant impact on the price of this agricultural commodity. There are some other factors that can influence the price however, such as changing government regulations or the price of substitutes for cotton. For example, the price of cotton crashed in 2003 as polyester became the preferred material for many garments. The value of the U.S. dollar can also impact the price of cotton, and so can the price of oil since cheaper oil means cheaper polyester fabric.
- Should I trade cotton?
As is the case for many commodities the price of cotton can be quite volatile. Rather than shying away from this volatility traders should embrace it. Increased volatility also gives traders an increased chance to make larger profits, especially when combined with the leverage available when trading cotton. Cotton is also a good way to speculate on global growth. As the world’s population grows, so does its need for cotton, but at the same time the amount of cotton grown can decrease as land is turned to growing food for the larger population.
- How can I trade cotton?
AMost cotton is traded through futures contracts or options. These may not be the best trading vehicles for many retail traders however. A futures or options account is required, and the leverage on futures and options can be quite large. The initial investment for futures is also quite large. Both futures and options also suffer time decay, which must be accounted for in the trade. A better way to trade cotton is through CFDs, which allow for exposure to the market and speculation on the price change in cotton without any of the other concerns.
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