Compare Brokers For Trading Cotton

Looking for brokers for trading cotton? We have compared 14 broker accounts (out of 147) that are suitable for you below.

We found 14 broker accounts (out of 147) that are suitable for Cotton.

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Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.

The Ultimate Guide to

What is Cotton?

Cotton is a type of plant fiber used primarily in textile products, such as clothing. It has been used for thousands of years, and as it is an integral part of the enormous global textiles industry, is an important agricultural commodity in the trading markets.

The top 5 countries in terms of cotton production are China, India, USA, Pakistan, and Brazil. China and India are the world’s largest producers of cotton with an annual production of 23 million and 27 million bails respectively (2016/17 – USDA Aug 17). The total international cotton export value is worth over $50 billion (2016 – Trade Map).

Fundamental Influences

The price of any given commodity depends on the level of its global supply and demand, and this holds especially true for cotton as it’s traded all over the world.

There are a number of factors that can influence the prices of cotton. One of the current factors affecting price is high stock levels. Cotton production has outweighed its consumption, leading to stockpiles building up which reduces the price.

Another important factor is government policy in countries that are leading producers of cotton such as China and India. The two together are responsible for almost half of the global cotton output and any change in their trading policies can bring about a major change in cotton prices.

The US is one of the world’s largest exporters of cotton, responsible for 14.2 million bails, or more than a third of the world’s exports. One factor affecting the region’s cotton production though is the competition with soybeans over acearage. As prices for soybeans rise, less acearage is devoted to cotton production and vice versa.

Some of the other factors that can influence the price include cotton’s relationship with other competitive fibers, global demand for the consumer textile, usage of new technology for production, and fluctuations in currency value.

How is Cotton Traded?

Cotton is one of the most widely traded commodities and gets a high volume of trades on a daily basis; however, most traders don’t actually intend to receive the delivery of cotton. Many online brokers, such as Plus500 and AvaTrade, offer Cotton as contracts for difference (CFDs) to traders. In a CFD, the trader takes a position, depending on whether he thinks the price of the underlying commodity will rise or fall before the expiry of the contract.

Popular Trades

Cotton producers and consumers usually trade in cotton by purchasing and selling cotton futures. Producers of cotton utilise a short hedge to secure a selling price while consumers employ a long hedge to lock in a purchasing price. Speculators also trade cotton futures. When speculators think that cotton prices will go up, they purchase cotton futures. Similarly, if they feel the prices will go down, they sell cotton futures.

Benefits of Trading Cotton with a CFD

CFD’s are a convenient way to trade cotton because, unlike cotton futures, a trader is not obliged to take a high minimum position. Cotton futures contracts are mainly designed for large companies and small to medium traders usually opt for CFDs. With a CFD, the trader takes a position on whether they feel the price of the underlying commodity will go up or down. Traders use the leverage offered by brokers to gain greater exposure to the market movements. For example, Plus500 offer a leverage of 1:152 for cotton. This means that for a minimum buy order of 500 contracts of cotton from Plus500, with a spread of 0.10, a trader can open a position with a margin of just £176, exposing them to a total value of £26,620 worth of cotton contracts. As with many CFD brokers, this is based on a futures contract, which in the case of the Plus500 CFD is the ICE Cotton No 2 Futures.

Cotton CFD (CT) Plus500 - 26/08/2017

Cotton CFD (CT) Chart from Plus500 – 26/08/2017

Spot Cotton vs. Cotton Futures

Spot Cotton:

  • Price is on the basis of immediate delivery

  • Immediate settlement of trade

  • Involves high volatility and delivery issues can suddenly arise

Cotton Futures:

  • Price is on the basis of a forecast of future prices

  • The position is subject to time and can be kept open

  • Volatility factors, such as weather conditions, are more predictable

Related Commodities

  • Wheat

  • Cocoa

  • Soybeans

Related Pages

Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.