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Investing in cocoa: A how to guide

A guide to investing money in cocoa

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Cocoa is a luxury commodity and a crucial ingredient in many of life’s finer things: from sweets, to pharmaceuticals, to various cultural dishes. Its popularity makes it a prominent asset on the stock market, but supply problems, environmental and political issues can sometimes make it an unstable investment.

Here we discuss how you can invest in cocoa and the risks that come with it.

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3 ways to invest in cocoa

1. Invest in cocoa ETFs

ETFs allow you to invest your money in a range of assets rather than focussing your investments on one or two firms. To find out more, take a look at our guide to ETFs.

ETFs are a fairly accessible way of entering the market and function in a similar way to normal stocks. They are often seen as a more straightforward, and less risky, way of investing your money. Trusting your money to a collection of assets makes your investment more resilient to the fluctuations of the market.

If you are a newcomer to the investment world, ETFs may be something to consider, and due to cocoa’s popularity, there is no shortage of ETFs to choose from.

Pros
  • ETFs allow access to a larger and more diverse area of the cocoa industry at competitive prices.
  • ETFs are often seen as a safer choice for investments, especially if you are a newcomer.
Cons
  • By investing in the basket of assets that make up an ETF, you sacrifice some of the control you might have had by investing in a single company.

2. Purchase cocoa futures

Buying futures allows you to invest in cocoa stocks at an agreed price to receive at a later point in the future. Whether you make great returns on your investment or lose money depends heavily on the movements of the market.

Futures are direct but risky, vulnerable to market fluctuations they rely heavily on the buyer’s knowledge and a small shot of luck. A system which can punish the buyer, just as easily as rewarding them, market newcomers may want to gain some experience first.

Pros
  • Futures give you direct ownership over an asset.
  • Cocoa futures can reward buyers with solid returns if they approach them with a strong market knowledge and a bit of luck.
Cons
  • Futures expire if they aren’t used within the agreed-upon period, making them worthless.
  • Unpredictability and volatility are part of the nature of the market. Futures are very vulnerable to price fluctuations and making a bad investment can cost a lot

3. Purchase shares in cocoa companies

One rather common way of investing in a commodity is through stocks. Due to cocoas market popularity, there are a variety of companies for you to choose from, and if you are interested in investing in cocoa there are a number of advisors and brokers to guide you through the process.

While they aren’t as risky as futures, investing in stocks still requires some market knowledge, but by buying stocks at their current price you are less vulnerable to market fluctuations. However, if you are looking for a safer investment, ETFs may be a better choice.

Pros
  • An accessible and conventional way of entering the market.
  • You can withdraw from the market at any time.
  • A large selection of company stocks available to choose from.
Cons
  • As a result of its demand and the areas it is sourced, cocoa is a politicised commodity that can be used a bargaining chip during periods of political friction or negotiation. As a result of this cocoa prices can periodically fluctuate violently, making a big impact on your investment.

How much is cocoa worth now?

Is cocoa a safe investment?

Cocoa’s global popularity makes it a massive commodity, and a popular investment on the market. Even so, there are risks involved in any investment, cocoa included:

  • Environmental conditions: Cocoa grows under specific weather conditions, if these conditions shift suddenly they can drastically affect crop yield and subsequently commodity supply. Additionally, environmental changes influence pollination and plant growth, once again impacting general supply.
  • Political friction: As mentioned above, cocoa is sometimes used as a political bargaining chip to influence international decisions and conflicts. Many of the nations which serve as major cocoa suppliers have only recently found their place on the global market, and rightly want to make the most of this highly-desired commodity.
  • Labour: For a long time cocoa harvesting has been reliant on cheap or child labour. Recently, there has been a massive shift towards fairer working conditions and salaries which have increased production costs, meaning cocoa prices have been at their highest since first transitioning from being a luxury to an everyday commodity. However, regardless of prices, the shift towards better welfare conditions is a welcome change.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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