Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our opinions or reviews. Learn how we make money.
Due to its demand, cotton has a large and fairly stable presence on the stock market making it a favourite for investors. Here we’ll discuss different investment methods and their risks.
Compare online brokers to trade cotton stocks, ETFs and CFDs
How to invest in cotton
1. Cotton ETFs
Instead of investing in the stock of one or two companies, ETFs give you the option of placing your money with a bundle of assets. You can learn more about ETFs here.
ETFs are a simpler way of entering the market. While they work much like regular stocks, ETFs are protected somewhat from market movements because they don’t rely on the performance of one company.
If you are still learning the basics of investing, then ETFs are a great introduction. Cotton is a massive industry with a number of companies offering ETFs, so it may be a good place to start.
- By bundling stocks from different companies together, ETFs give you access to a larger part of the industry.
- ETFs are considered by some to be the safest choice for investors.
- Because you are investing in a collection of stocks, you lose some of the control you might have with a single company’s stock.
2. Cotton futures
Futures are one of the riskier methods of investing, and while they can be very profitable they can just as easily lose you a lot of money.
By investing in futures, you are agreeing to buy a commodity at an agreed price to receive at a later date. If the price you agree to buy at ends up being lower than the price of the commodity when you receive it, you will have made a solid return, but the market may be against you and you could end up paying more than necessary.
Futures operate on both buyer knowledge and luck. If you are new to investing, it is recommended you learn the ropes before considering futures as an option.
- Investing in futures gives you complete ownership over a commodity.
- If you make the right investment, futures can bring you solid returns.
- There is a real element of gambling present in futures, and you can end up paying dearly for a mistake.
- Futures expire if they aren’t used within a certain period of time, becoming worthless.
3. Cotton stocks and shares
Shares are a common option for investors, taking back the control you lose when investing in ETFs, while also remaining less risky than futures. While shares run a comfortable middle ground between the other options, they are still vulnerable to market movements and should be approached with a bit of market knowledge.
Cotton is a massive industry and will continue to be as long as we choose to wear clothes. There are plenty of brokers offering a selection of company stocks for you to choose from, and with its prevalence cotton may be a good place to start.
- A range of company stocks to choose from.
- Withdraw from the market whenever you want.
- A stable and conventional approach to investing.
- Investment control.
- While futures are certainly more dangerous, stocks still have their risks. Market fluctuations are unavoidable and can have a real impact on your investment.
Reasons to invest
- As worldwide energy consumption rises, and resources such as fossil fuels decline, the demand for sustainable, renewable resources is growing rapidly.
- The world is becoming more environmentally conscious, renewables can be an ethical investment.
- As the technology behind renewable energy production advances, renewable resources are becoming more efficient, reliable and lower in cost.
Is cotton a safe investment?
- Stockpiles: Countries hoarding cotton can influence prices if they decide to withhold their stockpiles during a shortage or put them on the market when there is no domestic demand.
- Subsidies: Policies to keep prices low and supply high can be altered over time, influencing prices both positively and negatively.
- Substitutes: Synthetic materials such as polyester can undercut the price of cotton and weaken its market share. Large but struggling economies can drastically influence prices if they switch to a cheaper material.
- Environment: Weather shifts influence pollination, growth and yield, subsequently impacting supply.
- External influences: Other industries can have an influence on cotton prices. If oil becomes more expensive, the harvesting and production costs for cotton can rise as a result. It is a good idea to keep an eye on relevant industries.
How much is cotton worth?
More guides on Finder
How to invest in the BTCC Bitcoin ETF
The world’s first physical Bitcoin ETF has launched onto the stock market. Here’s how to invest if you’re in New Zealand.
How to invest in the Coinbase IPO
Everything we know about the Coinbase IP, plus how to buy in.
How to buy Freightways shares (FRE)
Your straightforward guide to buying Freightways shares on the NZX.
Alternatives to Robinhood in New Zealand
You can’t access Robinhood in New Zealand, so here are five low-cost alternatives to trade US stocks.
How to invest in the Dow Jones
Find out how you can invest in the second-oldest stock market index, the Dow Jones.
How to buy Roblox Corporation (RBLX) stock from New Zealand when it goes public
Here’s everything we know so far about the Roblox Corporation IPO.
Where to buy the Xbox Series X in New Zealand
Microsoft’s next-gen Xbox has officially launched. Find out if and where you can get your hands on one in New Zealand.
What does the future hold for investments?
Finder speaks with 33 investment experts about what the future of investing might hold.
Electric vehicle (EV) stocks to watch and how to invest
We take a closer look at six popular EV stocks and what they have to offer to Kiwi investors.
Review: Interactive Brokers online share trading broker
Interactive Brokers offers some of the lowest brokerage fees on the market, but there are caveats you need to be wary of.
Ask an Expert