How to invest in cotton

A guide to investing in one of the world's most traded commodities.

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Cotton makes up around half of the fibre used in the production of our clothes and other fabrics. 20 million tonnes is harvested and traded each year; for comparison, that is around 20 t-shirts for each human being annually.

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.

Invest in 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.

Pros

  • 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.

Cons

  • Because you are investing in a collection of stocks you lose some of the control you might have had with a single company’s stock.

Compare brokers to buy cotton ETFs


Invest in 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, however 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.

Pros

  • Investing in futures gives you complete ownership over a commodity.
  • If you make the right investment futures can bring you solid returns.

Cons

  • 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.

Compare brokers to buy cotton futures


Invest in cotton stocks and shares

Stocks are a common option for investors, taking back the control you lose when investing in ETFs while also remaining less risky than futures. While stocks 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.

Pros

  • A range of company stocks to choose from.
  • Withdraw from the market whenever you want.
  • Stable and conventional approach to investing.
  • Investment control.

Cons

  • While futures are certainly more dangerous, stocks still have their risks. Market fluctuations are unavoidable and can have a real impact on your investment.

Compare brokers to buy cotton companies shares

How much is cotton worth?

Reasons to invest

  • As worldwide energy consumption rises, and resources such as fossil fuels decline, the demand for sustainable, renewable energy sources 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 will 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.

Compare these providers for access to cotton ETFs and more

Table: sorted by promoted deals first
Data indicated here is updated regularly
Name Product Price per trade Frequent trader rate Platform fees Brand description
Fineco
£2.95
£2.95
Zero platform fee
Fineco Bank is good for share traders and investors looking for a complete platform and wide offer. Your first 50 trades are free with Fineco, until 30/09/2020. T&Cs apply. Capital at risk.
IG
0% commission on US shares, and £3 on UK shares
From £5
£0 - £24 per quarter
IG is good for experienced traders, and offers learning resources for beginners, all with wide access to shares, ETFs and funds. Capital at risk.
Hargreaves Lansdown Fund and Share Account
£11.95
£5.95
No fees
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. Capital at risk.
eToro Free Stocks
0% commission, no markup, no ticket fee, no management fee
N/A
Withdrawal fee & GDP to USD deposit conversion
eToro is good for social trading - letting you mirror the portfolios of other traders. Capital at risk. 0% commission but other fees may apply.
Interactive Investor
From £7.99 on the Investor Service Plan
From £7.99 on the Investor Service Plan
No transfer fees or exit fees. £9.99 a month on the Investor Service Plan
Capital at risk.
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Data indicated here is updated regularly
Name Product Minimum deposit Maximum annual fee Price per trade Brand description
Hargreaves Lansdown stocks and shares ISA
£100
0.45%
£11.95
Hargreaves Lansdown is the UK's biggest wealth manager. It's got everything you'll need, from beginners to experienced investors. Capital at risk.
Interactive Investor stocks and shares ISA
£100 or £25 a month
£119.88
£7.99
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
Saxo Markets stocks and shares ISA
No minimum deposit requirement
0.12%
£8.00
Saxo Markets offers a wide access to a range of stocks, ETFs and funds. Capital at risk.
AJ Bell stocks and shares ISA
£500
0.25%
£9.95
AJ Bell is a good all-rounder for people who to choose between shares, funds, ISAs and pensions. Capital at risk.
Fidelity stocks and shares ISA
£1000 or a regular savings plan from £50
0.35%
£10.00
Fidelity is another good all-rounder, offering a good package at a decent price. Not suited for trading shares. Capital at risk.
Nutmeg stocks and shares ISA
£100
0.75%
£0
Nutmeg offers three types of portfolios. Choose the one that goes with your investment style. Capital at risk.
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Data indicated here is updated regularly
Name Product Minimum investment Choose from Annual fee Brand description
PensionBee Pension
No minimum
7 funds
0.5% - 0.95%
Pension Bee is a newbie in the pension market. It helps consolidate your pension plans into one place. Capital at risk.
Hargreaves Lansdown Pension
£100
2,500 funds
0-0.45%
Hargreaves Lansdown is the UK's biggest wealth manager. It's got three different retirement options. Capital at risk.
Interactive Investor Pension
£25/month
Over 2,500 funds
£10/month
interactive investor is a flat-fee platform, which makes it cost effective for larger portfolios. Capital at risk.
Saxo Markets Pension
Saxo Markets Pension
£10
Over 11,000 funds
No annual fee
Saxo Markets gives flexibility and control over your investment strategy. Capital at risk.
AJ Bell Pension
£1,000
Over 2,000 funds
0.05-0.25%
AJ Bell has two different pension options, a self managed pension and one that is managed for you. Capital at risk.
Moneybox Pension
£1
3 funds
0.15% - 0.45% charged monthly
Manage your money with an easy-to-use Moneybox app. Capital at risk.
Moneyfarm Pension
Moneyfarm Pension
0.35%-0.75%
7 funds
£1,500 (initial investment)
Moneyfarm has pensions that are matched against your risk appetite, goals and planned retirement date. Capital at risk.
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All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Capital is at risk.

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