What is US Cotton?
If you are going to trade a commodity such as cotton you would need to understand the difference between the cotton as a commodity and derivative instruments associated with it. The cotton as a commodity represents a fluffy fibre naturally grown in different regions with the US being positioned among the top producing countries in the world. The cotton is heavily used in the textile industry for clothing, but it is also used in the production of coffee filters, tents, bookbinding, etc. Investors have the opportunity to trade cotton as a commodity on the relevant commodity exchanges.
Cotton No. 2 is the futures contract where cotton is the underlying commodity, traded at the Intercontinental Exchange (ICE) with a commodity code “CT”. The reference asset is cotton that fulfils the minimum defined standards in terms of basis grade and sample length. The Cotton No.2 futures settlement is executed with physical delivery and the futures have a contract size of 50,000 pounds net weight with the price quoted in cents and hundreds of a cent per pound. Aside from the possibility to trade cotton as a commodity, investors may also trade cotton with the accompanying futures contract.
Historical performance of US cotton price
During the last decade a major peak in the US cotton price was recorded in March 2011 when it achieved a value of around $2 (£1.5). Within a decade its value has decreased significantly hitting the lowest spot price of nearly $0.50 (£0.37) in early January 2020. Although there has been a significant depreciation, the manner in which US cotton price fluctuations makes this commodity alluring for traders. The US cotton value may move in a clearly defined upward or downward trend lasting from a couple of weeks to a few years. However, these trendy movements displayed by the price are frequently broken by peaks and bottoms.
Depending on the time frame the size of the retracements and bounce backs may be more than 10 per cent based on the influence of underlying factors. For instance, it can be seen from the daily price chart for 2020 that US cotton price bounced back nearly 11 per cent in less than a week followed by a double retracement of around 9 per cent. This shows that there are plenty of opportunities for traders to invest in US cotton and execute long or short positions with potential for significant profits.
How to invest in US cotton?
Trading cotton can be executed in multiple ways through a variety of instruments with different features. The most obvious way to invest in US cotton is to buy it or sell it on some of the commodities exchanges. When you purchase a commodity in its physical form, there are additional costs: transport, warehouse, safety, insurance, and so on. All these costs negatively affect a trader's profitability and it may take a higher price increase (or decrease) before a gain is recorded.
There are also derivative instruments which can be traded to benefit from changes in the cotton spot price. One such example is the Cotton No. 2 futures contract. Futures are executed under pre-set conditions in terms of contract sizes and also they are based on physical delivery of the underlying asset. Traders are not only limited by the minimum contract quantity but also by the need to either deliver the cotton or to enter a new contract to offset the existing position. Trading Cotton No. 2 futures may come at higher costs and complexity, which is the reason why it is usually recommended for more experienced traders.
Currency.com trading platform has developed an instrument that allows traders invest in US cotton and benefit from changes in its price without the need to buy physical cotton or enter a futures contract. Tokenised US cotton available at Currency.com will reproduce the price fluctuations in real-time.
The tokenisation of commodities or other assets is possible with blockchain technology. Currency.com has employed this technology because it enables the creation of smart contracts, speeds up orders execution time, increases transaction safety level and also reduces transaction costs.
Traders who own Bitcoin or Ether may open positions with tokenised US cotton using their cryptocurrencies. To simplify the trading process, Currency.com developed the possibility to trade with crypto, which eliminates the need for cryptocurrencies to be converted into fiat money.
The opportunity to use a leverage of up to 1:100 when opening a trading account with Currency.com platform means that traders can increase the profits earned. A margin of 2 per cent is defined for Tokenised US cotton. This means that the available capital of traders when planning to open a position with tokenised cotton is only 2 per cent of position value. Hence, a position of $25,000 (£18,725) would require a $500 (£375) of available capital.
Tokenised US cotton trading guide
US cotton trading using tokenised assets through Currency.com leveraged trading platform is quite easy. The steps required for you to trade tokenised commodities are:
- Step 1: Open an account on Currency.com. Currency.com ensures a high level of security using two-factor authentication security (2FA);
- Step 2: You can deposit Bitcoin or Ether or you can fund the account with fiat money;
- Step 3: Calculate the value of your positions based on the available capital and the Currency.com margin. Don’t forget that it is only 2 per cent for this commodity.
- Step 4: Based on your analysis you will determine the position (buy or sell) you want to take with tokenised cotton No 2 Spot;
- Step 5: The buy and sell orders are initially matched between the platform participants. Afterwards Currency.com matches the free orders through Capital.com, LMAX Digital or Binance, Bitstamp, Kraken, NASDAQ, NYSE and Gain Capital.
- Step 6: You can choose to close your positions in accordance with your trading strategy and enjoy the profits.
Why trade tokenised US cotton with Currency.com
US cotton trading at Currency.com tokenised securities exchange has a number of advantages. Tokenised assets are underpinned by robust and immutable blockchain technology. Opening a trade will give you a token that tracks and moves according to the underlying instrument's price.
- One-stop crypto trading platform
Trade tokenised US cotton with Bitcoin or Ethereum. Benefit from the commodity's price movements without turning your crypto assets into fiat.
Trade tokenised US cotton with a tight market spread, benefit from maker rebates and competitive taker fees.
Experienced traders can trade the world's top markets, like US cotton, with up to 1:100 leverage.
- Effective risk management
Manage your risks and secure your profits with stop loss and take profit orders. Save your assets with negative balance protection.
We have a scalable and low latency order management system, which can execute 50 million trades per second.
Currency.com operates under new Belarusian regulation with best-in-class AML and KYC laws. Regulatory details and fees are upfront.