How to Trade Cocoa Futures: Costs and Different Brokers
You can trade futures by opening a trading account with a trusted broker who handles futures trading. CME Globex, CME Clear Port, AmeriTrade and Etrade are some well known online platforms for trading futures.
Most brokerages will charge the National Futures Association fees, which is roughly around $0.02 per side, along with a commission (which can range from $0.025 to $3 and more, per contract per side). You will also have to pay an exchange fee, which will vary depending on the exchange and the specific contract you are trading. Be sure to look at the fine print and add up all the fees into your cost.
As a popular softs commodity, cocoa is traded widely. Cocoa futures allow traders to make healthy profits, but like with all commodities trading, it too is accompanied by several risks that affect the underlying commodities.
The price of cocoa is influenced by the following factors:
- The global climate change is a key threat to Cocoa. The plant requires an optimal range of 69-90 degrees Fahrenheit. Temperatures below 60 degrees can be harmful. So can rainfall over 2,000 millimetres. Changes in global temperatures will create fluctuations in cocoa futures prices.
- Cocoa plants are also extremely vulnerable to diseases and insects. Ghanian cocoa plants often suffer from black pod disease and there is ongoing smuggling of cocoa into the neighboring Ivory Coast. Brazil’s cocoa production has slipped because of the witches’ broom disease that was widespread in the country. Thus, prices are subject to sudden moves, if there is damage to the crops in a certain area.
- Cocoa is pollinated by hand or by midge flies and bees. Whenever weather patterns shift, bee colonies and midge fly populations can get affected, which might lead to lower pollination rates, yielding to fewer cocoa trees.
- Cocoa’s largest producers are politically volatile countries like Ivory Coast, Ghana and Indonesia. Any political disruptions in these countries will lead to price instability in the futures markets.
- The chocolate industry is dominated by a few companies like Callebaut, Cargill and Archer Daniels Midland Company. If these companies change their cocoa buying strategies or requirements, the prices of cocoa will experience massive fluctuations, since a majority of the cocoa in the world is consumed by the chocolate industry.
- Cocoa futures have a lot of leverage, which allows traders to control a large amount of commodities for a small amount of investment. However, it also means that even a small, unfavorable change in the prices of cocoa can drastically impact a traders’ entire equity.
While Cocoa is a growing industry, accompanied by growing price volatility and price risk, Cocoa futures offer traders a convenient way to make substantial profits.