How to invest in cocoa

Cocoa is the main ingredient in chocolate and is therefore a globally popular crop. Learn how to invest in this lucrative commodity using this beginner’s guide.
Updated: Jan 21, 2022

This page outlines the steps you must follow and the factors you must consider before investing in cocoa. This should place you on a better footing to decide whether investing in this commodity is right for your portfolio.

Where can I invest in cocoa online?

To invest in cocoa, you must register with an online broker. Our commodity experts have picked out the top of the market. To begin investing, click the links below, or continue scrolling to learn more before you invest.

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Why invest in cocoa?

Cocoa can be an extremely profitable commodity and there are several reasons why you should add it to your portfolio. For example, investors tend to add commodities to their portfolios to hedge against the risk of the rising rate of inflation. The leading reasons why you should invest in cocoa are highlighted below.

  • Diversify your portfolio. When you invest in a commodity like cocoa, you are effectively diversifying your portfolio. The diversification of assets hedges against specific-asset loss. As cocoa is the key ingredient to the seemingly insatiable global craving for chocolate, adding cocoa to your portfolio can hedge against the losses from other under-performing assets.
  • Hedge against inflation. All investors worry about the risk of inflation causing a loss in the value of their portfolio. Inflation occurs when currency loses value over the years; as this occurs, the prices of essential commodities rise and prove profitable for investors. As such, investing in cocoa hedges against the rate of inflation. 
  • Demand for chocolate. Chocolate cannot be made without cocoa beans. Cocoa butter and/or cocoa powder are the key ingredients used in making chocolate, and both are derived from cocoa beans. The global demand for chocolate is consistently rising, making for an industry worth hundreds of billions – investing in cocoa can prove profitable if you track and stay on top of this demand.

How to invest in cocoa

We have outlined the following steps as a guide to making your investment. Keep scrolling and follow through to become a cocoa investor.

  1. Decide on an investment strategy. Before investing in cocoa, you must first decide whether you would like to invest actively or passively. This decision shall determine your risk appetite.
  2. Do your research. As with any assets you consider adding to your investment portfolio, you must do your due diligence before investing in cocoa. Formulate a plan using the information about the ways you can invest that we have outlined further down this page.
  3. Set a budget. You should only ever invest as much money as you can afford to lose to risk. Your risk appetite should determine your budget.
  4. Choose between the long term and short term. Plan according to your financial goals. If you are looking to make a short term investment in cocoa, consider obtaining a technical analysis. If you are looking to make a long term investment in cocoa, consider obtaining a fundamental analysis.
  5. Find an investment platform. Not all online brokers offer access to the cocoa market. It is vital that you first establish that your broker of choice offers this commodity. Our expert analysts have selected the top brokerages offering access to the cocoa market, you can view these by clicking the button below.

Ways to invest in cocoa

There are a multitude of ways to invest in cocoa. The approach you select should suit your experience as an investor and your budget. We have selected the best ways for you to invest and the benefits of each for you to review and assess below. 

Invest in cocoa stocks

Ideal means to invest in cocoa is through purchasing shares in companies that deal with the cocoa market, as the price of such company shares is usually directly correlated with the price of cocoa itself. You should buy shares in companies that manufacture chocolate. Notable chocolate companies include: Nestle (NSRGY), Hershey (HSY), and Mondelez International (MDLZ). 

Invest in cocoa ETFs

An Exchange Traded Fund (ETF) that tracks the performance of the agricultural industry is a great way to gain exposure to the cocoa market. The price of shares of ETFs that track agriculture, is usually correlated with the price of cocoa itself. Cocoa ETFs are often the best way for beginners to get their foot through the door into the market; for example: iPath Pure Beta Cocoa ETN (CHOC), iPath Dow Jones-UBS Cocoa Subindex Total Return ETN (NIB), WisdomTree Cocoa ETF (COCO). 

Invest in cocoa mutual funds

Cocoa mutual funds are like ETFs, the only difference is that a fund manager uses their expertise to buy and sell shares in a managed fund. There are mutual funds that specifically focus on agriculture. For example, you can invest in mutual funds that hold stocks of companies that harvest cocoa, you can also invest in mutual funds that hold stocks of companies that produce chocolate. 

Invest in cocoa futures

The experienced investor has a power play in futures contracts. Cocoa futures give you access to the cocoa market through a contract – you must buy or sell a particular amount of cocoa on a particular date. You must have in-depth knowledge of market volatility and drivers before you use futures to invest in cocoa.

How does the cocoa market work?

It functions according to the basic economic rule of supply and demand to regulate the price. There are significant factors that determine the supply and demand for cocoa. We have highlighted the factors you should pay attention to if you want to add cocoa to your portfolio of investments. 

  • Global demand for chocolate. The worldwide craving for chocolate is insatiable. Growing demand for chocolate means a growing demand for the supply of cocoa. As the sales of chocolate increase, so does the price of cocoa combined with a supply crunch in African nations that produce cocoa and are prone to political turmoil (i.e. Ghana). 
  • Weather. Changes in the global climate concern the growth and harvest of the cocoa bean. Extreme weather can adversely affect crop yield, in turn affecting the price of cocoa. If farmers are unable to meet the global demand for cocoa, then overall supply would decline, causing an increase in the price of cocoa.
  • Infrastructure. The world’s largest producers of cocoa have the least available infrastructure in the world. Less economically developed African countries are the main sources of cocoa yield and they are unable to cope with ongoing challenges. For instance, unexpected rain in the Ivory Coast is a production bottleneck that can make the process of harvesting cocoa costlier, driving up the price of the commodity. 
  • Consumer taste. There is an ongoing trend towards viewing dark chocolate as a health benefit. The manufacturing of dark chocolate requires the most cocoa content than other forms of chocolate and is therefore driving up demand for cocoa. As the demand goes up for cocoa, so do returns on investments made in the cocoa market.

When should you invest in cocoa?

When inflation is on the rise, invest in cocoa. As mentioned earlier, investing in cocoa is a means of hedging against inflation. An increase in the rate of inflation is an ideal time to invest in cocoa. 

We have emphasised the factors that impact the cocoa market above, and it is worthwhile to stay updated on these factors when investing in cocoa. For instance, severe climate change will cause a decline in crop yield, reducing supply, and increasing the price of cocoa.

Is cocoa a good investment in 2022?

Yes, but you must do thorough due diligence before you buy into cocoa. This page has outlined the factors that shall impact the price of cocoa this year. For instance, demand for chocolate continues to rise, but there is a crunch on the supply for cocoa, meaning an increase in the price of the commodity. The most imperative consideration is the inflation rate when deciding whether cocoa is the right addition to your portfolio.

What should I do now?

If you are ready to dive in and make your first investment into cocoa, register with an online broker that offers you access to the commodity. You should also check out our Learn Hub – a platform of our courses on stocks, currencies, and crypto. Alternatively, if you prefer to learn about how to trade cocoa, you can click the link below for our page on how to do so supplemented with our expert analysis.

You may remember the controversy that was provoked a couple of years ago, when scientists apparently predicted that the world would run out of chocolate in 30 years’ time. This was said to be because rising temperatures in cocoa-growing areas was threatening the cocoa plants.It turns out that this…

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Fact-checking & references

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Srijani Chatterjee
Financial Writer
Srijani is the quintessential Third Culture Kid having grown up in India, Singapore, Malaysia, The Netherlands, Scotland, and England. She still loves to travel and speaks… read more.