How to trade cocoa online

By:

James Knight

James is a lead editor for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets. His ... read more.

Updated: Sep 19, 2023

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This page introduces you to all the factors that affect the price of cocoa. Find out where it’s grown, why that’s important, and whether you should start trading it today.

Compare the best platforms for trading cocoa

To start trading right away, use one of the trading platforms below. These are the top brokers as chosen by our team of commodities experts, but if you aren’t ready to dive in just yet then keep reading to learn more.

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How to trade cocoa online – a step-by-step guide

This guide gives you the basics of how to get started on the market. While the best way to trade depends on your goals and specific abilities, these steps help you get going and make your first deal.

1. Find a broker. Each trading platform offers slightly different features at a different price point. Find one that works best for you, so if you plan on making lots of moves, then finding a broker with low trading fees is most important. Use the table above to help you pick.
2. Create an account. To start trading you need to sign up and verify your account. Usually you only need to provide a few contact details and a form of photo ID to do so.
3. Deposit funds. Funding your account via bank transfer or with a credit or debit card is easy and virtually all platforms accept those methods. If you want to deposit money a different way, like with PayPal, it’s best to check your broker’s terms and conditions first.
4. Decide whether to go long or short. Do you think cocoa is going to go up or down in value? If you expect the price to rise, then you want to go long (buy). Otherwise, go short (sell).
5. Execute trade. To make the trade, look for the cocoa market on your trading platform. There you can enter how much you want to buy or sell, and simply click a button to execute the trade.
6. Set stops and limits (optional). Limits are pre-set trades that execute automatically when the price hits a certain level. Setting them in advance is a good way of locking in profit if the price goes up, or minimising your losses if it falls dramatically.

What is cocoa? And why does it have value?

Cocoa is a bean that’s used to make chocolate. If that doesn’t make it valuable enough for you, it’s also become increasingly popular with traders as a commodity to speculate on.

It’s one of the more volatile commodities out there, because it takes a few years for a cocoa plant to grow and almost all of it is produced in countries that can be quite unstable.

What affects the price of cocoa?

Weather conditions and geopolitics are two main factors, while a long growing cycle can make things worse. Cocoa requires warm weather and regular rainfall, so extreme conditions can cause serious supply shortages, and it’s hard to make up the shortfall as it takes about five years for a new plant to produce beans.

Another issue is that cocoa is produced primarily in west African countries like the Cote d’Ivoire and Ghana, as well as Indonesia, and relies on very cheap labour. The supply chain can be disrupted by politics or labour issues, creating bottlenecks and a surge in prices.

How has cocoa performed in recent years?

Its price has suffered from increasingly health-conscious consumers, particularly in the US, Europe, and China. Where there has been spikes, it has often been down to bad weather conditions, but there have been some slumps as well, most notably to decade-long lows in 2017.

The price has always been volatile, however, and there are lots of forces at work. More demand from India is helping to balance out the fall in the western world, while bumper harvests in Africa have added even more supply into the mix.

Should I start trading cocoa now?

That decision hinges on how you feel about cocoa’s price prospects, both in the short term and as part of a longer term trend. It also depends on how familiar you are with commodities trading, and how active you’re likely to be.

Active traders can still profit from low prices, by speculating on future performance based on weather conditions and predicted harvests. For beginner traders, or less active ones, an alternative way to invest in cocoa is by investing in stocks of companies that produce it.

Investing in individual companies, or buying shares in exchange-traded funds that own a bundle of stocks from the same industry, is a less risky way of getting exposure to the market. Use our analysis below for guidance on how the market is doing at the moment and to decide which stocks to buy.

Trading cocoa for beginners

The most important thing to do before you start trading is research. Before you put your money on the line, you want to know what you’re investing in and why.

What to do before starting to trade

Here is a checklist for you to follow before you make your first trade. Use this to create a strategy and to make sure you’re fully prepared for what the market throws at you.

1. Research the commodity. Learn what moves the price of cocoa, where it’s made, and the biggest consumers. The golden rule is to invest in what you know, so make sure you know all about cocoa before you invest.
2. Make sure you understand the basics of commodities trading. Get to grips with the different ways to trade. Do you understand the difference between futures and options? How can you take advantage of a low spot price today? We can help you answer these questions below.
3. Decide between long term and short term trading. Are you in it for the long haul, or do you want to try to turn a quick profit? If it’s the former, you can afford to take fewer risks, and investing in stocks or an ETF might be the best play. The sooner you want to see returns, the more risks you have to take.
4. Set a budget. Don’t ever stake more than you can afford to lose. Set a budget at the beginning so you aren’t tempted to keep putting more money in. This also affects your strategy, as you have more options if you have more money to spend.
5. Find a broker platform. You need a broker to place trades or invest in cocoa stocks. Use the table at the top of the page to pick one.

The different ways to trade cocoa

You can trade commodities in a variety of ways. Each method has different pros and cons, and some will be better suited to you than others. Read through this list to learn about each one so you can decide how you want to trade.

• Spot trading. The ‘spot’ price is the cocoa price today, and spot trading usually means trading CFDs. A CFD is a contract that you use to predict whether a price is going to go up or down by a set date and profit on the difference. You can also ‘leverage’ trades using CFDs, where you make bigger bets by loaning money from your broker, but this can be dangerous and is recommended only for experienced traders.
• Futures contracts. A futures contract is an agreement to buy cocoa at a set price on a fixed date, usually a month, three months, or six months from today. These are a popular way to trade, and the aim is to buy a future now at a lower price than the actual price in a few months time, making a profit on the difference.
• Options contracts. Options work like futures, except you get the right to buy rather than an obligation to. You pay a premium for that right, and you can choose to exercise it on or by a set date in the future. There are two types of options: calls, which you buy when you think the price will go up, or puts, for when you think it’s going to go down.
• Spread betting. If you bet the spread, you stake a set amount on each point a market moves in a particular direction. Your profit is the stake multiplied by the number of points it actually moves. The trade-off is that if it goes the other way, your loss is the stake multiplied by the points moved. Often traders put in stop-loss limits that can step in, in case the market moves dramatically.
• Cocoa stocks. Stocks are a less risky, less volatile way of investing in cocoa. Buy shares in a company that’s involved in the industry, and you can benefit from a price increase without having to be an expert at reading the cocoa market. 
• Cocoa ETFs. An ETF owns a range of stocks from within a sector or industry in a fund, which you can buy through your broker like any regular share. ETFs are ideal if you have a small budget, or don’t want to be a very active investor and there are many commodity ETFs that give you exposure to these kinds of assets. They give you the equivalent of a number of stocks all at once, at the cost of an annual maintenance fee.

To learn more about any one of these methods, check out our commodities trading courses. Otherwise, sign up with a broker to start trading now.