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How to invest in Ethanol
On this page learn how to invest in ethanol. We dive into the reasons it makes a good investment, explain what to look out for when investing in it, and offer a step by step guide on how to make your first purchase.
Where can I invest in Ethanol online?
If you’re ready to jump right into investing in ethanol you’ll need to register with a broker. Our commodity experts have searched the market and found the best platforms around offering ethanol. Simply click any of the links below to register in just a few minutes.
Why invest in Ethanol?
There are lots of reasons why you may want to consider investing in ethanol. One of the top ones is to speculate on its demand. Investing in ethanol also provides a way to bet on the price of crude oil, gas, and agricultural commodities like corn. In the section below, we have briefly explained some of the key reasons why you may want to invest in ethanol.
- Portfolio diversification. It is common practice for many investors to include a selection of stocks and bonds in their portfolios. However a diverse portfolio can provide protection against wild fluctuations as you are able to spread your money across a range of investments. Ethanol investing offers an easy way to diversify.
- Speculate on demand. Ethanol is a renewable energy and more environmentally friendly than other fuels like crude oil. Due to this, demand for ethanol continues to rise. Most notably in countries like China, which is experiencing a shift towards biofuels. Speculating on demand for ethanol is a key driver for investing in it.
- Rising grain prices. The production of ethanol usually involves one or many agricultural grains such as corn. Tracking the price of the components needed to produce ethanol is a good reason to invest in it. For example, if the price of corn is on the rise, it’s likely the price of ethanol will also increase.
- Hedge against inflation. One of the top reasons many investors put their money into commodities is to hedge against inflation. Inflation is when money loses value over time and if inflation rates are on the rise, it’s more than likely some commodity prices, like ethanol will also rise.
How to invest in Ethanol
If you want to invest in ethanol but are unsure how to, you can follow the steps below to get on the right track before making your first purchase.
- Decide on an investment strategy. The first step you’ll want to take is deciding how you plan to invest. Determining if you’re going to be a passive or active investor will help guide the way you invest.
- Do your research. Researching the ethanol industry and what moves it will not only help you in deciding the best way to invest in it, but will also help you time your investment. Lower on this page, we’ve covered a few key factors that can help you understand what moves the price of ethanol.
- Set a budget. Splitting your portfolio across a range of investments is one of the top ways to diversify. Allocating part of your funds to ethanol and setting a budget can help guide you on what to invest in. It goes without saying to never risk more than you can comfortably afford to lose.
- Choose between the long term and short term. After conducting your research you will have a better idea of the sort of timeframe you have in mind for your ethanol investment. Choosing between a long or short term outlook will guide you to the most suitable investing strategy.
Find an investment platform. Finally you’ll need to register with an investment platform. Usually the easiest way is to sign up with an online broker. Earlier we listed a few of the top platforms around where you can invest in ethanol and if you click the blue button below, you can take a look at our list.
Ways to invest in Ethanol
Investing in ethanol leaves you with many options and finding the right one will depend on your investment goals and timeframe. There are a range of different ways available and below we’ve explained the easiest methods to invest in ethanol.
Invest in Ethanol stocks
Buying shares in companies that are involved in all, or some aspects of ethanol production is an easy and indirect way to invest in it. Companies who generate a large amount of their revenue from ethanol, will likely experience share price fluctuations in correlation with ethanol prices. As ethanol is such a big business, there are lots of stocks in the industry.
Invest in Ethanol ETFs
ETFs are the easiest way to gain exposure to ethanol. It is possible to buy shares in an exchange traded fund that invests in a range of renewable energy companies including ethanol businesses. You can also invest in ETFs that focus on the agribusinesses that produce the core ingredients for ethanol production.
Invest in Ethanol mutual funds
Mutual funds are similar to ETFs and investors can buy shares in them. However, unlike ETFs they are managed funds where a professional fund manager buys and sells assets according to their own expertise. Like ETFs, some funds focus on renewable fuel, while others are exposed to agribusinesses.
Invest in Ethanol futures
The most common way to speculate on short term prices movements of ethanol is to buy and sell futures contracts. Futures are simply an agreement to make a trade in the future at a pre agreed price. However, it must be noted that futures trading requires a lot of knowledge and is best suited to experienced investors.
Invest in Ethanol CFDs
Another way to focus on ethanol’s short term movements is to invest in CFDs. The brokers we have listed above all offer ethanol CFDs and it’s one of the easiest and cheapest ways to bet on near term prices. CFDs have many benefits, although it’s advisable to conduct technical analysis on ethanol’s price charts before making any trades.
How does the Ethanol market work?
Like most other markets where supply and demand affect its price. Although there are a lot of different factors that impact the supply and demand of ethanol. In the section below we’ve explained some of the biggest driving forces behind how the ethanol market works.
- Environmental issues. Many parts of the world have concerns over pollution caused from fossil fuels like crude oil. Ethanol is considered a greener energy source and is more favoured by governments. As a shift towards environmentally friendly fuel takes place, ethanol prices will likely rise.
- The Chinese market. Recent years have seen a shift towards biofuels in China as it increases its usage of cleaner fuel. If it continues to use more ethanol for fuel, demand will increase and its price will rise too. Demand from other developing nations also has been pushing its price higher.
- Rising grain prices. Ethanol can be produced from a number of different agricultural grains. A lot of factors can impact the price of grains such as corn. For example, adverse weather in corn producing nations will push its price higher. Ethanol producers will then pay a higher price resulting in an overall increase in the biofuel.
- Transportation costs. Unlike other fuel sources such as crude oil and natural gas, ethanol is transported via ships, trucks, and trains. Transportation costs have a strong impact on ethanol underlying price. If costs for moving it from one country to another increase, its price will also increase.
When should you invest in Ethanol?
One of the most opportune times to invest in ethanol is when the price of crude oil and other non renewable fuels are high. It’s also worth paying attention to the price of agricultural commodities including corn. Corn is used widely in the production of ethanol and its price is directly related to ethanol price.
Government mandates are also something that can impact the price of ethanol. The United States government set a mandate that required an increase in the use of ethanol in gasoline. Paying attention to changes in these mandates can help with timing an investment into it.
Is Ethanol a good investment in 2022?
Yes it could be, but it will depend on a number of factors. Demand for ethanol dropped during the coronavirus pandemic as transportation drastically reduced. However, as the world slowly gets back to normal, usage is back on the rise. Demand from developing nations is also increasing which may help push its price higher.
The use of renewable fuels continues to grow and more countries are shifting towards it. If this trend continues this year, then investing in ethanol may prove to be a prudent decision.
What should I do now?
If you’re ready to make your first investment into ethanol, then you’ll need to register with an online broker. You can click the blue button below to be taken to a list of our expertly selected platforms. Alternatively, if you want to learn more about trading or investing, click on any of the links below, where you will be taken to our free courses section.
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Fact-checking & references
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