What is International Trade?
Let us first answer this question before proceeding to cotton being traded internationally. International trade involves the trade of goods or services between the different countries around the world.
This type of trade has opened the doors to the world economy. The prices, or supply and demand of the products traded here have an effect and are also affected by global events.
Through the help of international trade, countries and its consumers are now able to gain exposure to goods and services that were not originally made available in their respective countries.
Cotton has been classified under the soft market and is known to be one the oldest known commodities that still exist today.
Much like all commodities that are traded on the market, cotton has its own futures contract, a contract that legally binds cotton and other commodities under the soft market, for delivery and is set upon an agreed price. The contracts undergo systematization under ICE Futures U.S., which was previously known as the New York Board of Trade (NYBOT). Regulation is handled by the Commodity Futures Trading Commission, who determines several factors such as quantity, quality, the time and place of delivery. The only thing that fluctuates is the price of these contracts.
Thanks to its variety of uses accompanied by its widespread appeal, cotton can be considered the most influential commodity in the soft market.
This soft commodity is traded in 50,000 pound contracts. It is not solely limited and is also traded in cents per pound. Cotton has a minimum tick size of $5 per contract, which means that any 2 cent movement will be the equivalent of either a $1,000 loss or gain. Should the price surpass 95 cents per pound, the minimum tick movement will have to adjust in order to encompass the growing ranges.
Cotton’s best contract months are during March, May, July, October, and December with delivery points located in Galveston, Houston, Memphis, New Orleans, and Greenville or Spartanburg.