Risk Warning: Your Capital is at Risk.
Want to learn how to trade water? This guide explores the reasons you may find water an appealing commodity to trade and what position it takes in the global market.
In a hurry? If you want to get started trading coal now, here are brokers available in to consider:
Reasons You Might Invest in Water
Companies that manufacture water equipment, dispose of water waste, and build water infrastructure are likely to benefit from the factors listed below.
In addition, should a global futures market begin to mature, these factors are also likely to lift physical water prices:
- Emerging Market Growth
- Climate Change
- Portfolio Diversification
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
Emerging Water Market Growth
The growth of the global economy is a significant factor that could lift both the shares of water equipment manufacturers as well as physical water prices.
As emerging countries in Africa, the Middle East, and Asia modernize their economies, the need for clean, potable water for irrigation, drinking, electricity, and industry will grow.
Climate Change Impact On Water
Climate change has the potential to be the biggest catalyst for a rise in physical water prices.
As global temperatures rise, glaciers could melt and rivers and streams could recede. These events have the potential to create major water shortfalls across the globe.
Water For Portfolio Diversification
Trading a vital natural resource can add diversification to a portfolio.
In many cases, factors that move water investments are different than the factors that affect stock and bond prices.
Where Can I Trade Water?
If you are looking to start trading water and other agricultural commodities, here’s a list of regulated brokers available in to consider.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Ways To Trade Water
Investors have mostly indirect ways to gain exposure to water prices.
The previously mentioned Waterfind Australia offers water forwards through which investors can purchase parcels of water in different irrigation regions across Australia.
However, geography and liquidity for the platform are limited.
What Are Water ETFs?
These financial instruments trade as shares on exchanges in the same way that stocks do. ETFs actually stands for exchange-traded funds, which are baskets of company stocks.
There are several ETFs that invest in companies involved in the water industry including the following:
|PowerShares Water Resources
|Guggenheim S&P Global Water Index ETF
|First Trust ISE Water Index Fund
|PowerShares Global Water ETF
Can I Buy Water Company Shares?
There are many publicly traded companies that have various levels of exposure to water.
While investing in companies can be a leveraged way to gain exposure to water prices, many of these companies can react to other factors such as regional demand for their products, competition, production costs, and interest rates.
In addition, factors such as company management and the overall stock market can also affect these investments:
How Do Water CFDs Work?
Another way to invest in shares of water companies is through the use of a contract-for-difference (CFD) derivative instrument.
CFDs allow investors to speculate on the price of companies involved in the water industry. Learn more about how CFDs work in this CFD Trading Guide.
The advantage of CFDs is that investors can have exposure to share prices without having to purchase shares, ETFs, futures, or options.
Some regulated brokers offer CFDs on shares of water companies. Customers deposit funds with the broker, which serve as margin. See this explanation of leverages and margins to learn more.
Should I Invest In Water?
There are several ways to gain exposure to the water industry, and investors should consider the factors that move each of these investment vehicles.
Since most traders only have access to a handful of futures markets like CME’s Nasdaq Veles California Water Index Futures (NQH2O), the most practical way they can gain exposure is through shares or ETFs.
Waterworks utilities are one vehicle for investing in the sector.
However, while they pay hefty dividends and have low risk, they probably have less potential upside than investing in companies making equipment for water collection and treatment.
Why Might Water Equipment Companies Perform Well?
There are three reasons water equipment manufacturers’ shares could perform well in the years ahead:
- Energy demand in growing agricultural economies
- Potential water crisis due to climate change
- Infrastructure Demand
Energy Demand In Growing Agricultural Economies
Demand for water should grow as these economies expand.
Potential Water Crisis Due To Climate Change
Global warming is a positive catalyst for water prices.
Higher temperatures will diminish the global supply of fresh water and could lead to a water crisis.
Water Infrastructure Demand
The United States has not invested in major infrastructure in decades. Pipes and equipment that carry water require upgrades in many developing Western economies.
Water equipment manufacturers should benefit from an infrastructure overhaul.
It is difficult to envision bearish scenarios for the water industry. However, an economic slowdown that affects emerging markets or a reversal of global warming could put pressure on water equipment manufacturers.
What are water markets?
Water markets are monopolised systems through which institutional and retail traders can speculate on the prices of water. Such water markets are based on usable water with constant demand, since most of earth’s water needs to be processed and treated before it can be put to practical, profitable use.
Can water rights be sold?
Yes, water rights can be sold by companies and organizations who own rights to various water resources or systems. Retail traders may purchase water rights in the form of company shares, or water futures. One such water futures product is CME’s NSH2O. See the different ways to trade water to learn more.
- Want to learn more about water as a commodity, and how it’s purified? See this Water Commodity Guide.
- Our research team has also gathered the list of US states with the largest aquaculture economies.
- Find out about the Chicago Mercantile Exchange (CME), one of the only futures exchanges to offer a water futures contract for traders.