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Coffee Trading via Contracts For Difference
Coffee is a slow brewed liquid that is prepared from roasted coffee beans. Starting out as berries picked form a green shrub known as the coffea plant which grows in a tropical climate in over 70 countries, with an overwhelming majority of imports coming from developing countries. Worldwide daily consumption rate of coffee stands at 3.4 billion cups. Leaving demand for this product extremely high.
Advantages for trading Coffee with AvaTrade Australia
- Up to leverage on Coffee CFDs
- Trade on a 17.5 hours a day market
- MetaTrader 4 platform for desktop, tablet & mobile trading
- 24/5 support in 14 languages
- An internationally regulated forex & CFD broker.
- Wide Asset Selection – stock trading, commodities, forex, cryptocurrencies, bonds, indices trading and ETFs.
Coffee trading market
Originally cultivated in Ethiopia in the late 1400’s, the berries were dried, roasted then the aromas were liquidated to be served to kings and sultans. With that the coffee bean started to gain popularity among the Western world.
We are all aware of the metabolic effect coffee has on our bodies, counter acting adenosine, a chemical molecule makeup that creates the feeling of fatigue. Coffee messages your brain to ignore the adenosine and instead releases adrenaline into your blood stream, allowing your body to feel alert, excited and this is what makes coffee a necessity to many on a frequent basis.
Coffee exchanges include the Brazilian Mercantile and Futures Exchange (BM&F), NYSE Euronext, Kansai Commodities Exchange (KEX), Intercontinental Exchange (ICE), Multi Commodity Exchange (MCX), Singapore Commodity trading Exchange (SICOM), National Commodity and Derivatives Exchange (NCDEX) as well as Tokyo Grain Exchange (TGE).
What influences coffee prices
High quality Arabica coffee beans are generally grown in South and Central America and command a high price for their cultivation. This has catapulted Brazil (who produces over 2.7 million metric tons annually) to become the largest coffee exporting country globally. Leaving Brazil wide-open to competition of cheaper coffee beans such as Robusta. Robusta has developed strong demands worldwide and Vietnam is a leading competitor in production of coffee, producing over 1.65 million metric tons on an annual basis. Vietnam comes in second in the world of coffee exports as Robusta beans are 70% cheaper than Arabica beans making it more available to the masses.
Weather and climate have everything to to with production of the coffee berries. The production and roasting process attribute to it’s distinctive taste. If weather is not at it’s optimal, this affects the cultivation and production of the plant, hence, affecting the price of coffee. Should the roasting process be shorter the beans tend to be more acidic and bitter, yet cheaper, while longer roasting result in a smoother taste, and this process can also influence the price.
The demand for coffee is high in the countries that consume the most coffee, which are: Finland leading with the largest amount of coffee consumed per person on average at 9.6 kg per capita, Norway with 7.2 kg per capita and the Neatherlands at 6.7 kg per capita.
Understanding coffee trading
At AvaTrade every commodity has it’s own ticker symbol, contract value and margin requirements, and to trade this commodity you should be aware of all it’s components to eventually calculate your potential profits and losses.
Let’s say the trader opened a position equivalent to 37,500 pounds, which is the standard contract size on ICE. Should there be a price move from 135.5 cents to 140.7 cents per pound, to calculate the monetary value of this contract subtract the entry price from the exit price, multiply by the size of the position, and divide by 100 to get the value in USD: (140.7-135.5)x37500/100=$1950
Coffee Trading Main FAQs
- What influences the price of coffee?
Like all of the agricultural commodities, coffee prices are heavily influenced by weather. Excessive rain or drought in coffee growing areas can drive up the price of the bean dramatically, while perfect weather conditions lead to expectations of a bumper crop and send prices crashing lower. Anyone interested in trading coffee would do well to study not only technical chart analysis, but also meteorology so that they can understand when developing weather patterns will and won’t affect the current coffee crop.
- How do I begin trading coffee?
First get ready for a wild ride. Coffee is the second largest commodity traded by volume, but it is also one of the most volatile. This makes it very interesting for traders since higher volatility also means larger profit potential. While you could go through the time and trouble of opening a futures trading account to get access to coffee trading, it is far faster and more effective to begin trading coffee through CFDs. Be ready to stay at your computer and monitor the markets all day long because coffee futures volatility requires that traders stay on top of their positions at all times.
- What is the best coffee trading strategy?
Coffee is notoriously volatile due to the huge number of factors that can influence this soft commodity. In order to take advantage of this volatility traders often adopt a strategy that uses Bollinger Bands to track volatility and to identify breakout moves that tend to lead to new trends. Once the trend has begun a moving average strategy or an indicator such as the MACD can be useful to identify buy and sell signals. Once the trend ends and the market enters a consolidation period support and resistance levels become most useful in determining entry and exit points.
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