How to Trade Coffee
Coffee is a commodity that can easily be trade through CFDs Brokers and it works in the same way as when trading equities or currencies. One Coffee C CFD contract depending on the brokers could cost around $140 to $20. It will depend on the broker margin or leverage percentage rates.
Most CFDs Broker don’t charge a commission to their commodities traders; some charge rollover fees or interest for holding the position overnight (if it is a long position) and pay interest on it if it is a short position.
New commodity traders must be aware that most brokers can open and close their position automatically when the contract expires. Coffee C contract expires usually on March, May, July, September and December. Many brokers send a notification before contract’s expiration date. Traders will have to inform their brokers if they want their position to rollover; in which case brokers will adjust the position value.
Factor That Can Influence Coffee Prices
There many factors influence coffee prices. Coffee prices can be extremely volatile, which could suit some trader strategies. Before opening a position traders should get familiar with factors that can influence Coffee prices.
Finding relevant and current information about coffee is extremely hard and time consuming. Therefore getting familiar with coffee’s data is absolute must. The USDA and the International Coffee Organization are good starting points.
Consumption has increased on average by around 1.2 percent annually since the early 1980s rising to more than 2 percent in recent years. Japan is now the third largest importer of coffee in the world. Over the last five years market growth in Europe has been weak, with consumption showing signs of stagnation and possibly even decline. The United States is one of the largest coffee importers but overall consumption, despite the boom in the specialty sector, has grown at a low rate.
With global consumption struggling to increase, trader will assume that demand is not enough to push prices higher.
Traders would look at importing data outlook and demand forecast as part of the accessment process to predict future prices.
Coffee production can be affected by a number of factors such frost and drought in producer countries. Other natural conditions that can affect coffee producers are fire, storms and coffee leaf rust which is a fungus that causes coffee rust, a disease that is devastating to coffee plantations.
Crop management techniques and technology have helped producers achieved higher production targets in a more reliable manner. Nevertheless plantation can still be affected by this same factor but it hasn’t been of concern yet.
If production and/ or coffee supply are interrupted, traders can speculate on the probability of how much coffee production and supply will be disrupted and if producers will be able to recover or produce enough to cope with global demand.
Any disruption to supply chain could strengthen prices.