Trading coffee futures all you need to know

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Trading Coffee Futures All You Need to Know
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Coffee is a popular beverage and prevalent
agricultural product. The market for coffee
futures is deep enough to satisfy the needs of
Mom and Pop coffee bean farmers.
Theres also a lot of trading activity in the
coffee futures market. This gives a big advantage
to coffee commodity traders who trade their own
capital or trading accounts. Coffee traders can
use options strategies to lower their cost of t
rading in the coffee market. They can also
create long-term strategies that allow them to
take advantage of both bullish and bearish
markets. So, if youre too looking to diversify
your portfolio and possibly invest in coffee
futures, were going to cover the whats and
hows in this post.
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What Are Coffee Futures?

• Coffee futures are a form of financial derivative
  that allows buyers to purchase coffee at a
  specified future date and set price.
• Futures allow producers and consumers of
  commodities to hedge against future price
  fluctuations. These standardized contracts are
  agreements between buyers and sellers for the
  delivery of a commodity at a defined price and
  at a specified date in the future. If you believe
  that commodity prices will fall, you can sell
  (or short) a futures contract. If you think
  prices will rise, you can buy (or long) a
  futures contract.
• A common misconception about commodities like
  coffee is that theyre traded on open exchanges
  in the same way stocks are. Coffee is actually
  traded through privately owned exchanges and does
  not have any publicly available stock quotes.
  The Intercontinental Exchange (ICE) lists futures
  for coffee, cocoa, cotton, and sugar.

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What Affects The Price of Coffee in Commodity
Markets?
A highly traded commodity in the world, the price
of coffee has a great effect on the economy of
producing countries and affects both consumers
and producers. International traders have a
significant influence on setting prices, as do
speculators and national governments. The supply
of coffee is strongly influenced by weather
conditions. A drought or other adverse weather
conditions can significantly reduce crop yields.
When there is a smaller than expected supply and
a large increase in demand, prices will
rise. The supply and demand for coffee also can
be affected by government regulations that affect
trading policies. For example, South American
countries have had to deal with stricter
government controls on exports to protect
domestic growers from low prices on world markets.
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Overproduction in one country can cause prices to
fall as well this has been an ongoing problem
in Brazil due to heavy subsidization of
production costs, making it difficult for small
family farmers to compete. The quality of coffee
beans also affects the price of coffee. To
receive higher prices for their crops, producers
must harvest only ripe cherries with no moldy or
spoiled beans in them. The amount of money spent
on processing also can determine how much money
is made on each pound of coffee. In all, the
price of coffee is determined by the forces of
supply and demand. The supply of coffee is
affected by many factors such as disease,
weather, government regulations, and economic
conditions. Other factors which influence the
market price are the quality of the coffee, the
quantity of coffee produced, the demand for
coffee, production costs, the exchange rate of
the dollar, and more.
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How to Trade Coffee?
Whether youre looking to trade coffee or any
other commodity, its always a good idea to do a
little research first. Commodities such as
coffee are traded in futures contracts on a
futures exchange. As explained earlier, a futures
contract is an agreement to buy or sell a
specific amount of a commodity at a certain time
for a certain price with delivery occurring at
some specified future date. Futures offer high
liquidity (the ease with which you can buy and
sell) and volatility (how much the price moves
when it does). To trade coffee futures, you need
to be aware of the price fluctuations of the
underlying commodity, which is called the spot
price in commodity trading jargon. In general,
prices for commodities are more volatile than
stocks and bonds, so this means that traders
place larger orders when they want to buy or
sell commodities. This makes them ideal for
experienced traders who are comfortable with
taking on high levels of risk You can also trade
coffee using contracts for difference (CFDs).
These allow you to speculate on the price
movement of coffee without actually buying it.
There re many online brokers providing this
service, so you can compare and choose one that
offers the instruments you want to trade.
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Define Your Risk Management Strategy

• Trading coffee futures comes with its own share
  of risks. And these risks are high for beginners
  who dont adequately understand the commodity
  market. As one of the first steps, you must
  devise a proper risk management strategy thats
  sound enough to shield your portfolio during the
  rough patches of the market.
• Stop orders are used to close out a trade when
  the market moves against you The downside is that
  they can trigger during normal market
  volatility, meaning you may end up with a worse
  price than you wanted. Limit orders are used to
  set a price at which to close out a trade or hold
  it overnight. This means you wont incur
  unnecessary losses and can keep your position
  open if the market moves in the right direction.
• In any case, make sure you have a well-defined
  risk management strategy to keep your portfolio
  safe against any turbulence in the commodities
  market.

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Final Words

• While most people are familiar with stock trading
  and forex, few have any knowledge of what coffee
  futures entail or how theyre traded.
• This brings an influx of opportunities for smart
  traders who can leverage coffee trading to
  solidify their existing portfolio to sustain big
  or small shakes in the financial markets. So,
  start trading coffee futures and future-proof
  your portfolio for consistent growth.

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