Coffee Futures Trading For Beginners
A Look at Coffee Futures Trading
Coffee is the world's most popular non-alcoholic beverage and is considered to be the globe's most important internationally traded commodity. Coffee futures trading is therefore potentially very lucrative. The Commodity Exchange Center in New York (CSCE) is the prime market for trading coffee, cocoa and sugar futures and options. It has been in operation since 1993. The CSCE is not responsible for the set price of coffee trades. It supplies a tangible venue where traders make options and futures transactions under the Exchange’s regulations.
All the options and futures traded (including coffee futures) are uniform and that grade, delivery times, locations and quantities are constant factors. The only negotiable item is price. Coffee prices and the prices of other commodities are allowed to hit their natural levels in coffee futures trading. This is referred to as 'price discovery'.
The Economics of Coffee Futures Trading
Trading coffee futures has a strong demand because its supply is relatively abundant, depending mostly on weather conditions, that's why coffee is grown primarily in areas with subtropical climate.
the greatest determining factor with consumer tastes and demands a close
second. At times price variations are static,
coffee demand is deemed inelastic. This means the price of coffee rises, but people
do not reduce their coffee consumption. When the price of coffee declines,
consumer consumption does not change. If the increase is significant, the
demand drops commensurately, as happened in 1977 and 1976. So coffee futures trading can be changeable.
It is important that new traders understand these facts when they trade. In other commodities, the demand and supply are directly related. When the price goes down, the demand increases, coffee does not move this way and coffee futures trading is therefore different from other futures trading.
How Coffee Futures Trading Works
The price of coffee is determined by public consensus, the 'open outcry', on the Exchange floor. The floor is where coffe futures traders bid vocally, to give an assurance that every trade is transparent and competitive. Within the 'open outcry', participants choose whether to sell or buy at the best price available. After which, the Exchange will distribute the prices determined to different parts of the world.
The purpose of the ‘out cry' is to reduce the chances of one faction gaining a monopoly over others. This prevents the speculative investors using artificial bulls and bears to make a quick buck, as happens in the stock markets. It also reduces the number of non producers from grabbing and reselling options, like they do when buying milk quotas then sell them back to the farmers at an inflated rate.
There are two kinds of participants on the trading floor: the investors and the hedgers. The investors seek gains based on changing prices. The orders are coursed via brokerage firms, futures commission merchants, commodity funds managed by CTAs, or commodity trading advisors.
Hedgers are the commercial companies that trade in the futures and options market. Their objective is to reduce the risk of adverse pricing shifts in the market. Hedgers lock in rates for futures buys or sales. Some of the pioneering hedgers included coffee makers, importers and roasters.
If you have experience dealing with commodity trades, this should be easy. Coffee can be easily tracked. In fact, it is one of the safest commodities to trade in. Coffee futures trading can be very profitable.
This hub brought to you...
by Julie-Ann Amos, professional writer, and owner of international writing agency www.ExquisiteWriting.com
Why not create your own HubPages? It's fun and you can make revenue from Adsense and other revenue streams on your pages. JOIN HUBPAGES NOW - SIMPLY CLICK HERE... (or contact me to write one for you!)
This work is licenced under the Creative Commons Attribution-Non-Commercial-No Derivative Works 3.0 Unported License. To view a copy of this licence, visit http://creativecommons.org/licenses/by-nc-nd/3.0/ or send a letter to CreativeCommons, 171 Second Street, Suite 300, San Francisco, California94105, USA.
More by this Author
You know why Trivial Pursuit has remained such a popular party game over the decades? One of the main reasons should be kind of obvious: Nostalgia value. They put out current editions, too, but by the time you’ve...
Popular Pubic Hair Styles as a hub went only so far... it focussed on the Ladygardeners among us. BUT... "A man's gotta do what a man's gotta do," they say – and that used to be a simple motto to...
Jamie Oliver – also known as the ‘Naked Chef’, Jamie Oliver is a very popular television celebrity known for cooking and absolutely nothing with being nude. He didn’t even agree with the title of...