A Beginner’s Guide to Start Trading Coffee

One type of agricultural crop classified as a “soft commodity” is coffee, which is farmed rather than dug. It originates from a plant that is cultivated in much more at over 50 tropical and subtropical regions. Coffee trading is a method of commodity trading that entails purchasing and transferring of contracts for coffee beans in order to rationally predict the market’s dramatic price volatility.  

Coffee’s value as a traded good has fluctuated substantially over the years. Coffee prices are extensively speculated, considering that they are influenced by a broad range of variables, involving weather, logistics, and the cost of other commodities like oil products.

Coffee is among the most widely and actively traded commodities in the world, having over two billion cups consumed globally each and every day. Brazil produces the vast majority (around 39%) of the world’s supply of coffee. Ethiopia, Vietnam, Colombia, Indonesia, and other nations are among the major producers of this commodity. These commodities, which are traded on the Intercontinental Exchange (ICE) in the United States and permit the exchange of coffee options, play a significant part in the futures market in particular. 

Arabica and Robusta are the two primary coffee bean types sold on the commodity markets. Arabica coffee beans have a milder, softer, and creamier flavor, and are more oval and flat in shape. They deliver approximately 70% of the coffee sold worldwide. Due to their massively higher caffeine content, Robusta beans are relatively smaller and have a bolder and more unsweetened flavor. They create 30% of the world’s coffee.

When you purchase a cup of coffee from the internationally popular coffee shop, you are probably sipping Arabica beans, which are frequently thought of as being of top standard. However, Robusta typically sells for more money.

If you are looking to trade coffee, and have no experience at all, you should read and do your research about coffee trading. The first few steps are the most crucial, so you have to know what to do and be certain about it. Check out this beginner’s guide to start trading coffee.

1 – Select your coffee trading instrument

Diverse coffee-based devices are appropriate and favorable for a wide variety of traders’ demands. Although coffee futures are the conventional approach, several retail purchasers may opt for CFDs or options because they are oftentimes too pricey and intricate.

However, due to their vulnerability, these assets should only be dealt with extreme caution, especially whilst utilizing leverage.

Coffee ETFs, which are designed to capture and measure the all-inclusive performance of the coffee industry, are an opportunity for traders searching for a safe and secure long-standing investment. Coffee futures, CFDs, and options markets normally have high liquidity levels attributed to the commodity’s high volume of trading transactions.

2 – Selecting A Coffee Trading Broker

You need to have a broker who will optimize your experience if you intend to trade with coffee. The top-rated commodity is endorsed and upheld by plenty of reputable brokers. 

There are manifold bogus enterprises in the sector of online coffee trading, hence it is essential to conduct a thorough, in-depth background verification to make sure the broker is authorized, trustworthy and reliable. You should evaluate the available types of assets and leverage premiums. 

The best broker should, first and foremost, have access to the platforms that market coffee stocks. If you desire to participate in commodities using derivatives, be sure the broker accepts trading in derivatives, including ETF, CFD and futures contracts.

Selecting the right broker remains a challenging task for investors and traders because there are so many of them in the market. Check out reviews of the best brokers founded on several studies and analyses.

Make doubly sure the brokerage you pick and hire is certified and governed by the Financial Conduct Authority to guarantee your safety. To begin off, such brokers are legitimate for coffee trading and investments, and they offer the greatest terms of trade for a rewarding journey.

To raise your likelihood of success, be assured that you settle for a well-qualified one for your coffee investment. 

3 – Choose Among the Trading Coffee Strategies

Create a concise plan for your coffee trading strategy before you actually begin. Given the hefty volatility of commodities like coffee, which magnifies the liabilities, it is imperative to develop a structured map to assist you in making decisions and to guide your actions as you would with any other commodity.

You may avoid dropping in a panic or purchasing at the peak of the market by employing strong technique to accompany you in establishing the parameters for when to open and close a position without allowing emotions sway your decisions.

Depending on your inclinations, whether you attempt to trade coffee for the long or the short term, and how you expect to implement technical analysis tools, there are a number of strategies you can consider. Trading initiatives for coffee will rely on your specific interests and technical indicator understanding and skills.

Generally speaking, your trading tactic might prosper from volatile markets, stabilizing markets, or market dynamics.

Utilizing Volatility

The erratic short-term price fluctuations of coffee attract a lot of traders looking to profit. Large potential consequences are associated in this formula, but the benefits outweigh them.

Coffee day trading calls for accurate position implementation and attentive attention to the key charts. CFDs, options, and futures are common trading tools for this format of coffee trading.

The Bollinger Band is a crucial indicator used in coffee volatility trading; when it compresses, a dramatic rise in volatility is expected to take place. Several traders watch out for breakouts within this indicator because they could signal a significant shift in the price action.

Employing volatility and leverage to trade coffee necessitates a rigorous approach to managing risk. When your targeted outcomes are attained, you must be ready to immediately cut your losses and resign from your positions.

Utilizing Trend Following

Investors might build predictive models about coffee’s long-term price variabilities by paying attention to any of the countless agents influencing the coffee trading community.

Prices can change radically depending on variables like the costs of crude oil and the weather in coffee-producing countries, thus traders must really be constantly attentive to important up-to-date news.

Across the entire year, prices also have a potential of changing as periodic need and request changes. Moving averages or indicators like the MACD can be employed to provide buy and sell recommendations once a trend has been determined.

Most market trends conclude with a phase of consolidation during which time prices stay chiefly constant. At this point, as the price swings vertically and horizontally, various traders harness support and resistance levels to determine when to start and finish positions.

4 – Executing Your First Coffee Trade

It’s time to participate in the market after you’ve already chosen a strategy for trading coffee. Choose whether you anticipate prices will climb or plummet based upon the data at hand, and then assume a bullish or bearish position thereupon. You should keep a watchful eye on your trades because coffee prices might suddenly drift. A lot of novice traders incur losses by maintaining positions open for too long, so be prepared to minimize your losses.

Trading coffee using CFDs allows you to make judgments about both surging and sliding markets. You would open a position to “buy” coffee if you believe the value will increase, and a position to “sell” if you anticipate that the price would drop significantly. Your trading selection must be justified by your market analysis and trading technique.

Your trading selection must be justified by your market analysis and trading technique.

Once you have launched a position and affixed the essential stops and restraints, it is vital to watch its advancement and stay informed of everything that can have an effect on the coffee’s cost.

_____________

COFFEE TRADING

Coffee is the next most traded commodity in the world after crude oil and is in high competition in the commodities trading market. Make sure you are well-versed in all things you have to know about coffee before investing in it. Learn where it is grown, what drives its price, and how to trade in the commodity.

_____________

ABOUT THE AUTHOR:

Nicole Ann Pore is a writer, an events host and a voice over artist. Quality and well-researched writing is her worthwhile avenue to enlighten and delight others about things that matter. She is a daytime writer for FP Markets, one of the leading forex brokers in the world. Nicole graduated Cum Laude from De La Salle University Manila, Philippines with a Bachelor’s Degree in Communication Arts.