Coffee Future Trading: Most Profitable Trading Options by Chris Norman -
August 23rd, 2009
Coffee future trading is expanding around the world. In 1993, the CSCE was created to monitor coffee trading and be the central market for coffee, sugar and cocoa future trades. The CSCE helps traders through regulation resulting in better services. It also serves as a central place to conduct trades for coffee futures.
The CSCE monitors almost everything for coffee future trading. It is set at the Commodity Exchange Center located in New York City, putting it at the center of the worldwide market. The CSCE takes care to keep coffee grade, locations, quantities and deliveries the same so there is stability in the market. Prices will fluctuate, letting the market work, and find the natural price level. Traders call this "price discovery."
There are a lot of factors that affect coffee as a commodity. In the year 2000, 54% of the American public drank coffee daily. That is an enormous number and reason enough for businessmen to turn to coffee futures as a commodity. Coffee is a top agricultural export for 12 countries. These countries, like Brazil, are sub tropic. Coffee is picked by hand, mostly, and the crop can be affected by a lot of different variables. It is also fair to note that coffee drinking will increase during certain times of the year.
Coffee drinkers are mostly unaware of price fluctuation in the market. The fluctuation is never that drastic to cause people to stop drinking coffee in ways that we see people cutting down on gasoline consumption. To keep trading out in the open, traders use what is called "open outcry." They trade verbally on the floor of the trading center, so that all traders are aware of the prices and deals. Each trader then has all the information available on coffee pricing and can get the best price possible on their buy or sell.
There are two big players in coffee future trading, investors and hedgers. Investors put money into the market through brokerage firms and commissioned merchants. Investors will use price fluctuation to make money by selling when the price is higher or buying more when the price is lower. Hedging is done to take risk out of investing, mainly by getting rid of the risk of inflation. Hedgers will usually invest in coffee future they believe to be under valued. Then in the future, if the price goes up dramatically, they are protected from that price jump. Commercial companies often hedge to protect themselves and lock in the price of futures.
This is just the tip of the iceberg concerning coffee future trading and you can now investigate further and decide what part of the market you prefer.
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