It’s one of the most highly traded and consumed soft commodities in the world — an indispensable part of many people’s mornings and an industry worth over 100 billion US dollars annually.
With a huge global market that can be affected by many external factors and even the prices of other commodities, coffee trading can offer traders a chance to seize some profitable opportunities.
In this article, we’ll cover how to trade coffee, the history of this soft commodity, as well as examine some of the factors that move its price and your trading options.
The history of coffee trading
Coffee is a soft commodity, meaning it is a natural product grown like other crops rather than mined or extracted as is the case with hard commodities (learn more about commodities and what they are in our in-depth guide).
It’s an agricultural product that has been a common staple in diets around the world for centuries. In the Middle East, coffee was a popular beverage from the 15th century, and the Europeans discovered the flavourful bean in the 17th century — merchants quickly began trading for it. Coffee houses themselves were often popular destinations for merchants to meet and discuss trade agreements.
Today, both the demand for coffee and how we trade it have grown in size, complexity and sophistication. Coffee plantations which were established by European colonists, developed into modern coffee suppliers, and the industry now produces close to 170 million bags of coffee beans for consumption every year. Coffee trading has moved on from barter deals between travelling merchants to offer huge potential for traders.
Different varieties of coffee
The two main types of coffee traded on a global level are Arabica and Robusta. Both differ in taste and are also affected by external factors that will move their pricing. To decide which type of coffee you want to trade, you’ll need to understand what factors affect the price of each variety.
Where is coffee grown?
The demands of the coffea plant mean that it thrives in a specific geographic area, known as the ‘coffee belt’. This belt is a longitudinal area which extends outwards from the equator as far North as the Tropic of Cancer and as far South as the Tropic of Capricorn. Different types of coffee may be grown at different altitudes, but the major producers of most of the world’s coffee supply come from Brazil, Vietnam, Colombia, Indonesia and Ethiopia.
Coffee trading occurs in every part of the world, with the largest importers of beans being the EU, the US, Japan, Russia and Canada. With so many factors involved in growing, harvesting, roasting and transporting coffee, the coffee trade is rife with speculation and has many factors which may move its price. To learn how to trade coffee, you’ll need to become familiar with these fundamental aspects of the market.
Understanding what moves the price of coffee
As you might expect with a physical material that needs to be planted, grown and harvested, there are many factors which need to go right for coffee to successfully arrive in the market and be traded. If some of these triggers arise unexpectedly, the coffee trading market can quickly become volatile.
This can be advantageous for traders who like the opportunities for short-term profits that volatility offers. However, you may prefer to trade coffee with a more stable price index if you intend to use trends to guide your trading.
The emergence of a more sophisticated coffee culture and specialty roasts has caused prices of certain coffee types and regions to suffer, as have health concerns about the effects of caffeine and the addictive nature of coffee.
Since coffee is less essential than food staples like wheat or rice, financial downturns and reduced consumer spending can also cause the coffee trade to take a hit.
How to trade coffee
If you’re interested in learning how to trade coffee, you’ll first need to choose which trade method you’re interested in.
Ready to open your first coffee trading position?
If you’re ready to start trading coffee, VT Markets make it easy to get started in a user-friendly trading environment. Start your free demo account and practise trading coffee CFDs and futures on a risk-free platform for 90 days, or jump straight in by creating your live trading account.
Not sure how to open your coffee trading account? Talk to us about starting your trading portfolio today.
Is coffee a tradable commodity?
Not only is it possible to trade coffee, but it’s also one of the most highly traded commodities in the world. These days, as with the trade of many soft commodities, traders and investors can gain exposure to coffee markets not just through buying and selling the asset itself, but through the trading of coffee futures and options contracts, often through coffee CFDs. Both Coffee Arabica and Coffee Robusta are traded on the Intercontinental Exchange or ICE.
How valuable is coffee as a trading commodity?
Since coffee is widely consumed, it is a valuable global market from which traders can profit. The sector generates over 100 billion US dollars a year, and the volatility of the market offers active traders a chance to make quick and decisive open and closing positions that can earn short-term profits.
How is coffee traded?
There are various methods for trading coffee, including trade through coffee CFDs, coffee futures and options. To effectively monitor the coffee trading market and make the right calls in a timely manner, you need a powerful platform that you can easily access during trading hours and which allows for the speedy execution of orders.
At VT Markets, we use the powerful platforms MetaTrader 4 and MetaTrader 5 to give our clients a transparent, restriction-free trading environment where they can execute their coffee trading strategy seamlessly.
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