How to Trade Coffee CFDs

Coffee is in High Demand

Let us dive deeper into the art of coffee trading. Deciding what to drink in the morning is typically a quick decision for most people. People around the world often gravitate toward the black, invigorating taste of coffee that kick-starts their day and helps them focus on their work better. Consequently, coffee is a very popular choice among investors due to its consistently high demand. Although the price of coffee may fluctuate over time due to various factors, it remains a soft commodity with good potential returns. Here, we present a detailed guide for those who would like to start coffee trading.

Types of Coffee You Can Trade

The allure of coffee extends beyond its morning caffeine boost. The potentially promising returns that trading coffee can generate might hold an even greater appeal. Generally speaking, investors often choose between two types of coffee to add into their ventures: 

Arabica

These coffee beans belong to the premium category known for their finer quality. The sweeter and lighter taste of this type renders it a preferred choice among coffee lovers. It constitutes around 70% of the market share. In the world of trading, trend traders usually favor Arabic coffee as its price is more stable.

Robusta

Robusta coffee beans are known for their bitter taste attributed to their elevated caffeine content. This type constitutes about 30% of the coffee market and often commands a higher price. Due to its greater price volatility, it is the pick of short-term investors, who choose to go for coffee trading.

Factors that Affect the Price of Coffee

Many factors can have an impact on the price of coffee. For better understanding, the factors affecting the price of coffee, and thus coffee trading, can be divided into the following groups:

Factor Related to Nature:

Weather

Since coffee is an agricultural commodity, its production is highly susceptible to weather conditions, such as frost, drought, and heavy rain. When the weather is favorable, the supply will be ample. As a result, the prices will go down. Conversely, adverse weather conditions can disrupt production, leading to reduced supply and consequently higher prices. 

Plant Disease can affect coffee trading

Weather conditions are not the only natural factor influencing coffee supply. Plant diseases also exert a significant impact  on the seasonal supply of coffee beans. Arabica is particularly vulnerable  to such diseases compared to Robusta. When the supply of either is reduced due to plan disease, the prices tend to  rise. 

Factors Related to People’s Behavior

Drinking habits

The changing habits of people across different cultures can hugely affect the demand for coffee. Specialty coffee shops are gaining increasing popularity in both established and emerging markets around the world, which drives up the demand. 

Unrest

Given that the majority of coffee beans are produced in developing countries, the political unrest and upheavals within these regions can significantly influence their prices.

Factors related to US Dollar

When the value of the dollar increases, the cost of buying coffee becomes higher for countries that transact  in that currency, and conversely, it decreases when the dollar weakens.

Practical Steps for Coffee CFDs Trading

Investors can trade coffee stocks, ETFs, futures, and CFDs. CFDs offer traders the option to speculate on the fluctuation of the prices of coffee without going through the hassle of actually owning the underlying assets. In order to start trading coffee on CFDs, it is essential to follow the following steps:

Define your strategy for coffee trading

CFDs are leveraged products that can maximize both your potential gains and losses. For that reason, it is important to start by setting a clear strategy that specifies your entry and exit positions, sets your risk tolerance and helps overcome emotions when facing profits or losses. Investors should study the market carefully and utilize technical tools and analysis to create a solid strategy.

Open a trading account

For beginners, it is better to start honing their skills using a demo account. At STARTRADER, we provide novice traders with a demo account that grants access to all trading tools. Using this account, they can understand the market better and gain more confidence. 

As traders acquire more experience, they can shift to a live account, where they invest real money.

Choose the type of coffee you want to trade

The article has previously explained the difference between the two types of coffee beans. Short-term investors usually prefer Robusta, while the long term ones lean towards Arabica.  

Place your first trade

Now that the trading account is ready, and the strategy is set, investors can proceed to placing their first trade. It is important at this stage to utilize risk management tools and specify stop-loss in accordance with one’s overall plan.

Monitor your trade

The prices of coffee will fluctuate with major news that can affect its supply and demand. Therefore, investors should constantly monitor their trades and figure out when they need to close them, using their plan as their primary guide. 

The Advantages and Disadvantages of Coffee Trading

As it has been clarified earlier, coffee is highly volatile, which can be both beneficial and risky. With CFDs trading, you can potentially make profits in both rising and falling markets. However, leverage can amplify both losses and gains, requiring investors to be more careful and employ risk management tools.