The coffee industry, valued at over 100 billion US dollars annually, boasts a thriving global market and is regarded as one of the most highly traded and consumed soft commodities worldwide. Coffee trading presents lucrative opportunities for traders, as it can be influenced by various external factors, including the prices of other commodities. 

In this article, we will explore the process of trading coffee, delve into its historical significance as a soft commodity, and analyse the factors that impact its price, while also discussing the available trading options. 

The Historical Background of Coffee Trading 

Coffee, classified as a soft commodity, is an agricultural product that shares similarities with other crops. Unlike hard commodities, which are extracted or mined, coffee is grown naturally. 

It has been an essential part of diets across the globe for centuries. Originating in the Middle East, coffee gained popularity as a beverage in the 15th century. 

European merchants discovered the flavourful bean in the 17th century, leading to the emergence of coffee trading. Merchants often gathered in coffee houses, which served as meeting places for trade discussions. 

Over time, coffee plantations established by European colonists transformed into modern coffee suppliers. Today, the industry produces approximately 170 million bags of coffee beans each year, offering significant potential for traders. 

Distinct Coffee Varieties 

The global coffee trade primarily revolves around two main types of coffee: Arabica and Robusta. These varieties possess unique flavours and are influenced by external factors that impact their respective prices. To determine which type of coffee to trade, it is crucial to comprehend the factors that affect the price of each variety. 

• _{Arabica coffee, renowned for its superior quality, is favoured by cafe chains and features prominently in high-quality roasted coffee blends. Despite the common perception that Arabica is consistently more expensive than Robusta, this is not always the case.  Arabica beans account for 60-70% of the world’s coffee supply and are predominantly sourced from Brazil and Colombia. Arabica coffee tends to exhibit more stable price fluctuations.} 

• _{Robusta coffee, distinguished by its higher caffeine content, thrives in warmer climates and at lower altitudes compared to Arabica. It generally possesses a more bitter and earthy flavour profile, in contrast to Arabica’s acidity and fruitiness.} 

Robusta accounts for around 30% of the coffee trading market and often trades at higher prices due to its demand among multinational corporations like Nestlé, which utilise the beans in global product lines such as Nescafé instant coffee. Vietnam is the primary producer of Robusta beans. 

Coffee cultivation regions 

The specific geographic conditions necessary for coffee cultivation define the “coffee belt.” This belt extends from the equator to the Tropic of Cancer in the north and the Tropic of Capricorn in the south. 

Although coffee of various types can be grown at different altitudes, the major coffee-producing nations include Brazil, Vietnam, Colombia, Indonesia, and Ethiopia. 

Coffee trading occurs worldwide, with the largest importers of beans being the European Union, the United States, Japan, Russia, and Canada. 

Given the multifaceted process of growing, harvesting, roasting, and transporting coffee, the coffee trade is subject to speculation and influenced by numerous factors that affect its price. Gaining familiarity with these fundamental aspects of the market is essential to master coffee trading. 

Factors influencing coffee prices 

The intricate nature of coffee production, which involves planting, growth, and harvesting, means that multiple factors must align for coffee to reach the market successfully and be traded. 

Unexpected triggers can swiftly disrupt the coffee trading market, resulting in volatility. While volatility offers short-term profit opportunities for traders, those seeking stability may prefer to engage in coffee trading with a more consistent price index, utilising trends as guidance. 

• _{Climate: Unforeseen climate conditions, such as frost, floods, or droughts, can devastate crops, driving up prices as suppliers struggle to meet demand. Conversely, favourable weather can result in an oversupply of coffee beans, causing prices to plummet.} 
• _{Consumer habits: Contemporary consumer preferences and evolving coffee culture impact the demand side of coffee trading. Specialised coffee varieties and concerns about caffeine’s effects and addictive properties have influenced prices. Additionally, during financial downturns or reduced consumer spending, the coffee trade may be negatively affected.} 
• _{Plant disease: Coffea plants are susceptible to climate and disease, with fungal infections like “coffee leaf rust” posing significant risks. Robusta coffee, being more resilient in the face of such diseases, can affect the prices of both major coffee bean types.} 
• _{Oil market: The prices of coffee transportation are influenced by the oil market, given that major coffee producers (e.g., Colombia, Brazil, and Vietnam) are located far from the main coffee-consuming regions. Spikes in oil prices subsequently impact coffee trading costs.} 
• _{Distribution costs: Apart from transportation-related expenses, shipping and freight costs also play a role in the coffee trade’s dynamics and overall pricing.} 

• _{Geopolitics: Geopolitical issues and instabilities in coffee-producing developing nations, which constitute a significant portion of the global supply, can cause price fluctuations. Similarly, political crises in major consumer nations can drive changes in demand. For instance, the Russia-Ukraine war has impacted Russia’s coffee consumption.} 
• _{US dollar: Like many commodities markets, coffee trading is priced in US dollars. Fluctuations in the value of the US currency consequently influence the commodity’s price.} 

Coffee Trading Methods 

For those interested in coffee trading, selecting a preferred trading method is the first step. 

• _{Spread betting on coffee: This financial derivative allows speculation on coffee’s price movements as an asset. Spread betting on coffee is tax-free in the UK and particularly suitable for short-term trading.} 
• _{Coffee CFDs: Similar to spread betting, trading coffee CFDs involves trading the difference between the opening and closing positions of a contract, reflecting the coffee market’s price movements. At the contract’s end, the parties exchange the difference, resulting in either profit or loss. Coffee CFDs are taxable in the UK and involve leveraging or margin rate trades, offering the potential for increased profits but also carrying higher risks of losses.} 
• _{Coffee futures: Trading coffee futures is a popular method that capitalises on the volatility of the coffee market. This approach establishes an exchange at a predetermined future date for a fixed price, enabling traders to benefit from market movements.} 

Ready to begin coffee trading? 

VT Markets provides a user-friendly trading environment, simplifying the process of starting your coffee trading journey. 

You can initiate your coffee trading experience by signing up for a free demo account, allowing you to practice trading coffee CFDs and futures on a risk-free platform for 90 days. 

Alternatively, you can create a live trading account to jump straight into the action. 

If you need guidance on opening your coffee trading account or wish to establish your trading portfolio, feel free to contact us. We are here to assist you in embarking on your trading endeavours. 

Imagine you’re at a bustling street market in a foreign country, excited to exchange your currency for the local one. As you approach the currency exchange booth, you notice that the exchange rates are constantly changing. 

Every time you see the rates fluctuate, even by the tiniest amount, it affects the amount of money you’ll receive in return. That’s where the concept of pips comes into play in the world of Forex trading. 

What is a Pip? 

In the world of Forex trading, a pip is the equivalent of the change you witnessed at the currency exchange booth. It stands for “Percentage in Point.” 

A pip represents the smallest unit of price movement in a currency pair. Just like the ever-changing exchange rates at the booth, pips indicate the shifts in currency values that traders monitor closely. 

Let’s take an example to illustrate this further. Consider the popular EUR/USD currency pair. If the exchange rate for EUR/USD moves from 1.2000 to 1.2001, it means a change of 1 pip. This seemingly small alteration carries significant meaning in the Forex market. 

Understanding Pipettes 

Now, you might wonder if there’s a way to measure even smaller changes in currency values. That’s where pipettes come into play. 

Imagine you’re looking at the EUR/USD pair again, and this time, the exchange rate moves from 1.20000 to 1.20001. This indicates a change of 1 pipette. Pipettes allow for more precise measurements, giving traders a finer level of detail when analysing currency movements. 

In most cases, there are 10 pipettes in one pip. By differentiating between pips and pipettes, traders can gain a more accurate understanding of price fluctuations in the Forex market. 

The Role of Pips in Forex Trading 

Pips play a vital role in Forex trading, acting as the key to unlocking profits and managing risks. They help determine the relative value and volatility of different currency pairs. Let’s explore their significance further through some examples. 

Consider major currency pairs like the EUR/USD or GBP/USD. These pairs typically have small pip values, usually around 0.0001. On the other hand, cross currency pairs, such as the EUR/GBP or GBP/JPY, might have higher pip values, such as 0.001 or more. 

When trading, it’s crucial to be able to read and understand pip values on trading platforms. Most platforms automatically display pip values for currency pairs, allowing you to assess potential gains or losses accurately. 

Don’t underestimate the significance of even small changes in pip values. A seemingly minor movement of just a few pips can have a notable impact on your trades, especially when trading larger positions or utilising leverage. 

Pips and Lot Sizes 

Now that we’ve explored pips, let’s discuss their relationship with lot sizes. In Forex trading, a lot refers to the standardised quantity of a currency pair that you trade. Different lot sizes are available, including standard (100,000 units), mini (10,000 units), and micro (1,000 units). 

The size of your lot determines the pip value. As the lot size increases, so does the pip value. For example, if the pip value for one standard lot is $10, the pip value for one mini lot would be $1, and for one micro lot, it would be $0.10. 

Understanding lot sizes is crucial for managing risk effectively. Aligning your lot size with your risk tolerance and account size allows for better control over potential gains and losses. 

Pip Spreads and Trading Costs 

Pip spreads refer to the difference between the bid price (selling price) and the ask price (buying price) of a currency pair. It represents the cost of entering or exiting a trade. Brokers usually earn their profits from spreads. 

For example, if the bid price for EUR/USD is 1.2500, and the ask price is 1.2502, the spread would be 2 pips. Understanding and comparing spreads among different brokers is important to optimise your trading costs. 

Trading costs, including spreads, affect your overall profitability. Tighter spreads can be advantageous, especially for frequent traders or those executing scalping strategies. Try VT Markets RAW ECN Account with spreads starting from 0.0 pips. 

Pip Calculations and Pipettes in Practice 

Calculating pip values is essential to assess potential profits or losses. Let’s go through a step-by-step guide: 

• _{Step 1. Identify the currency pair you’re trading and its exchange rate.} 
• _{Step 2. Determine the pip value by considering the lot size and the pip value for that particular currency pair.} 
• _{Step 3. Incorporate pipettes if necessary. For instance, if a currency pair has a pipette value of 0.1, the pip value would be ten times smaller than a regular pip.} 

Practicing pip calculations using different currency pairs and lot sizes will enhance your understanding and proficiency in this fundamental aspect of trading. 

Practical Tips for Pip Management 

To effectively manage pips and optimise your trading strategy, consider the following tips: 

• _{Set realistic profit targets based on pip values and market conditions.} 
• _{Understand the risk-to-reward ratio before entering a trade to ensure favourable risk management.} 
• _{Utilise stop-loss and take-profit orders to automate trade exits at predetermined levels, protecting your capital and securing profits.} 
• _{Manage leverage cautiously, as it amplifies both profits and losses based on pip movements.} 

By implementing these practical tips, you’ll develop a disciplined approach to trading and enhance your overall success rate. 

In conclusion, pips are the building blocks of measuring price movements, determining profits and losses, and managing risk. Remember to practice pip calculations and familiarise yourself with various currency pairs to become a proficient trader. Stay curious, keep learning, and may your trading journey be filled with pips of success! 

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

This week’s economic calendar features US Retail Sales figures, as well as inflation data from both the UK and Canada — all of which have the capacity to move markets significantly. Therefore, it is crucial for traders to be prepared for any volatility that may arise from these key announcements and adjust their approaches as needed.

Keep an eye on the following economic releases:

Canada Consumer Price Index (18 July 2023)

Consumer prices in Canada rose by 0.4% in May 2023, slowing from the 0.7% increase in the previous month. 

Analysts anticipate a 0.4% increase in the figures for June, set to be released on 18 July.

US Retail Sales (18 July 2023) 

US retail sales rose 0.3% month-over-month in May 2023, following a 0.4% increase in April.

Analysts expect a similar 0.3% growth in the figures for June, scheduled for release on 18 July.

New Zealand Consumer Price Index (19 July 2023) 

The Consumer Price Index in New Zealand rose by 1.2% in the March quarter, representing the smallest quarterly price increase since Q1 2021.

Analysts predict a 1.1% uptick in figures for the upcoming quarter, set to be released on 19 July.

UK Consumer Price Index (19 July 2023) 

The UK’s consumer price inflation remained stable at 8.7% in May 2023, repeating the 13-month low recorded in the previous month. 

Anticipated for release on July 19, the upcoming CPI data is expected to show a further decline to 8.3%.

Employment in Australia (20 July 2023) 

Employment in Australia surged by 75,900 to 14.1 million in May 2023. This followed a revised drop of around 4,000 in the previous month. Meanwhile, the unemployment rate decreased to 3.6%, down from April’s figure of 3.7%. 

Analysts expect employment figures to increase by 25,100 in the data for June 2023, set to be released on 20 July. The unemployment rate is expected to remain steady at 3.6%. 

Start trading now — click here to create your live VT Markets account.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.