Coffee Futures Trading Basics

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Coffee Futures Trading Basics

Coffee futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of coffee (eg. 10 tonnes) at a predetermined price on a future delivery date.

Coffee Futures Exchanges

You can trade Coffee futures at NYSE Euronext (Euronext), New York Mercantile Exchange (NYMEX) and Tokyo Grain Exchange (TGE).

Euronext Robusta Coffee (No. 409) futures prices are quoted in dollars per metric ton and are traded in lot sizes of 10 tonnes .

NYMEX Coffee futures are traded in units of 37500 pounds (17 metric tons) and contract prices are quoted in dollars per pound.

TGE Arabica Coffee futures prices are quoted in yen per bag and are traded in lot sizes of 50 bags (3450 kilograms).

TGE Robusta Coffee futures are traded in units of 5000 kilograms and contract prices are quoted in yen per kilogram.

Exchange & Product Name Symbol Contract Size Initial Margin
Euronext Robusta Coffee (No. 409) Futures
(Price Quotes)
RC 10 tonnes
(Full Contract Spec)
USD 1,600 (approx. 10%)
(Latest Margin Info)
NYMEX Coffee Futures
(Price Quotes)
KT 37500 pounds
(Full Contract Spec)
USD 5,400 (approx. 13%)
(Latest Margin Info)
TGE Arabica Coffee Futures
(Price Quotes)
50 bags
(Full Contract Spec)
JPY 75,000 (approx. 8%)
(Latest Margin Info)
TGE Robusta Coffee Futures
(Price Quotes)
5000 kilograms
(Full Contract Spec)
JPY 75,000 (approx. 10%)
(Latest Margin Info)

Coffee Futures Trading Basics

Consumers and producers of coffee can manage coffee price risk by purchasing and selling coffee futures. Coffee producers can employ a short hedge to lock in a selling price for the coffee they produce while businesses that require coffee can utilize a long hedge to secure a purchase price for the commodity they need.

Coffee futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable coffee price movement. Speculators buy coffee futures when they believe that coffee prices will go up. Conversely, they will sell coffee futures when they think that coffee prices will fall.

Learn More About Coffee Futures & Options Trading

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Coffee Futures Trading Basics

A futures contract is an obligation to buy or sell a commodity at or before a given date in the future, at a price agreed upon today. While the term “commodity” is usually used when referring to contracts like corn, or silver, it is also defined to include financial instruments and stock indexes. One of the benefits to the futures industry is that contracts are traded on an organized and regulated exchange to provide the facilities to buyers and sellers.

Exchange-traded futures provide several important economic benefits, but one of the most important is the ability to transfer or manage the price risk of commodities and financial instruments. A simple example would be a baker who is concerned with a price increase in wheat, could hedge his risk by buying a futures contract in wheat.

Not all futures contracts provide for physical delivery, some call for an eventual cash settlement. In most cases, the obligation to buy or sell is offset by liquidating the position. For example, if you buy 1 S&P500 e-mini contract, you would simply sell 1 S&P500 e-mini contract to offset the position. The profit or loss from the trade is the difference between the buy and sell price, less transaction costs. Gains and losses on futures contracts are calculated on a daily basis and reflected on the brokerage statement each night. This process is known as daily cash settlement.

US futures trading is regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). The CFTC is an independent federal agency based in Washington, DC that adopts and enforces regulations under the Commodity Exchange Act and monitors industry self-regulatory organizations. The NFA, whose principal office is in Chicago, is an industry-wide self-regulatory organization whose programs include registration of industry professionals, auditing of certain registrants, and arbitration.

If you are new to futures trading, be sure to check out our tips for futures traders & watch our FAQ video below. Get answers to common questions such as the role of commission in overall trading costs and learn how leverage can impact margin requirements.

For a free educational guide to “Trading Futures and Options on Futures”, provided by the National Futures Association (NFA), please click here.

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Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. View Full Risk Disclosure.

Coffee Futures Trading Basics

Traders of coffee futures may be in for a stimulating ride.

If java gets you jittery to trade, you’ve got coffee futures to make a play on the factors affecting worldwide coffee markets. A host of factors could be impacting coffee prices at any time: weather could threaten coffee growth, trade embargoes could be lifted or imposed, transportation costs could skyrocket. Any combination of external events can jack up or send coffee into a downward spiral. Keeping up with these events is critical to any coffee futures trading program, as is a profit target and clearly defined entrance and exit strategies.

Coffee Exchanges and Contracts

Two leading venues for coffee trading are the New York Mercantile Exchange (NYMEX), which is part of the Chicago Mercantile Exchange (CME) Group, and the Intercontinental Exchange (ICE). A standardized NYMEX coffee futures contract is quoted in U.S. dollars per pound and represents 37,500 pounds of Arabica coffee. Contracts are listed 23 months in advance for the months of March, May, July, September and December. ICE contracts specify exchange-gradegreen coffee beans from one of 19 countries of origin, with the prospect of physical delivery to ports in the U.S. and Europe. ICE coffee contracts are priced in cents and hundredths of a cent for the same months as NYMEX contracts.

Opening an Account

To trade coffee futures on NYMEX, you will have to post a certain amount for margin — the good faith deposit that is required to trade futures products. As an example, as of July 2020, margin for NYMEX coffee futures is around $5,000 per contract, which represents just a fraction of the total value of the coffee contract. You can trade coffee futures through your broker or trade them online through the CME Group’s electronic trading platform, CME Globex. The latter will require an approved trading application and a relationship with a CME clearing firm.

Trading Techniques

You could be a coffee insider or just an observer who is watching for the best time to capitalize on coffee price movements. Either way, coffee futures could be useful to you. If you think the price of coffee will go up, you’d buy, or “go long” a coffee futures contract; if you’re bearish on coffee, you’d “go short,” or sell the coffee future contract. Let’s say you buy an ICE coffee futures contract when it is trading at 215.70 cents per pound. If the price goes up to 218 cents per pound, you could sell the contract for a profit, or 2.3 cents per pound multiplied by $18.75 per 0.05 cent in price movement, thus pocketing $862.50.

Coffee ETFs

If you don’t have the patience or constitution to trade coffee futures yourself, there are exchange-traded funds to do the footwork for you. There are ETF’s devoted solely to coffee, such as iPath Dow Jones-UBS Coffee ETN (JO), as well as others that include coffee as part of a diversified set of holdings, such as iPath Dow Jones-UBS Softs Total Return Sub-IndexSM ETN (JJS), with about 39 percent coffee in the investment mix. ELEMENTS Rogers Intl Commodity ETN (RJI) has only 2 percent invested in coffee.

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