Coffee Trading Guide and Strategies: How to Trade Arabica Coffee

The significance of coffee extends beyond its status as a popular beverage. In terms of commodity export volumes by developing countries, coffee remained second to crude oil in 2023.

Therefore, it is important to understand the role of coffee in the financial markets, including its supply and demand dynamics, and various financial instruments.

Main Points:

• The two primary types of coffee produced and consumed are Robusta and Arabica coffee.
• Coffee is mostly produced in Brazil and mostly consumed in Europe.
• Factors affecting the supply and demand of coffee can influence coffee prices.
• Market participants can gain exposure to coffee prices by trading its financial derivatives such as futures contracts, contracts for difference (CFDs), exchange-traded funds (ETFs), and more.

What Is Coffee?

Coffee is a beverage made from roasted, ground seeds of coffee plants. These plants are evergreen, grow in tropical regions and are a source of an endless variety of beverages like espresso, cappuccinos, mochas, and lattes.

Similar to other agricultural products like cocoa, cotton and soybeans, coffee is also classified as a soft commodity. Every single day, approximately 2.25 billion cups of coffee are consumed worldwide. This voluminous production and widespread consumption testify to its global popularity and substantial trading volume.

What Are the Different Types of Coffee Beans?

Similar to crude oil, coffee has distinct varieties and is categorised based on unique bean properties, as illustrated in the table below. However, among the various types of coffee, Robusta and Arabica dominate global coffee production and consumption.

What Is Robusta Coffee?

Robusta coffee lives up to its name. The mnemonic ‘Robust’ portrays the bean's resistance to pests and adaptability to diverse climates around the world. It contributes 30% to 40% of coffee production in the world.

What Is Arabica Coffee?

This variety is widely considered superior in taste and quality. Hence it not only claims a 60% share of global production but also commands a premium price.

Guidelines for Trading Coffee CFDs

Portfolio Diversification

You may consider diversifying your trading portfolio by including share CFDs of leading coffee companies such as Starbucks or Kraft*. These companies can provide exposure to different segments of the coffee industry, thus reducing overall portfolio risk. *Availability based on regulation.

Monitor Weather Conditions

Staying informed about weather conditions in major coffee-producing nations, particularly Brazil, can help to anticipate potential supply disruptions in the advent of adverse weather like droughts or frosts.

Watch Oil Prices

Pay attention to oil prices because the cost of transporting coffee from production regions to consumer markets can result in higher coffee prices.

Implement Robust Risk-Management Strategy

It's essential to have a robust risk-management strategy in place to protect your overall capital from the risks of coffee volatility.

Monitor Activities of Large Coffee-Buying Firms

Reviewing Commitments of Traders (COT) reports provide insights into the positions held by commercial hedgers, businesses and large speculators. The report offers valuable information about coffee market sentiment and anticipated trends.

Steps to Buy or Sell Arabica Coffee CFDs with Plus500

Here are six (6) steps to begin trading Coffee CFDs:

1. Open a Trading Account: To trade Arabica Coffee CFDs, the first step is to open a demo or live account with a reputable CFD provider like Plus500.


2. Explore the Trading Platform: After signing up, get acquainted with the features of the Plus500 trading platform. The platform allows you to analyse coffee price charts, set up real-time alerts, and execute trades.


3. Locate the Arabica Coffee CFD Instrument: Use the platform's search function or navigate the commodity category to find Coffee (KC) CFD.


4. Analyse Market Conditions: Before placing a trade, it's important to analyse the current coffee market. This may involve using technical analysis tools in combination with fundamental analysis to predict price movements.


5. Implement Risk Management: To manage risks, utilise the available order types such as position sizing, take-profit orders and stop-loss orders.


6. Confirm and Monitor the Trade: Once your order parameters are defined, decide whether to "Buy" (go long) if you expect coffee prices to rise, or "Sell" (go short) if you expect a decline in price. Then, confirm your buy or sell position and monitor your trade.



Why Trade the Arabica Coffee CFDs With Plus500?

Advanced Trading Tools: Plus500 trading platforms offer comprehensive charting tools, technical indicators, and economic calendars to assist with analysing coffee market trends and making informed decisions.

Competitive Spreads: You enjoy Plus500 competitive spreads when trading the coffee market.

Flexibility: Arabica Coffee CFDs are available on all Plus500 trading platforms on desktop, iOS, or Android devices.

Fast & Reliable Execution: Plus500 guarantees swift entries and exits on Arabica Coffee CFDs at market-available prices.

Leverage: With Plus500, you can use leverage to amplify potential profits, but keep in mind that leverage also increases potential losses.

Trading Instruments: Plus500 offers a diverse range of soft and hard commodities like crude oil, soybeans, and gold, as well as shares CFDs of leading companies involved in coffee production and consumption.

Conclusion

Although coffee trading began just as a beverage in the 15 century, it has grown to over a $100B industry. As one of the most actively traded commodities globally, various coffee financial instruments like Coffee CFDs, ETFs or related shares, provide exposure for traders and investors to gain exposure to the price movements of coffee. To trade coffee with confidence and potentially capitalise on market opportunities, it is important to practise and implement the aforementioned trading strategies and guidelines while managing associated risks.
After considering the above and if you determine Coffee trading is suitable for you, you can consider opening a demo or live account with Plus500 today.