A guide to Coffee Futures Trading
Coffee Futures Trading allow the small and large trader the opportunity to speculate on the movements of coffee prices.
Coffee is was first discovered around two millenniums ago. Coffee is a drink that is made by grinding coffee beans and allowing water to flow through them.
Today it is one of the most popular beverages enjoyed by man.
Coffee Futures contracts are traded on the NYBOT exchange.
Coffee Chart
As we can see from the chart above, the price of coffee has been very volatile over the last decade.
NYBOT Coffee Futures contracts represent 37,500lbs of coffee. This is approximately 17 metric tons. These contracts are priced in cents per lb. For example if the current coffee price was 150 cents, the nominal value of a contract would be 5,625,000 cents or $56,250. This is simply the size of the contract multiplied by the cost per lb. The smallest price movement is 0.05 cents per lb which is equivalent to $18.50 on a single contract. A full cent movement would be worth 20 times more at $370.
Margin requirements are:
Initial margin: $3,780
Maintenance Margin: $2,700
Lets look a Trading Coffee Futures example. Let's say the coffee price is 150 and Barbara thinks price is going to reach 170 over the next twelve months and decides to buy one contract.
This would make the nominal value of the contract $56,245, as shown above.
If Barbara is right and the price soars to 170, her profit will be $7,400. As mentioned above, each full cent price movement is worth $370.
However, if Barbara is wrong and price crashes down to 120, her loss will be $-11,100. This is 370 * -30. In this instance she would probably have to add additional funds to her broker account to keep the position open, to comply with the maintenance margin requirements.
As you can see from the chart and the example above, trading coffee futures is not for the faint hearted. The high volatility coupled with leverage can very rapidly result in big returns on investment or huge losses that greatly exceed the initial margin requirements.
Return from Coffee Futures Trading to Grain Futures