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Coffee Futures and Options - Understanding the Trade

Coffee is the worlds second most traded commodity, next to petroleum. 11 million hectares, or acres of the planets farmland, are used for coffee cultivation. Yearly, worldwide coffee consumption is currently at around 12 billion pounds. Several economies are dependent upon the trade of coffee. Frost affects the coffee market. Since coffee grows in subtropical environments, if crops get destroyed by frost, prices will go up. The supply of coffee is affected by weather, the health of the trees, and harvesting practices. These affect coffee futures and options, or the prices of coffee on commodities markets.

Coffee options are actually contracts which hold the underlying asset of a coffee futures contract. The holder of a coffee option has the right, but is not obligated, to take a long or short position in the underlying coffee futures at the strike price. The option expires after the market close on the expiration date. Market participants consist of hedgers and investors. Hedgers trade coffee futures and options to lower the risk of possible price decreases in the physical markets. Hedging allows corporations to lock in a price for future purchase. This in turn helps manage risks in the coffee futures and options market.

Investors buy shares in the coffee market, or are shareholders. They make profit off of selling their shares, if the market goes up. This is called investing because they are taking a risk that the price of coffee will go up, which will be to their benefit. Coffee futures and options trading can be done by consumers and producers of coffee. This helps manage the success of the coffee market because a stable price of coffee is assured by the purchasing and selling of coffee futures. A coffee future is a contract, or a binding agreement to make or take delivery of the coffee at a fixed point in the future.

To buy coffee options, you must have a trading account with a broker who deals in options trades. Coffee is definitely one market to buy stock in now. Commodities will remain valuable and increase in value in the future, because of global economic uncertainty. Investors will take refuge in only safe and valuable investments. Coffee options are traded on coffee futures with contracts. March, May, July, September, and December are delivery periods for coffee futures contracts. To learn more about coffee futures and options, start on the internet. There is a wealth of information about the subject.

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