This week’s economic calendar includes important events that can significantly impact the markets: the FOMC Meeting Minutes, as well as the ECB and BOJ Rate Decisions. Traders should be well-prepared for potential market volatility resulting from these announcements and be ready to adjust their strategies accordingly.
Keep an eye on the following economic releases:
German, UK and US Flash Manufacturing PMI (24 July 2023)
Germany’s Manufacturing PMI experienced a downward revision in June 2023, reaching 40.6. In contrast, the UK’s PMI was revised upward to 46.5, while the US confirmed a PMI of 46.3, marking a six-month low.
The figures for July 2023 will be released on 24 July. Analysts predict Manufacturing PMIs as follows: Germany at 40, the UK at 46, and the US at 46.
German, UK and US Flash Services PMI (24 July 2023)
US Services PMI was revised slightly higher to 54.4 in June 2023, while Germany’s was confirmed at 54.1, the lowest reading in three months. UK’s was confirmed at 53.7, the lowest in three months.
Analysts predict Services PMIs for July 2023 as follows: Germany at 53.3, the UK at 53, and the US at 54.
Australia Consumer Price Index (26 July 2023)
The annual inflation rate in Australia declined to 7% in Q1 2023, falling from an over-30-year high of 7.8% in the previous period. This marked the lowest recorded rate since Q2 2022.
Looking ahead, analysts are forecasting a slower growth rate of 6.3% for the data covering the year up to June 2023. This information is scheduled for release on 26 July.
US FOMC Meeting Minutes (26 July 2023)
The Fed decided to maintain its funds rate target at 5.25% in June 2023. Following the FOMC decision, the Fed Chair emphasised multiple times the necessity of raising rates further within the current year.
For the upcoming meeting on 26 July, analysts forecast that the Fed will raise its interest rates to 5.5%.
European Central Bank Main Refinancing Rate (27 July 2023)
In its June meeting, the European Central Bank (ECB) raised its key interest rates by 25 bps to 4%. The ECB made it clear that future decisions would rely on incoming data and underscored its commitment to adopting a meeting-by-meeting approach in light of the uncertain economic environment, particularly as interest rates were nearing a potential peak level.
For the upcoming 27 July meeting, analysts expect the central bank to implement another 25 bps increase to 4.25%.
US Advance GDP (27 July 2023)
The US economy expanded at an annualised rate of 2% on a quarter-on-quarter basis in Q1 2023. This growth was higher than the previous second estimate of 1.3%.
The figures for Q2 2023 will be released on 27 July, with analysts projecting a slower growth rate of 1.9%.
As part of our commitment to provide the most reliable service to our clients, there will be server maintenance this weekend.
Maintenance Hours :
22nd of July 2023 (Saturday) 02:00 – 07:00 (GMT+3)
Please note that the following aspects might be affected during the maintenance:
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Thank you for your patience and understanding about this important initiative.
If you’d like more information, please don’t hesitate to contact [email protected].
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 [email protected].
The Dow Jones Industrial Average continued its impressive winning streak for the ninth consecutive day, fueled by the better-than-expected earnings results of pharmaceutical giant Johnson & Johnson. With a 6% rise in Johnson & Johnson’s shares, the Dow recorded its best daily performance since 2017. Additionally, insurer Travelers surpassed revenue expectations for the quarter, contributing to the Dow’s overall gains.
However, the broader market faced challenges as post-earnings declines hit popular tech stocks like Netflix and Tesla. Netflix’s revenue fell short of analysts’ estimates, causing a more than 8% drop in its stock value, despite a positive year leading up to the report. Meanwhile, Tesla’s shares tumbled by 9.7% after CEO Elon Musk announced a slowdown in vehicle production during the third quarter for factory improvements.
Overall, corporate earnings have shown strength, with 74% of S&P 500 companies surpassing expectations. This has generated optimism for a favorable economic outlook, despite concerns from some about a potential bear market rally. The Dow’s outperformance compared to the tech-heavy Nasdaq 100 index marked a significant trend, emphasizing the market’s current dynamics.
On Thursday, the market declined by 0.68%. Utilities, Health Care, and Energy sectors showed gains of 1.85%, 1.65%, and 1.29%, respectively. Information Technology and Communication Services sectors experienced the most significant declines, dropping by 2.04% and 2.49%, while Consumer Discretionary sector faced the largest setback, declining by 3.40%.
Major Pair Movement
On Thursday, the dollar index rose by 0.6% as positive jobless claims and Philly Fed data boosted Treasury yields, leading to a risk-off sentiment in the market. The Nasdaq declined by about 2% as investors turned cautious. The dollar’s recovery was driven by its earlier decline in July, caused by hopes of U.S. disinflation, despite steady core PCE figures.
The dollar’s gains were fueled by the Bank of Japan’s Governor dismissing tightening speculation, doubts raised by an ECB hawk about multiple rate hikes, and below-forecast UK CPI affecting BoE rate hike expectations. The EUR/USD fell by 0.67% due to Germany’s real estate crisis and uncertainty surrounding China’s efforts to boost the yuan and economic growth. Sterling sank by 0.6%, testing BoE rate hike expectations. USD/JPY gained 0.33%, but caution remains ahead of Japan’s CPI report. The AUD/USD’s earlier gains were trimmed amid dollar strength and derisking despite solid jobs data and PBoC’s action to weaken USD/CNY.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Falls on Stronger US Dollar Ahead of Fed and ECB Meetings
The EUR/USD pair experienced its second consecutive daily decline and worst daily loss in a month as the US Dollar gained strength, pushing the pair towards 1.1100. Market participants are closely monitoring next week’s Federal Reserve (Fed) and European Central Bank (ECB) meetings, which have contributed to short-term momentum favoring the Dollar. Data on both sides, including improved consumer sentiment in the Euro area and tight US labor market indicators, influenced the Dollar’s rise and bond yields on both sides of the Atlantic.
According to technical analysis, the EUR/USD pair is moving lower on Thursday creating a push to the lower band of the Bollinger Band and creating a wider gap between the bands. The Relative Strength Index (RSI) is currently at 37, suggesting that the EUR/USD pair has the potential of moving lower.
Resistance: 1.1208, 1.1291
Support: 1.1086, 1.0977
XAU/USD (4 Hours)
XAU/USDSlides as US Dollar Gains Ground: Fed Policy Decision Looms
On Thursday, the XAU/USD pair experienced a decline to $1,965.30 per troy ounce as the US Dollar strengthened. The Dollar Index (DXY) surged towards 101.00, prompted by an upward correction after a consolidative phase at multi-month lows. Market sentiment for XAU/USD was mixed, with initial pessimism during Asian trading hours but a return to optimism in the American afternoon. While Wall Street saw mixed trades, only the Dow Jones Industrial Average remained in the green, while rising Treasury yields provided additional support to the USD. Market participants assessed a range of US data ahead of the Federal Reserve (Fed) monetary policy decision, which includes an anticipated 25 basis points (bps) rate hike as indicated by the Federal Open Market Committee (FOMC) dot-plot.
According to technical analysis, the XAU/USD pair moved lower on Thursday and managed to reach the middle band of the Bollinger Bands. Currently, the price is slightly below the middle band, indicating a potential move towards the lower band. Additionally, the Relative Strength Index (RSI) is at 53, suggesting that the XAU/USD pair has returned to a neutral stance.
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 [email protected].
Stocks showed positive momentum on Wednesday during the ongoing corporate earnings season, with the Dow Jones Industrial Average achieving its longest winning streak in nearly four years. The Dow closed 0.31% higher, at 35,061.21 points, marking its eighth consecutive day of gains, a feat not seen since September 2019. The S&P 500 also climbed 0.24% to 4,565.72, while the Nasdaq Composite edged up 0.03% to finish at 14,358.02. The current earnings season has shown promising results, with 78% of S&P 500 companies surpassing expectations, signaling an optimistic outlook for a potential soft-landing scenario as inflation data remains encouraging.
Goldman Sachs reported mixed results on profit and revenue, primarily influenced by losses in real estate and GreenSky. Despite the anticipated lackluster quarter, Goldman’s shares gained nearly 1%. Other major companies, including U.S. Bancorp and J.B. Hunt, experienced notable stock jumps of about 6.5% and 3.7%, respectively. Additionally, as prominent firms such as Netflix, Tesla, IBM, and United Airlines prepare to release their earnings, the market remains hopeful for continued positive outcomes. The positive sentiment was further boosted by Carvana, a used car retailer, which saw its shares surge by 40% after securing a deal to reduce its debt, and releasing its quarterly earnings report ahead of schedule.
On Wednesday, all sectors in the market showed an overall increase of 0.24%. The real estate sector experienced the highest gain, rising by 1.12%, followed by utilities, which increased by 1.02%. Consumer staples also performed well with a rise of 0.93%, while both the energy and consumer discretionary sectors saw a moderate increase of 0.52%. Health care and financials sectors followed closely with gains of 0.50% and 0.45% respectively. The communication services sector showed a more modest growth of 0.23%.
However, not all sectors had a positive day, as some faced declines. The industrials sector experienced a slight decrease of -0.05%, while the information technology sector saw a more significant decline of -0.27%. The materials sector had the largest decline among all sectors, with a drop of -0.52%. Overall, the market exhibited a mix of positive and negative performances across different sectors on Wednesday.
The dollar index saw a rise of 0.34%, largely driven by a significant 0.85% drop in sterling. This decline in sterling led to a sharp decrease in BoE policy rate pricing and gilts yields. The oversold dollar had been rebounding since its collapse in July and gained traction after finding support at the midpoint of its previous advance. As a result, two-year gilts yield fell 20bp, and the expectation for a 50bp August BoE hike was repriced to just 25bp, with the likelihood of a following hike now in doubt. On the other hand, two-year Treasury yields remained flat, and the Fed’s next rate hike is priced at 25bp next week, with only a 28% probability of another hike before rate cuts in 2024. EUR/USD also fell 0.25%.
Looking ahead, Thursday’s below-forecast U.S., UK, and Canadian inflation data may bring increased focus on the Fed’s mandate for maximum employment. If initial and continued claims remain above forecast, it could strengthen the dollar’s bearish outlook. However, initial claims remain relatively low compared to historical levels. Meanwhile, the yen rose 0.52%, facing resistance at 140 due to a series of large 140 options expiring in the coming week. The dollar’s rebound and lingering uncertainty influenced the Australian dollar and yuan, both of which saw declines of 0.6% and 0.5% respectively. Upcoming events include Philly Fed, existing home sales, leading indicators on Thursday, and Japan’s CPI report on Friday.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Pair Holds Steady Despite Mixed Economic Data in EU and US
The EUR/USD pair experienced slight downward movement on Wednesday, reaching a low of 1.1173 before settling just below the 1.1200 threshold by the end of the day. The Euro was supported above 1.1200 during the first half of the day due to positive European data, with the Eurozone confirming a 5.5% YoY increase in the June Harmonized Index of Consumer Prices (HICP), meeting preliminary estimates. Additionally, the European Union’s annual inflation rate in June decreased to 6.4% from May’s 7.1%. Meanwhile, financial markets remained optimistic during the American session, despite discouraging US macroeconomic figures, which showed a 3.7% decline in June Building Permits and an 8% decrease in Housing Starts for the same month. The Greenback gained momentum after Wall Street’s opening, even as US indexes extended their rallies, with the Dow Jones Industrial Average rising for a seventh consecutive session, and the Nasdaq Composite and S&P 500 up for the third straight day. On Thursday, the macroeconomic calendar will feature the June German Producer Price Index (PPI) and Eurozone May Current Account, along with July Consumer Confidence data. Meanwhile, the US is set to publish weekly unemployment figures and June Existing Home Sales.
According to technical analysis, the EUR/USD pair is currently experiencing a period of consolidation, with limited movement and a narrower gap between the upper and lower bands of the Bollinger Bands. The Relative Strength Index (RSI) is currently at 58, suggesting that the EUR/USD pair has returned to a neutral stance.
Resistance: 1.1291, 1.1382
Support: 1.1173, 1.1086
XAU/USD (4 Hours)
XAU/USDPrices Slightly Down as US Dollar Rebounds on Easing Global Inflation
Gold prices experienced a modest decline on Wednesday, as the US Dollar regained demand due to recent oversold conditions and its inability to continue last week’s downward trend. Despite the dollar’s resurgence, global financial markets remained optimistic as inflation showed signs of easing, with the UK’s annual Consumer Price Index rising below market expectations and the Eurozone’s Harmonized Index of Consumer Prices also showing a modest increase. Global stocks continued to perform well, with US indexes posting significant gains for the third consecutive day and government bond yields easing, which tempered the bullish potential for XAU/USD. As a result, the precious metal traded at around $1,974 per troy ounce.
According to technical analysis, the XAU/USD pair moved higher on Wednesday and managed to reach the upper band of the Bollinger Bands. Currently, the price is slightly below the upper band, indicating a potential move towards the middle band. Additionally, the Relative Strength Index (RSI) is at 75, suggesting that the XAU/USD pair has returned to a bullish sentiment.
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 [email protected].
In a positive turn for investors, the Dow Jones Industrial Average soared on Tuesday as traders reacted to impressive corporate earnings reports. The Dow closed the day with a gain of 366.58 points, marking a 1.06% increase and reaching a new high of 34,951.93. Similarly, the Nasdaq Composite rose by 0.76% to end at 14,353.64, while the S&P 500 recorded a 0.71% gain, closing at 4,554.98. This remarkable performance resulted in the Dow’s seventh consecutive day of gains and the longest winning streak since March 2021, with all three major indexes achieving their highest closes since April 2022.
The positive earnings reports were led by Bank of America, which exceeded expectations for the second quarter due to higher interest rates, resulting in a more than 4% increase in the bank’s shares. Bank of New York Mellon also reported better-than-expected earnings, contributing to the upward momentum in the market. Other notable companies, such as Morgan Stanley and PNC Financial, saw their stocks rise following strong revenue and earnings performances. As the earnings season progresses, it is worth noting that a significant 84% of the S&P 500 companies that have reported have surpassed profit estimates, according to FactSet.
Despite softer data from the Commerce Department, including a modest increase of 0.2% in advance retail sales for June, investors remain optimistic. The positive sentiment stems from the belief that recent inflation data supports the likelihood of a soft-landing scenario, easing concerns of an imminent interest rate hike by the Federal Reserve. As a result, the stock market continues its rally, providing a positive outlook for investors in the near term.
On Tuesday, the overall market saw a positive performance with a gain of 0.71%. The Information Technology sector led the way with a significant increase of 1.26%, followed closely by Financials, which rose by 1.12%. Energy and Materials sectors also performed well, gaining 0.98% and 0.78% respectively. Health Care and Industrials sectors experienced moderate growth with gains of 0.70% and 0.57% respectively. Communication Services and Consumer Discretionary sectors had smaller gains of 0.38% and 0.28% respectively. On the other hand, Consumer Staples sector showed a slight decline of 0.13%. Utilities and Real Estate sectors experienced losses of 0.78% and 0.82% respectively.
Overall, it was a positive day for most sectors, particularly Information Technology and Financials, while Utilities and Real Estate sectors faced some decline.
Major Pair Movement
The dollar index managed to recover from its recent 13-month lows, halting the decline in Treasury yields that followed the release of the Consumer Price Index (CPI) data. Initially, the dollar dipped briefly after U.S. retail sales rose by 0.2%, falling short of the 0.5% forecast. However, the May figures were revised upward, and the control group, which feeds into the GDP calculation, saw a 0.6% increase, double the forecast and with a revised higher figure for May. This positive data reassured investors that the economy was performing well and eased concerns about the Federal Reserve tightening its monetary policy excessively. Consequently, the dollar and Treasury yields rebounded, with two-year Treasury yields rising by 2 basis points after a previous 9 basis point fall, while two-year bund yields fell by 9.4 basis points.
The divergence between two-year bund and Treasury yields had already begun to affect EUR/USD prices since Thursday, contributing to the retreat from 13-month highs observed on Tuesday. The upcoming Federal Reserve and European Central Bank meetings will provide further guidance to the markets, which are currently pricing in a peak in Fed rates this month and a faster decline in ECB rates next year. Despite hitting a high of 1.1276 on EBS, EUR/USD slid and failed to close above the 61.8% Fibonacci retracement level of the 2021-2022 decline at 1.1271. Meanwhile, the yen rebounded sharply against other currencies after Bank of Japan (BoJ) Governor Haruhiko Kuroda dashed hopes of a JGB yield cap increase. The recovery of the yen crosses has been struggling to regain the uptrend line from March, which was broken below last week and currently stands at 139.51. The importance of Japan’s Consumer Price Index data, scheduled for release on Thursday, has been reduced due to Ueda’s stance.
In the currency markets, the pound depreciated by 0.25%, influenced by a drop of approximately 10 basis points in gilts yields and a correction in the pound’s overbought readings, which were at their highest level in nearly three years. These developments occurred ahead of the upcoming UK employment data, which could impact the decision between a 25 basis point or 50 basis point rate hike at the Bank of England’s August meeting.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Remains Steady Within Limited Range Despite Positive Wall Street Earnings
The EUR/USD pair maintained a narrow trading range on Tuesday, reaching a yearly high of 1.1275. Initially, the US Dollar benefited from a negative market sentiment in the first half of the day, but the mood shifted with the release of positive Wall Street earnings reports. While the Eurozone did not publish significant figures, the United States unveiled mixed data, including modest Retail Sales and declining Industrial Production. On Wednesday, market focus turns to the final estimates of the June Harmonized Index of Consumer Prices (HICP) in the EU, while the United States prepares to release June Housing Starts and Building Permits.
According to technical analysis, the EUR/USD pair is currently experiencing a period of consolidation, with limited movement and a narrower gap between the upper and lower bands of the Bollinger Bands. The Relative Strength Index (RSI) is currently at 58, suggesting that the EUR/USD pair has returned to a neutral stance.
Resistance: 1.1291, 1.1382
Support: 1.1173, 1.1086
XAU/USD (4 Hours)
XAU/USDPrices Driven by Worsened Market Mood as US Dollar Temporarily Strengthens
The XAU/USD pair experienced an upward trajectory on Tuesday, reaching $1,972.17 per troy ounce in the European session due to a deteriorating market sentiment. Although the US Dollar saw some short-term demand prior to Wall Street’s opening and after the release of mixed US data, it quickly resumed its climb, surpassing the mentioned high and reaching a fresh 2023 high of around $1,984.35. The US Census Bureau reported that Retail Sales in the US increased by 0.2% MoM in June, falling short of market expectations. However, the Retail Sales Control Group exceeded predictions with a growth of 0.6%. Despite these figures, US equities surged, placing additional downward pressure on the American currency, particularly propelled by better-than-expected earnings reports from major banks, driving the Dow Jones Industrial Average to new yearly highs around 35,000.
According to technical analysis, the XAU/USD pair moved higher on Tuesday and managed to reach the upper band of the Bollinger Bands. Currently, the price is slightly below the upper band, indicating a potential move towards the middle band. Additionally, the Relative Strength Index (RSI) is at 68, suggesting that the XAU/USD pair has returned to a bullish sentiment.
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.
source: coffeefriend.co.uk
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.
source: shopify.com
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.
Summary:
Coffee trading is a highly profitable market worth over 100 billion US dollars annually.
Coffee, a soft commodity, has a rich history as an agricultural product and has been traded for centuries.
Arabica and Robusta are the main types of coffee traded globally, each with its own flavour profile and price dynamics.
Coffee is primarily grown in the “coffee belt,” with major producers including Brazil, Vietnam, Colombia, Indonesia, and Ethiopia.
Various factors influence coffee prices, such as climate conditions, consumer habits, plant diseases, the oil market, distribution costs, geopolitics, and the value of the US dollar.
Traders can engage in coffee trading through spread betting, coffee CFDs, or coffee futures.
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.
source: CNBC
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!
Summary:
Pips represent the smallest unit of price movement in Forex trading, indicating changes in currency values.
Pipettes are fractional pips that allow for more precise measurements of price movements.
Pips play a crucial role in determining profits and losses, and their values vary among currency pairs.
Pip spreads represent the difference between buying and selling prices and impact trading costs.
Practical tips for pip management include setting realistic profit targets, understanding risk-to-reward ratio, using stop-loss and take-profit orders, and managing leverage carefully.
Insights 
VT 
