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  • 10.7.1-RISK AND THE RELATION TO TRADE CREDIT-TRADE CREDIT TERMINOLOGY AND DEFINITIONS

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  • Trade credit terminology and definitions

    This list recaps some of the terminology and definitions in coffee trade.

     
     
    Physical coffee - green coffee.

    First hand - coffee sold from/by origin.

    Second hand - coffee subsequently sold on by overseas traders.

    Long - coffee bought in expectation of later sale.

    Short - coffee sold against expected future purchases or arrivals.

    Spot - immediately available coffee.

    Forward sales - coffee sold for later shipment, sometimes months ahead.

    Futures market - trades standard qualities and quantities of coffee for future delivery at pre-determined ports during specific months or trading positions.

    Paper trade or paper coffee - trade in futures and other contracts that are offset against each other, i.e. do not result in physical delivery of coffee.

    Differential - premium or discount of 'our coffee' with respect to futures market.

    Outright sale or fixed price sale - the full selling price is set at the time of sale.

    PTBF - price to be fixed: selling now at a known differential against the futures market with the futures price being determined later.

    Fixing - the action to determine the futures price that, combined with the differential, will become the contract price for the physical coffee.

    PTBF seller's call - futures price to be called or fixed by the seller.

    PTBF buyer's call - futures price to be called or fixed by the buyer.

    Price risk - the risk that the coffee price generally moves against us.

    Basis risk or differential risk - the risk that the differential moves against us.

    Collateral - underlying security for advances, for example stocks.