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  • Use of futures - the background

     
     
    After the Second World War, most companies who bought coffee from source referred to themselves as importers. Communications were rather slow, but otherwise the business was relatively simple. Coffee was bought from reliable shippers or exporters in origin countries and sold on, with a margin or a commission, to a major roaster.

    Some origin governments were involved in marketing their own coffee and offered special time or volume agreements. The importers brokered these arrangements as well as the coffee transactions themselves.

    In the mid 1970s, importers began to refer to themselves as traders. This was a new aspect to the business. Young traders who knew how to use the futures markets began to offer coffee at prices equal to, or sometimes even better than, what was being offered from source. The old established firms had a great deal of trouble understanding how to compete and slowly new importing and trading companies were born.

    To sell coffee cheaper than producers themselves are offering it involves taking risk. Using various types of operations, applicable to different types of market, traders can make money. These operations fit into three main categories: hedging, arbitrage and speculation.
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