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.