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The Coffee Affect When Trading

There is a direct link between stocks and commodities, although at times it’s not always that obvious. For example, when oil is selling well, companies like Exxon see profits go up. That’s an easy one to understand. But what about when something else happens, something a lot less obvious? To better understand this, let’s look at a current example that you might not have thought of before.
Coffee Trading on the Binary Market
It’s easy to imagine why oil is the world’s most popularly traded commodity, but did you know that coffee is number two on the list? The raw beans that are roasted and ground up to become the drink can only be grown in certain areas of the world, but the demand for this beverage is worldwide and immense. There is little supply (relatively) and a huge demand, thus driving the price up for this crop. However, a large number of publicly traded companies rely on coffee for their survival. So when coffee is cheap, these companies can charge less

for their products, and create more business. When the price goes up, to compensate, the companies must increase prices to keep their profits steady, and this inevitably drives down business. How this affects the overall profits can be tricky, so let’s look at a real world scenario.

Starbucks (SBUX) is one of the world’s most widely frequented coffee shops. Currently, their stock sits at just under $74 per share, but it hasn’t always been like that. Just 10 years ago, they were barely in the double digits, just above $11 per share. Obviously, a long term strategy would have worked well with this stock, but there have been a lot of bumps and bruises along the way to get where they are today. In late 2008 and early 2009, the chain shut down a lot of their stores, and prices dropped dramatically. Prices went below $10, but have been climbing steadily since 2010.

That was, until a few months ago. In November and December of 2013, prices hovered above $80 for a while before starting another descent. The difference can be seen if you look at coffee futures. Since November, the price of coffee futures have gone up a lot. The iPath Pure Beta Coffee ETN (CAFE)–an ETF revolving around coffee prices–has gone up from $14 to over $26, currently settling at around $23 per share. It’s become very clear that the increasing price of coffee has driven down the profits for Starbucks since then with almost an exact correlation.

If this can happen with a company like Starbucks, it can happen with anything. There are all sorts of relations like this throughout the world, you just have to know where to look. These relationships make things like binary options a lot easier to profit off of since commodity futures can be very difficult for a beginner to invest in. For one, they are binding contracts that can be difficult to sell off and cut losses. They are also very expensive. But with binaries, you can invest as little as you’d like, sometimes as few as $10 at a time. For those that don’t have the means to risk a lot, or are simply risk adverse, this is a much more attractive line of trading. Also, binaries are short term, and futures usually require at least six months of your money being tied up. There are advantages to both, but sometimes one works better than the other, depending upon your overall goals. Starbucks usually isn’t traded as a binary, but some sites do offer it, but a lot of sites do offer coffee options. When you can combine the two to your advantage (or some other directly related commodity/stock combo), you can double your profits all while using the same broker–just one more benefit on your side.
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