How to Trade Copper Online
Whilst copper may not share the same status as the aforementioned shiny precious metals, it plays an important role in our lives and is the third most consumed industrial metal in the world¹. In this article, we will take a look at this versatile commodity, examine the different ways of trading copper and provide step-by-step instructions of how to trade copper online!
Table of Contents
What Is Copper?
Copper is an incredibly versatile metal, which is very important in the modern world and its continued development. It is widely used in building and manufacturing industries due to its excellent conductivity of heat and electricity. In fact, copper is the best non-precious metal conductor of electricity, which explains why it is so popular in these industries.
Copper piping and wiring runs through our homes, a small automobile contains around 20kg of copper, and the world’s telecommunication networks rely heavily upon it.
Due to its usefulness in building and manufacturing, the price of copper tends to enjoy a positive correlation with economic growth and is generally seen as a reliable indicator of global economic health.
What Affects Copper Prices?
Before we examine the different methods of trading copper and explain how to trade copper online, it is worth taking a look at what affects the copper prices, as this will play an important role in any copper trading strategy.
As with any freely traded asset, the price of copper is determined by the balance of global supply and demand, which can be affected by a number of factors.
We will examine some of these individual factors in the following sections. However, before we look at individual factors, it is useful to understand a bit more about the landscape of global supply and demand when trading copper.
Chile is by far the largest producer of copper in the world, accounting for 27% of global production in 2021, with Peru’s 10% making them the second largest copper producing country².
China - who was also the third largest producer of copper in 2021, accounting for 8% of global production - is by far the largest consumer of copper in the world, responsible for 54% of total global consumption in 2021².
These figures tell us that the price of copper can be largely influenced by what is happening in just three countries. Therefore, before you start to trade copper online, it is important to pay attention to events in Chile and Peru on the supply side and China on the demand side.
Due to its positive correlation with economic growth, the performance of copper is generally viewed as an indicator of global economic health, earning it the nickname “Doctor Copper”. This relationship is an important thing to bear in mind when trading copper.
In times of economic expansion, countries build and manufacture more and therefore demand for copper increases, pushing up prices. On the other hand, when the global economy slows down, these activities also slow and demand for copper decreases, causing prices to fall.
Given what we know about China’s large demand for copper, its price can be particularly sensitive to China’s economic performance, as any change in their demand has a significant impact on global demand as a whole. As such, copper price can be volatile around the time of scheduled Chinese economic announcements.
With a significant proportion of global production taking place in just two countries, a natural disaster in either region can cause disruption in supply which may have a knock on effect on price.
For example, on Saturday 27 February 2010, a severe earthquake struck Chile, affecting a large portion of the country. As a result, production at four major mines was suspended which affected about 20% of the country’s copper production capacity.
In the chart below, we can see that when the commodity markets reopened on Monday 1 March 2010, copper opened with prices more than 3.5% higher than they had closed on Friday.
Although copper enjoys better conductivity of heat and electricity than other metals, as well as superior ductility (its ability to be easily shaped and drawn), there are substitutes for the metal which, despite their inferiority, start to look more appealing when copper prices are high.
This availability of substitute metals, such as aluminium, can cause a decrease in demand for copper when its price becomes too high and is, therefore, something to bear in mind when copper trading.
Copper Trading – The Different Methods
So, how can you gain exposure to copper? The first thing that may occur to you is to buy physical copper bullion in the hope of selling it for a higher price in the future. However, this method of copper trading presents a number of logistical issues, particularly storage.
Fortunately, there are several different ways of trading copper which don’t involve having to buy copper bullion. Below, we have identified three methods of doing so, each of which we will explain briefly in the following sections, before providing a step-by-step guide to trading copper online.
|Copper CFD Trading|
Copper Futures Trading
A copper futures contract is a legally binding agreement between two parties to exchange a specified amount of copper on a specific date in the future at a predetermined price.
By trading copper futures, traders can speculate on the price of copper without ever taking ownership of physical copper bullion, provided they close their position prior to the contract's expiration.
Copper futures contracts have predetermined specifications depending on which exchange they are traded on. For example, a copper futures contract on the CME Group is equivalent to 25,000 lbs, which presents one of the drawbacks of copper futures trading: traders are bound by large contract sizes. However, it is possible to trade copper futures on margin.
Copper Options Trading
Copper options work in a similar way to futures contracts, in that they represent an agreement regarding the exchange of a specified amount of copper in the future.
However, a copper options contract provides its holder with the right, but not the obligation, to buy or sell (depending on the type of contract) a specified amount of copper and a predetermined price by the contract’s expiry date.
In order to trade options, traders are typically required to have a large amount of margin in their trading account. Furthermore, the method of pricing options is complicated, with their value declining over time as a contract’s maturity date approaches. For these reasons, copper options trading is not a suitable method of copper trading for beginners.
Copper CFD Trading
Contracts For Difference (CFDs) represent a contract between two parties in which they agree to exchange the difference in price of an underlying asset between the time the contract is opened and closed.
Similarly to trading copper futures and options, copper CFD trading does not require the trader to take ownership of or deliver physical copper. Furthermore, like futures, CFDs also benefit from the use of leverage, which allows traders to command larger position sizes with a smaller deposit. However, as well as magnifying potential profits, leverage can also magnify potential losses, meaning that it must be used with caution.
Unlike futures and options, copper CFDs do not have an expiration date, meaning that a position can be held open for as long as the trader desires. However, it should be noted that CFDs are subject to swap fees, which is interest charged on a position left open overnight.
How to Trade Copper Online in 4 Steps
With a Trade.MT5 account from Admirals it is possible to trade copper CFDs, as well as trade CFDs on a number of other popular commodities! In order to learn how to start trading copper, read the following steps:
- Open a Trade.MT5 account with Admirals and log in to the Dashboard
- Find your account details in the Dashboard and click ‘Trade’ in order to open Admirals Native Trading
- Search for copper and click on the symbol to open the instrument page
- Enter how many lots you wish to buy or sell before sending your order to the market!
Trade Commodity CFDs with Admirals
As well as copper, owners of a Trade.MT5 account can trade Contracts for Difference (CFDs) on some of the world’s most popular commodities, including crude oil, natural gas, silver, coffee and many others! Click the banner below to register for a live account today:
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.