How to Trade Copper Online
Whilst copper does not share the same status or appeal as 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 how to invest in copper before providing step-by-step instructions of how to trade copper online with Admirals!
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 largely 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 enjoys a positive correlation with economic growth and is generally seen as a reliable indicator of global economic health.
What Affects Copper Prices?
Before we provide a guide to trading copper online, it is worth taking a look at what affects the copper prices.
The price of copper is determined by the balance of global supply and demand, which is affected by various 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 investing in copper.
Chile and Peru are the two biggest producers of copper in the world, accounting for almost 40% of global production in 2020².
China - who was the third largest producer of copper in 2020, accounting for around 8% of global production - is by far the largest consumer of copper in the world, responsible for 54% of total global consumption in 2020³.
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 boom, 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 prices tend to react with increased volatility to 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, and subsequently price, of copper when its price becomes too high and is, therefore, something to bear in mind when you start to trade copper online.
How to Invest in Copper
So, how can you invest in copper? The first method which may occur to you is to invest in copper bullion physically. However, this is not necessarily the best way to invest in copper, as investing in copper bullion presents a number of logistical issues, most notably its storage.
Fortunately, there are many ways to gain exposure to copper without having to invest in copper bullion. We can split these into two categories: investing in copper and trading copper.
Below, we have identified a few different methods of doing both, which we will explain briefly in the following sections, before providing a guide on how to trade copper online in 2022.
|1. Copper Stocks|
|2. Exchange-Traded Funds (ETFs)|
|1. Futures Contracts|
|2. Contracts For Difference (CFDs)|
Investing in Copper Stocks
One way of investing in copper is to buy shares in a company which operates in the copper industry, either in exploration, extraction or developing copper.
When the price of copper increases, the companies involved will tend to benefit, potentially leading to an increase in the share prices of copper stocks.
However, when it comes to investing in a company, there is a lot more to it than just copper prices, you should also be looking deeply into its fundamentals. Furthermore, there is no guarantee that copper stock prices are capable of matching any potential gains in the price of copper.
If you are interested in learning more about investing in copper stocks, check out our other article - '3 Copper Stocks to Consider' - where we discuss the subject in more depth.
Exchange-Traded Funds (ETFs) are another method of investing in copper. An ETF is a publicly listed fund which is designed to track the movement in price of an underlying asset or assets.
Each ETF varies in how they track the price of an asset. When it comes to commodities, the ETF may invest heavily in the physical commodity, hold shares in companies involved in the relevant industry, trade derivative instruments or do a mixture of these things.
It should be noted that buying and selling copper ETFs will usually incur a commission, whilst holding a position in one will be subject to a management fee. Moreover, some copper ETFs may suffer from low liquidity, which could cause difficulties when looking to buy or sell.
Invest With Admirals
With an Invest.MT5 account from Admirals, you can buy over 4,300 stocks and over 300 ETFs from 16 of the world’s largest stock exchanges! Open an account with a minimum deposit of just €1 and benefit from competitive transaction fees and no account maintenance costs! Click the banner below to get started:
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 and its price is quoted in USX per lb. This presents one of the drawbacks of trading copper futures, which is that you are bound by large contract sizes. However, it is possible to trade copper futures on margin.
Copper Contracts For Difference (CFDs) represent a contract between two parties which agrees to exchange the difference in price of copper between the time the contract is opened and closed.
Similarly to trading copper futures, by trading copper CFDs, traders are not required to take or deliver ownership of physical copper bullion itself. Furthermore, like futures, CFDs also benefit from the use of leverage.
Unlike futures, 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 5 Steps
With a Trade.MT5 account from Admirals it is possible to trade copper CFDs, as well as CFDs on a number of other commodities!
In this section, we will provide a 5 step guide to trading copper CFDs with Admirals.
- Open a Trade.MT5 account with Admirals and log in to the Trader’s Room
- Next to your Trade.MT5 account details, click ‘Trade’ in order to open WebTrader
- Scroll to the bottom of the Market Watch window on the left of the screen, search for copper and add it to the Market Watch
- Once added, click and drag the instrument onto the chart to open a copper price chart
- Right-click on the chart, select ‘Trading’ and then ‘New Order’ to bring up an order screen. Here, you can select the amount of copper you want to buy or sell, set a stop-loss and take-profit, and send your order to the market
You should now be familiar with copper, understand the different ways of how to invest in copper and how to trade copper online with Admirals.
Despite not possessing the same status as some other metals, copper is an incredibly important material in our world and, as the world continues to grow, our demand for copper is forecast to grow right along with it.
Trade on a Risk-Free Demo Account
Want to trade copper but not ready for the live markets? With a risk-free demo account, you can practise copper trading in real-market conditions using virtual currency! This allows you to perfect your copper trading strategy before risking your capital on the live markets. Click the banner below to open your free demo account today:
- USGS - Copper Statistics and Information
- USGS - Mineral Commodity Summaries 2022 - Copper
- Distribution of refined copper consumption worldwide in 2020, by region
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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.