Risk Warning: Your Capital is at Risk.
Energy commodities have always been key players in the global market. This guide focuses on coal trading and the different ways you can trade coal with instruments like CFDs, options, ETFs, and coal company stocks.
We explain some of the reasons people may choose to trade coal and provide a list of regulated brokers for traders who are ready to speculate.
In a hurry? If you want to get started trading coal now, here are brokers available in to consider:
Disclaimer: Availability subject to regulations.
Between 74-89% of retail investor accounts lose money when trading CFDs.
Reasons You May Trade Coal
Traders purchase coal for a variety of reasons, but the following are most common:
- Bet on Emerging Market Demand
- Bet on Infrastructure
- Portfolio Diversification
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
Bet on Emerging Market Demand
The fast-growing Chinese economy has an insatiable demand for cheap fossil fuels to produce energy. Chinese electricity usage is likely to surge over the coming decades as the country builds new factories and housing.
India will also see massive increases in its electricity consumption as it modernizes its economy.
Trading coal is a way to bet on the modernization of these emerging market economies.
Bet On Infrastructure Growth & Coal Demand
The United States has not funded major infrastructure projects in decades.
Infrastructure requires massive quantities of steel. Demand for coal (and the coke from coal used to produce steel) could surge if plans to replace the crippling infrastructure in the United States come to fruition.
Other large developed countries in Europe and Asia will have massive infrastructure needs in the coming years.
The price of coal used to make coke is significantly higher than the price of coal used in the electric power sector.
Portfolio Diversification With Coal
Trading coal along with other commodities is a way to diversify a trading portfolio.
Traders seeking true asset class diversification should consider putting a portion of their tradable assets into a basket of commodities including coal, other energy commodities, metals, and agriculture.
Where To Trade Coal
If you’re ready to start trading coal, see this list of regulated brokers available in . These brokers offer a variety of trading instruments to choose from.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Ways To Trade Coal
Traders have a very limited number of ways to speculate on coal prices. Some previously available means for trading coal have recently ceased to trade.
Where To Trade Coal Futures and Options
The Intercontinental Exchange (ICE) recently suspended trading in Central Appalachian Coal Futures and Central Appalachian Coal Options due to a lack of any open interest in the contracts.
Prior to this, the Chicago Mercantile Exchange (CME) delisted trading in Central Appalachian Coal Futures.
Then again, the CME still has four categories of coal instruments — these are:
- Thermal Coal (International)
- Thermal Coal (US Domestic)
- Coking Coal
- Coal Options
These four categories have a variety of futures and options markets.
What Are Coal ETFs?
These financial instruments trade as shares on exchanges in the same way that stocks do. There are no ETFs that offer exposure to physical coal extracted from mines.
ETFs are exchange-traded funds, which are baskets of company stocks.
Traders seeking exposure to the coal mining industry can purchase the VanEck Vectors Coal ETF (NYSEARCA: KOL).
This ETF trades the majority of its assets in companies that generate at least 50% of their revenues from coal operations including production and mining, transporting coal, producing coal mining equipment, and storing and trading coal.
Can I Buy Coal Company Shares?
There are very few publicly traded companies engaged in mining and processing coal. The industry has shrunk in recent years due to mergers and bankruptcies.
The remaining companies are not pure-play trades in coal, but the performance of their shares is generally correlated with the price of coal. The major coal mining stocks include:
How To Trade Coal CFDs
One way to trade coal is through the use of a contract-for-difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of coal mining company shares.
CFDs allow traders to enter the coal market without actually owning the asset. To learn more about how CFDs work, see this CFD Broker and Trading Guide.
The value of a CFD is the difference between the price of the shares at the time of purchase and the current price.
Should I Trade Coal?
Coal prices can be volatile, and traders should take this into consideration. Placing a small portion of a trading portfolio into a diversified basket of commodities, including coal, could actually mitigate trade risk.
There are two compelling reasons why traders should include coal in this basket:
Global Growth – Coal is one way to bet on global growth. Emerging market countries will undoubtedly need a cheap source of electricity to power factories and homes in the years ahead. They will very likely turn to coal to meet much of this demand.
Global Infrastructure – Traders should consider the crucial role that coal plays in the steel industry.
The need to rebuild bridges, railways and airports should increase demand for steel and, in turn, the demand for coal.
Risks Of Trading Coal
However, traders should also consider three serious risks associated with a coal trade:
Environmental Concerns – Coal is receiving intense scrutiny in many countries because of the pollution it creates. These concerns are creating competition from greener energy sources. As the cost of greener energies declines, consumers might switch to these for their energy needs.
Regulation – Coal produces harmful and toxic carbon emissions, and many countries might intensely regulate these in the years ahead. If countries phase out coal as a source of power, then demand could plummet.
Global Recession – Weak economic conditions could cause coal and many other commodity prices to suffer.
To learn more about coal as a commodity before you trade it, see this Coal Commodity Guide, where we explain how it’s mined, and where the majority of the global coal supply comes from.
Or, if you want to compare coal to other tradable energy commodities, see:
- How and where you can trade natural gas
- Why people still trade crude oil instruments
- The value of ethanol and ways to trade it
- States most dependent on coal to generate electricity
How long will coal last in the world?
According to data from the EIA, the world has enough accessible coal reserves to last just over 350 years. This estimate is based on US coal production figures from 2019, in which just over 0.7 billion short tonnes of coal were produced. See which nations are the largest coal-producing forces today.
What are alternative energy sources to coal?
Other than coal, crude oil is the most used source of energy in the world. Other alternative energy sources include natural gas, ethanol, uranium, and heating oil. Renewable energy sources like solar, wind and hydro are also growing in popularity as the world becomes more aware of energy production’s impact on the environment.