Risk Warning: Your Capital is at Risk.
Copper has played a key role in technology for thousands of years and continues to do so in today’s industrial expansion. Its wide range of uses makes it a popular commodity to trade.
In a hurry? If you are looking to get started copper trading, here are three brokers to consider:
Why People Trade Copper
Copper is used in large quantities all over the world. For this reason, it is thought of as a commodity that moves closely in parallel with the world market.
Here are three common reasons why copper is a popular commodity with traders.
Speculating on Industrial Growth
Copper has so many industrial uses. It’s an efficient conductor of energy — namely heat and electricity. It would be difficult to imagine building any significant industrial infrastructure without it.
As developing regions like the African continent, Eastern Europe, and Asia modernize their economies and expand their infrastructure, copper demand should grow.
Betting on the Housing Market
The global housing market overheated and took a tumble during the Great Recession of 2008. As emerging markets grow, demand for housing should follow in those regions as well.
The disruptive events of 2020, however, may have unexpected effects on copper demand, since the global economic and infrastructural expansion may suffer further.
Speculating on Supply/Demand Imbalance
Copper mining and recycling routinely fall short of the demand for copper. Mine expansions and new mines may help soak up some of this excess demand. Environmental concerns and limitations on land usage may keep the imbalance in place for years to come. Trading copper is a way to speculate on the supply/demand imbalance.
However, the imbalance in favor of demand may even out or invert with the right set of policies.
Should I Trade Copper?
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.
All trades carry the potential for risks and returns — this isn’t any different for copper.
Due to it’s wide range of uses globally, copper is a high-demand metal. As a result of this high demand and the global mining market’s struggles to keep pace with it, traders may consider copper as a lower risk commodity.
Like any other metal, copper can be traded with various intents. One of these is portfolio diversification. Given the belief that copper is a jack-of-many-solutions metal, speculation can be simpler than with other metals like gold that are seen as a store of value.
It is logical to speculate that the price of copper may show significant correlations with global GDP. More economic growth will tend to mean more manufacturing, resulting in higher demand.
However, a global halt in GDP growth can also pose risks to traders considering copper. Another major risk of trading copper is due to the industrial shift to using alternative metals to copper.
6 Ways to Trade Copper
There are a number of ways to trade copper:
|Method of Investing||Complexity Rating (1 = easy, 5 = hard)||Storage Costs||Security Costs||Expiration Date||Mgmt Cost||Leverage||Regulated|
Traders can purchase copper bullion bars and coins from metals dealers, much like gold or silver bullions. Investment-grade copper is refined to a purity level of .999 copper, resulting in higher trade costs than markets like futures.
This premium, along with the cost of storing the metal may make bullion an expensive and impractical way to trade.
Fewer dealers offer copper bullion than gold bullion but you can still buy online. Here are some online copper bullion dealers you might consider:
One way to trade copper is through contracts for difference (CFDs), a derivative instrument. Copper CFDs allow traders to speculate on the price of copper without actually owning bullions, ETFs, futures, options, or mining shares.
The value of a CFD is the difference between the price of copper at the time of purchase and the price at the time of closing the trade. As copper prices increase, the value of the CFD goes up. As copper prices decline, the CFD loses value.
A copper futures contract is an arrangement whereby traders agree to sell or buy copper at a future date.
Futures traders use leverage to purchase contracts on an exchange. If prices decline, the trader is required to provide additional funds (margin) to maintain the position. When a futures contract is about to expire, the trader has to either accept the physical delivery of the commodity or roll the position forward to the next month.
Like futures, options are derivatives with an expiration date.
However, unlike futures, option trades are only successful if the price reaches a set level by the expiration date. In exchange for higher leverage and higher potential payouts, options traders pay a premium to own the option.
ETFs (exchange-traded funds) trade as shares on exchanges in the same way that stocks do. Traders can purchase ETFs that include bullion, futures, options, or some combination of the three. Other ETFs include ones that trade in copper mining stocks.
ETFs also have management fees that get passed on to shareholders.
Here are two leading copper ETFs (based on assets under management):
|iPath Dow Jones-UBS Copper ETN||United States Copper Index Fund|
Traders can also opt for companies that mine copper. Returns depend on other factors like the quality of the company management and the mines the company owns.
It is worth noting that increases in mining input costs such as the price of oil and equipment can adversely impact share prices.
Here are some leading copper mining company shares (these are example ETFs — not recommendations):
|The largest copper producer in the World.||New York (NYSE)|
|Anglo-Australian multinational mining, metals and natural gas company.||London (LSE)
New York (NYSE)
|Headquartered in Phoenix, AZ. It's a major producer of copper, molybdenum, zinc, silver, lead, and gold.||Lima (BVL)
New York (NYSE)
|Australian-British multinational with operations in mining and metals.||London (LSE)
New York (NYSE)
|Major producer of copper based in Johannesburg.||London (LSE)
Where Can You Trade Copper?
If you are looking to get started trading copper and other commodities, here’s a list of regulated options available in to consider.
Top Copper Brokers Available in
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 71.00%-89.00% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
A Statistical View on Copper
It doesn’t take an expert to understand why copper is a popular commodity to trade. It is a handy metal that is used across all industries with continued demand.
But what do the statistics say?
According to Statista, worldwide volumes of copper production reached over 20,000,000 metric tonnes. This number has been consistent since 2016, which indicates that supply is relatively stable.
However, the demand keeps growing, especially in regions like China, and supply disruptions during a chaotic 2020 continue to further the supply/demand imbalance.
More, a March 2020 research paper from Copper Alliance shows an expected increase in global copper demand, more specifically, an annual growth rate of approximately 9.9%.
Some companies may even take matters into their own hands when it comes to the supply shortage. One of these is Tesla, whose CEO Elon Musk has announced a potential interest in launching an in-house mining operation.
Alternative Metals to Trade
The primary alternatives traders consider to copper are precious metals. These metals are scarce and have a variety of industrial uses:
Other than these four, there are a variety of other metal commodities:
|Commodity||Primary Uses||Contract Size||Futures Exchange|
|Aluminum||Aerospace, cans, automobiles, construction, electrical wiring, appliances, foil and packaging.||25 metric tons||COMEX|
|Copper||Electrical wiring, plumbing fixtures, transportation equipment, electric equipment, electronics, consumer products and industrial equipment.||25,000 pounds||COMEX|
|Iron Ore||About 98% of iron goes toward steel production.||500 dry metric tons||NYMEX|
|Lead||Batteries, protective shielding, ammunition and industrial sheets.||25 metric tons||COMEX|
|Molybdenum||Molybdenum is primarily an alloying agent with steel. The metal is also used in the production of petroleum, electronics, fertilizers and lubricants.||6 metric tons||LME|
|Nickel||Most nickel is used in stainless steel manufacturing. Other uses include electronics, plating, catalysts and rechargeable batteries.||6 metric tons||LME|
|Steel||Construction and infrastructure projects, mechanical equipment and automobiles.||20 short tons||NYMEX|
|Tin||Tin is used as a coating metal and as an alloy to strengthen other metals.||5 metric tons||LME|
|Zinc||Zinc is principally used to galvanize steel and as an alloy to strengthen other metals.||25 metric tons||COMEX|
Here is a selection of frequently asked questions about copper and copper trading.
How is copper traded?
Copper can be traded through a variety of products where traders may or may not own the actual product. The main ways to trade copper through a broker or an exchange are through bullion, contracts for difference (CFDs), futures, options, ETFs, and shares.
What affects the price of copper?
As with any commodity, the price of copper is determined by the levels of supply and demand. If there is a higher demand than what can momentarily be supplied, the price can be expected to go up, and vice versa. There is ample research on future projections of supply and demand.
What is Comex copper?
Comex copper is a copper futures product traded on the Chicago Mercantile Exchange’s (CME) futures market. Traders who speculate on the futures market agree to buy or sell a particular product at a given date in the future. Futures products are a way for traders to lower the impact of potential price swings.
What are some common use cases of copper?
Copper has many useful qualities, one of them being that it is an excellent conductor of electricity and heat. Thus, copper is often used as a conductor in the form of wires and pipes. Copper has also been used to print coins, and it is an essential antioxidant used by the human body.
Credits: Original article written by Lawrence Pines. Major updates and additions in June 2020 by Marko Csokasi with contributions from the Commodity.com editorial team.