While copper doesn't share the same status as gold or silver, it also plays a big role in various industries and is quite a popular commodity to trade.

Instead of simply buying and selling stocks, bonds, or ETFs, many investors prefer to invest in physical commodities like metals. Gold and silver are the most commonly traded metals in the industry, but investing in copper is actually pretty popular too. The reason being the commodity's use in various parts of electronics, such as semiconductors and wiring. It's also an important material in other industries like home construction and vehicle production.

How to Trade Copper

Copper trading might be a great alternative for both individual traders and institutions. However, before you trade the metal, it's important to learn how to trade copper and what factors affect the price movement.

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What is Copper Trading?

Copper is a red-colored base metal, which has been used in human technology for thousands of years and continues to do so in the modern era. Similar to silver and gold, copper is very ductile and able to conduct electricity, which makes it really useful. Copper has a wide range of applications in industrial manufacturing and day-to-day goodies, making it a perfect commodity to trade.

Due to its usefulness, the price of copper has a positive correlation with global economic growth and is even often seen as one of the indicators to analyze the global economy. So in reality, copper trading is not as simple as it looks. Traders need to build a balanced portfolio and treat copper correctly.

 

Different Ways to Trade and Invest in Copper

  • Physical copper
    Like gold and silver, you can buy a physical quantity of copper and physically hold the asset until you're ready to sell. You can purchase copper bullion bars and coins from metal dealers. Keep in mind that this method comes with the cost of storing the metal, so it's often considered more expensive and impractical.

  • Copper CFDs
    This allows you to speculate on the price of copper in real time without actually owning the physical asset. Such flexibility allows you to profit when the price moves up or down. CFDs are leveraged products, so you only need to put in a small sum to gain full exposure to the underlying asset. Please note that in leveraged trading, the profit or loss is calculated according to the full position size, so your profits and losses will be magnified.

  • Copper Futures
    If you believe that the price of copper will rise in the future, you can try trading with copper futures. This means you basically join a contract and agree on a price that you need to pay today for a specific quantity of copper that will be delivered at a set date in the future. The goal is to sell the copper at a higher price than you paid. When the contract is about to expire, you need to either accept the physical delivery of the metal or roll the position forward to the following month.

  • Copper Options
    Similar to futures, options are also derivatives with an expiration date. The difference is that options are successful when the price hits the predetermined level by the expiration date. You will get a profit when the price rises enough to cover the initial amount paid.

  • Copper ETFs
    You can invest copper as shares on exchanges in the same way as stocks do. You can choose to buy Exchange-Traded Funds (ETFs) that include bullion, futures, options, or a combination of those three.

  • Copper Stocks
    There is also an option to invest in companies that mine copper. Aside from the copper prices, you should also be paying attention to the fundamentals when investing in copper companies. The amount of gain then depends on the quality of the company management and the profitability of the mines.

 

Why Trade Copper?

Copper might not be as popular as gold and silver, but the metal actually has many advantages. The first one is the high accessibility. As mentioned before, there are many different ways to make profits from copper, so you can choose any method that fits your style. Secondly, copper has many uses in various industries, starting from building construction to electronic manufacturing. It is also a strong conductor of electricity and heat, making it highly appealing to many businesses.

It is also worth pointing out that, unlike gold and silver, copper has a greater quantity and is considered not valuable enough to be currencies, so the price of the metal is simply cheaper. This makes it a great alternative for beginner traders who are looking for affordable commodities to invest in. It also increases the demand in the market, which is good news for traders as it can lead to lower spreads and possibly cleaner chart patterns.

 

What Affects the Price of Copper

In order to make a good analysis of copper trading, it's important to understand what aspects can influence copper values. The price of copper can fluctuate due to many factors, but here are some of the most powerful drivers in the market:

 

Global Economic Growth

Copper is primarily an industrial metal, so the demand is influenced by things like manufacturing, home construction, electronic production, etc. For this particular reason, copper is often used as a benchmark for industrial growth and even overall economic growth.

If the global economy is in a period of sustained growth, the price of copper is usually high due to the increased industrial demand for the metal. On the other hand, if the market is in a period of economic downturn, the price of copper is usually low as there's less demand for the metal. As a result, many businesses or countries like to stockpile copper in order to survive the price volatility when the supply fails or demand rises unexpectedly.

 

US Dollar

Like other metals, copper has a negative correlation with the US Dollar. When the currency depreciates, copper prices tend to increase and vice versa. This partly happens because copper is mostly priced in the US Dollar.

 

Emerging Markets

As an industrial metal, copper is mostly used in developing countries that are in need to improve their housing and transport infrastructures. Therefore, emerging markets like China, India, and Brazil are some of the top players that influence the demand. A slowdown in the growth of these countries can weigh down on the price of copper, while an economic boost can significantly increase the market price.

 

Supply Disruptions

Any political, economic, or environmental disruption in copper-producing areas might affect the price of copper in the market. This was evident in 2010, when a massive earthquake hit Chile, the world's leading supplier of copper. The price of copper quickly hit a five-week high at $7600 a tonne in the Asian trade.

 

Global Housing Market

Aside from industrial uses, copper is also commonly found in constructions of houses – mainly for electrical wiring and plumbing. Therefore, the dynamic of the global housing market can also affect the price of copper. You can monitor the housing market by using factors that influence the need for housing or prices of housing, such as non-farm payrolls and GDP of certain countries.

 

Oil

The price of copper is affected by many of the same factors as oil, so they typically have a strong positive correlation. Therefore, paying attention to oil price can be a great method to gain valuable insight into the copper market. However, it is also worth mentioning that renewable energy sources are starting to grow and play an important role in the market. This can interrupt the traditional positive relationship between copper and oil in the future.

 

Metal Substitution

Like other commodities in the market, the price of copper can also be affected by the emergence of cheaper alternatives, which are probably more appealing when the price of copper rises. Today, it's pretty common for other metals like aluminum, nickel, lead, and iron to be used as substitutes for copper in some industries.

 

Copper Trading Hours

Copper trading hours essentially depend on the opening times of the metal exchange on which you are trading.

  • London Metal Exchange: 1:00 a.m. to 7:00 p.m. Greenwich Mean Time, every day from Monday to Friday.
  • New York Mercantile Exchange: 6:00 p.m. to 5:00 p.m. U.S ET, every day from Sunday to Friday.
  • CME Globex and CME ClearPort: 6:00 p.m. - 5:00 p.m. (17:00 - 16:00 Chicago Time/CT), every day from Sunday to Friday, with a 60-minute break each day beginning at 5:00 p.m.

 

Conclusion: Should You Trade Copper?

Copper is a great commodity to trade, but it certainly has some unique elements that every trader should know before putting in any money. The first thing is to figure out how you are going to invest. You need to learn about the pros and cons of each method and understand the risk that you're taking. For instance, buying physical copper might sound good but it requires storage space and maintenance costs.

Aside from that, you also need to know about copper prices and how certain factors can affect your portfolio's value. Once you open a trade, you can take advantage of markets that are rising or falling. If you think that the price will increase, open a buy order, but if you think that the price will fall, open a sell order. Your decision about which direction to trade in must be based on the analysis method that you have chosen to perform, such as technical or fundamental. Remember that copper trading is not free of risk, so make sure to use a solid strategy as well as sound risk management.