How to trade or invest in copper

Before you can start to trade or invest in copper, there are a few steps you should take:

1. Learn the basics of copper trading and investing
2. Discover what moves copper’s price
3. Decide which copper asset to trade
4. Open your copper trading account
5. Find your copper trading opportunity
6. Create a copper trading strategy
7. Choose whether to buy or sell
8. Open, monitor and close your position your copper position

Learn the basics of copper trading and investing

Copper is a red-coloured base metal, which is thought to be the first metal to be used by humans. Today it has a wide range of applications in industrial manufacturing and everyday items, including microwaves and heating systems.

Like silver and gold, copper is very ductile and conducts electricity, which makes it extremely useful. But unlike precious metals, copper is available in greater quantities, is cheaper and is not considered valuable enough to be used for currency.

Most copper is traded via futures contracts. There are two main futures markets that you can trade with us:

• High grade copper – these futures are from the COMEX division of the New York Mercantile Exchange. COMEX copper is usually traded as futures contracts, which are priced in cents per pound, but it can also be traded at the current market price – or on the ‘spot’
• Copper – this is the futures market for the London Metal Exchange (LME). Like high grade copper, LME copper can be traded spot, but it most commonly traded as futures contracts. Copper is priced three months in advance, quoted in US dollars and sold in lots of 25 tonnes

Copper trading hours

Copper trading hours will depend on the opening times of the metal exchange.

*Hours will shift between March and November as the UK and US change to and from daylight savings on different days.

Ready to trade copper? Open a live account with us today.

Discover what moves copper’s price

To predict copper’s market movements and best prepare your trades, it’s important to understand the factors that move the price of copper. Some of the largest drivers of copper prices are:

1. Global economic growth

Copper is a popular way of expressing a bullish or bearish view on world growth and gross domestic product (GDP). This is because the metal is often used as a benchmark for ascertaining the health of the global economy – it’s even been nicknamed ‘Dr Copper’ because it’s thought of as the only metal with a PhD in economics.

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. While in periods of economic downturn, the price of copper is low as there is less money being spent on infrastructure growth.

2. Emerging markets

Countries that are rapidly developing are some of the largest players in the copper market, driven by their need for new housing and transport infrastructure as their economies grow. As a result, emerging markets such as China, India and Brazil have an increasing share of global copper demand.

A slowdown in the growth of emerging markets can take its toll on the price of copper, while a boom will significantly increase the market price.

3. Supply disruptions

The instability caused by political and environmental issues in copper-producing regions can impact the market price as supply chains are broken.

For example, as a large producing nation, Bolivia had significant sway over copper prices. This was evident in 2007, when the mining industry was nationalised and the supply chain was disrupted. The price of copper increased in response, as supply could no longer keep up with demand.

Environmental crises can also slow down mining, such as earthquakes and landslides. For example, copper prices spiked to $2.45 per pound ($5405.00 per tonne) in 2015 when an earthquake struck Chile, the world’s top supplier of copper.

4. US housing market

Copper is widely used in the constructions of homes – mainly for electrical wiring and plumbing. The sheer magnitude of the US housing market has a significant impact on the demand for copper. So it’s worth keeping an eye on factors that influence the need for housing or the price of housing, including non-farm payrolls and US GDP data releases.

5. Metal substitution

Substitution is the practice of seeking cheaper alternatives when the price of the asset rises. As copper becomes more expensive, cheaper metals, such as aluminium, are being used instead of copper in power cables and electrical equipment. Other base metals, including nickel, lead and iron, are also used as substitutes for copper in some industries.

Eventually, substitution could put downward pressure on copper prices, or at least prevent the market from rising any further.

Decide which copper asset to trade

There are a number of ways that traders and investors can gain exposure to the price of copper, including:

1. Futures
2. Spot prices
3. Shares
4. ETFs

1. Trade copper directly with futures

When you trade copper, in all likelihood you’ll be trading copper futures. These are contracts that take their price from the underlying commodity and represent an agreement to exchange an amount of copper at a defined price on a specific date.

Most copper markets are priced using copper futures, rather than copper bullion. As one of the most popular trading instruments in the industrial metal market, copper futures have high levels of liquidity and volatility.

While most futures do have an expectation that the physical copper will be delivered, there is the possibility to settle the contract in cash or roll it over into the next month.

Open an account to start trading, or learn more about futures.

2. Trade copper directly with spot prices

While copper futures prices reflect how much the base metal will be worth when the contract expires, spot prices show how much it’s worth at the current moment – or ‘on the spot’.

Our proprietary high grade copper ‘spot’ price is based on the two nearest futures contracts. It reflects the underlying copper price but with no fixed expiries, making it suitable for short-term trading.

The continuous pricing also creates the opportunity to perform technical analysis over the longer term. Unlike futures pricing, which is only relevant for the lifespan of the contract.

Start trading spot contracts by opening an account

3. Trade or invest in copper shares

An alternative way to gain exposure to copper is through the shares of companies in the copper industry. This could be those involved in the exploration, extraction, development, and production of copper, such as Turquoise Hill Resources, KAZ Minerals and Glencore.

The relationship between a commodity and a stock isn’t always set in stone, so it’s important to do your research and asses how copper impacts the price of stocks in the industry.

Create an account to start trading and investing in shares

4. Trade or invest in copper ETFs

Instead of trading commodity futures themselves, you could opt to trade an exchange traded funds (ETFS). This can be a great way to gain exposure to copper futures or copper stocks from a single position.

For example, the ETFS Copper represents the Bloomberg Copper Subindex, which is comprised of copper futures, or Global X Copper Miners ETF, which tracks a basket of copper mining companies.

Ready to trade ETFs? Open an account today.

Trading vs investing in copper

Although copper futures are a derivative in themselves, it is common practice to use other instruments that are always cash settled. Two of the most common are:

• Contracts for difference (CFDs) – which are agreements to exchange the difference in the price of a copper asset from when the position is opened to when it is closed
• Spread betting – which is a bet on whether the price of the asset will rise or fall

The profit or loss to your CFD and spread betting positions will depend on how far the market moves in either direction – if your prediction is correct, your trade could make a profit, but if you are incorrect, you will make a loss.

Both spread betting and CFDs are leveraged products, which means that you are only required to put down a fraction of the full value of your position in order to gain full market exposure. While leverage can magnify your profits, it can also magnify your losses, so it’s important to have a full risk management strategy in place.

Learn more about spread betting and trading CFDs.

Unlike trading copper, when you invest in shares and ETFs, you’d be buying the underlying asset upfront. You’d do so in the hope that the value of your investment rises over the long term, enabling you to sell your holding for a profit at a later date. You’d also gain shareholder rights, such as voting powers and dividends if they are paid.

With a share dealing account, you can buy US shares and ETFs commission free, and UK shares and ETFs from as little as £3.¹

Learn more about share dealing.

Open your copper trading account

Whether you want to spread bet, trade CFDs or invest in copper, fill out our online form – you could be ready to open your first trade in minutes. Plus, there’s no obligation to add funds until you want to place a trade.

If you don’t feel ready to trade on live markets yet, you can practise trading copper with our risk-free demo account.

Find your copper trading opportunity

The best way to identify an opportunity is to keep an eye on breaking news and key price levels, using our range of tools and resources:

• Expert analysis – get technical and fundamental analysis straight from our in-house team
• Trading alerts – keep your finger on the pulse with unique price and economic data alerts
• Trading signals – get actionable ‘buy’ and ‘sell’ suggestions based on analysis
• Technical indicators – discover price trends using popular indicators

Create a copper trading strategy

There are a variety of trading strategies that you can employ depending on your personal preferences and knowledge of technical indicators. But broadly speaking, copper trading strategies will depend on whether the market is trending or consolidating.

Copper strategies for trending markets

When the copper market is trending, it constantly reaches higher highs or falls to lower lows. This generally occurs at the beginning and end of the copper market life cycle.

When companies and customers are buying copper for production, the demand pushes the market price higher, whereas when construction projects are finished, there is often a slump in copper prices until the next cycle starts.

Traders seeking to match their strategy to a trending copper market will often use indicators such as moving averages and the MACD to identify buy and sell signals.

Copper strategies for consolidating markets

Consolidating markets are range bound. So, instead of reaching different price extremes, the market remains within support and resistance lines. This tends to happen during periods of equilibrium between supply and demand pressures.

For example, copper was rangebound for the entire month of May 2018, between $2.95 and $3.21, due to trade tension between the US and China.

Choose whether to buy or sell

One of the main benefits of CFD trading and spread betting is that you can speculate on copper’s price movements in either direction. You’d go ‘long’ if you believe that the price will go up, and ‘short’ if you believe that the price will go down.

Your decisions about which direction to trade in should be based on the analysis you have chosen to perform and the copper trading strategy you have made.

However, if you invest in copper shares or ETFs instead, you could only open a long position – taking advantage of upward momentum over a longer-time frame.

Open, monitor and close your position your copper position

Once you’ve decided whether to buy or sell copper, you’ll need to choose your position size, which will determine the margin you pay.

This is also a good time to think about how you’ll mitigate risk. We offer a range of solutions for risk management, including stop-losses and limit-close orders – these are used to close trades at predetermined levels of loss and profit respectively.

Learn how to manage your risk

Once you’ve opened your position, you can monitor the profit or loss of your copper trade in the ‘positions’ section of our platform.

While your trade is open, you should continue to perform technical analysis, identifying key turning points in the market. It’s also important to keep up to date with any news or data releases that could move the price of copper.

Once it’s time to close your position, you can either click ‘close’ or reverse your initial trade.

Find out more about trading commodities with us

Footnotes

¹Deal three or more times in the previous month to qualify for our best commission rate.