Trading Guides

How To Trade Copper

May 26, 2023

The reddish-brown metal we call copper has a wide range of use for the global economy, making it a highly traded commodity. Like many major commodities, the market for copper can be volatile and offer both profitable opportunities as well as a degree of risk for traders. 

Seen as an indicator of global economic health, copper remains a popular option for traders. In order to successfully learn how to trade copper, you’ll need to understand the forces that move this market and adopt a trading strategy that supports your goals. 

What is copper?

Copper is one of the hard commodities that hold many uses in the technology sector, as well as in heating, construction, plumbing, wiring, the heat regulation of machinery and more. While it is less expensive than other precious metals you can trade and not used for currencies in the way silver and gold are, copper’s properties make it an excellent conductor of both heat and electricity — thus its popularity as a tradeable asset. 

Copper is mainly mined in South America — Chile and Peru produce most of the world’s 19 million tonne volume that is traded every year. China also mines significant volumes of the metal and is the world’s leading producer of refined copper. 

Because of copper’s varied geographic origins and the fact that many of the world’s main suppliers of this metal are developing countries, the supply of copper can be easily disrupted or affected by a range of external factors. This vulnerability, coupled with high demand for the asset across a number of industries, makes for a highly liquid and volatile market. 

What is copper trading?

Copper trading seizes on the volatile, liquid nature of the global copper market, using speculation and wild fluctuations in price to create opportunities for profit. With volatility, however, comes heightened risk. Traders should be aware of the largest reasons the asset may rise or fall in price. 

Learn what moves the price of copper

Because copper is so heavily tied to infrastructure, it is seen as a particularly good indicator of overall global economic health. When the economy is in a growth period, money is invested into major infrastructure, making copper in high demand. However, during economic downturns, its price will often plummet as major construction and public infrastructure projects are put on hold.

Beyond these large global trends, here are some of the other factors affecting copper trading prices:

  • Supply disruptions — With most of the world’s copper coming from the developing world, political, social and economic upheaval in these countries of origin can quickly disrupt global supply chains. A change in labour laws, for example, could quickly see major price changes that would affect the supply chain. This was observed in Bolivia in 2006 when former president Evo Morales announced the country’s copper mining industry would be partially nationalised.
  • Emerging markets — As we’ve mentioned, infrastructure is a key driver of copper consumption, and the emergence of new markets that are invested in major development will lead to increased demand for copper. As new housing, electrical infrastructure, plumbing and transport are needed, copper markets can be expected to trend. Likewise, as growth in these emerging markets slows, copper prices can also predictably drop.
  • Material substitutions — Rarely will the global market tolerate an asset rising in price indefinitely. As the cost of an asset like copper starts to climb consistently, manufacturers and investors alike will seek cheaper alternatives to keep costs down.

    When copper becomes too expensive for too long a period, metals like aluminium, nickel and lead will be used as substitutes until prices recede to more affordable levels. If your copper trades are sitting at unusually high prices, this is a method of flattening out the asset’s value, which could catch traders unaware.
  • The US housing market — The sheer volume of the US housing market makes it a major driver of demand for copper. Housing construction uses copper for electrical wiring and plumbing, so when the housing market in the States is in a period of growth, copper can be expected to follow. 

Why trade copper? 

There are many reasons why traders choose to invest in copper.

  • It’s a ‘safe haven’ investment: Copper is a physical commodity, meaning it holds its value even in times of economic strife. For this reason, it’s viewed as a safe haven investment, a popular reason why many investors choose to trade copper or trade gold.
  • It can help diversify your portfolio: If you have an equity-only portfolio, adding a commodity like copper can help you to diversify your holdings and reduce volatility.
  • It’s a way to hedge against inflation: Because copper is not tied to the value of any currency or currencies, it can hold its value even as inflation climbs. For this reason, many traders choose to invest in copper as a way of hedging against inflation.
  • It drives high speculation: The liquidity and potential volatility of copper offer traders an opportunity to profit via copper CFDs. High speculation means potentially high rewards but can also carry with it risk. 

How do you trade copper? 4 easy steps to getting started 

If you want to get started with copper trading, VT Markets offer several ways to gain exposure to this market and begin trading. To start using our live trading environment, you’ll first need to create a trading account. This step only takes a few minutes, after which you can choose the asset and trading method you want to use. 

1. Select the copper asset you want to trade

Copper bullion and coins can be traded, but most copper trading takes the form of speculation on copper futures and with copper CFDs and ETFs, rather than copper bullion. 

There are various copper futures markets that you can trade in, including COMEX copper on the New York Mercantile Exchange and LME copper, which is the copper futures market on the London Metal Exchange. Different exchanges have different trading hours according to where they’re located. You may want to take this into account when considering how you will monitor your open copper trading positions.

2. Choose the way you want to trade copper

Although most copper trading speculates on copper futures rather than the spot price of the asset itself, these copper futures do usually entail physical delivery of the asset, which may not suit traders.

Instead of trading copper futures directly, traders can use derivative products in order to gain exposure and take advantage of market volatility without taking possession of the underlying asset. One way to do this is to trade the difference with copper CFDs. 

With a copper CFD or contract for difference, you are trading on the difference in price between the opening and closing positions of the underlying asset. Using fundamental and technical analysis of the market, you’ll make a prediction of the movement of the price. If you predict correctly, you’ll make a profit. If your prediction isn’t right, you’ll take on a loss. 

Copper CFDs are leveraged products, which means you trade on a percentage margin of the value’s total asset. You’ll only need to put down a fraction of the price to still receive full market exposure. This system magnifies losses but also maximises your potential profit.

3. Set up a risk management strategy 

In order to manage this potential for magnified loss, it’s recommended to have a risk management strategy in place when trading copper. This might be in the form of a stop-loss order or a limit close order — tools that can automatically close your position once it falls below your established threshold for acceptable losses. Limits can also help you lock in profits.

4. Open your first copper trade

Now, you’re ready to open your first position. You’ll need to download a powerful trading platform like MetaTrader 4 or its most recent upgrade, MT5, that allows you to execute orders quickly and gives you a transparent view of the market. 

Understanding different copper markets 

The strategy you choose to implement when trading copper will depend on what kind of market you’re dealing with. In general, there are strategies for two different types of markets: trending markets and consolidating markets. 

  • Trending markets are also volatile markets — they are defined by soaring highs and swooping lows. Trending copper markets often align with the beginning and end of copper market cycles: periods of increased demand for production will drive up prices, while the end of large infrastructure products can lead to slumps across the market.
  • Consolidating markets are more stable than trending markets — they signal that there is a balance between demand and supply side demands, and they tend to restrict prices within support and resistance lines. However, consolidating markets can still offer traders opportunities for profits via trading that takes advantage of shorter-term movements.

Ready to start trading copper?

With VT Markets, you can open and close your copper trading positions, backed by the full power of our trading tools, in-depth analysis, expert advisors and technical signals. If you need an online trading broker with exceptional client services and over a thousand instruments across all asset classes, VT Markets can help you to build up your portfolio and support you as you start trading.

FAQs

Where does copper come from?

Copper is a naturally occurring mineral, a metal that must be mined from the earth. Most of the world’s copper is currently mined in South America, with Chile and Peru producing around 5.7 tonnes and 2.2 tonnes of the metal respectively. After South America, China, The Democratic Republic of Congo and the US all produce relatively significant amounts of copper through mining. However, China is by far the most prolific producer of refined copper. 

How do you start trading copper?

To start trading copper, you’ll first need to decide on an asset you’d like to trade. Once this is established, you can choose between buying and selling copper bullion and coins or using different financial instruments like copper futures and copper CFDs to make trades with. 

After you’ve made these decisions, you can start looking at the copper market to find the right opportunity, which will depend on what kind of trading strategy you’re using. When the right option comes along, you’ll open your position and monitor it using trading tools, expert advice and daily market analysis and examining price charts to identify trends. 

Trading copper strategies can be complex, which is why many of our clients choose to first open a demo account. This demo offers a 90-day obligation-free trial period, where you can practice watching the market and opening and closing positions without any risk in an environment that closely mimics that of a live trading platform.

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