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Copper trading

Trading commodities like copper is a popular way to diversify your portfolio. Here's everything you need to know.

Why trade copper?

Highly liquid

Copper is commonly traded on global commodity markets, and its price movements are often used as a barometer for the world economy.

Consistent demand

Copper is widely used in the manufacturing of many everyday items, such as electric wiring, microwaves and home heating systems. lt follows that any increase in demand for copper is indicative of activity in the wider economy.

Value

Copper is available in greater quantities in nature than gold, silver and platinum, so tends to be substantially cheaper. However, the mass industrialisation of the developing world has pushed the production of copper steadily higher in recent decades.

What affects the price of copper?

 

Emerging economies

The rapid growth in China, India, Brazil and others in recent decades has increased the demand for copper significantly. Copper traders should keep an eye on the performance of emerging markets, in particular their ability to keep up their growth rate.

 

Supply uncertainty

Political instability can have a direct effect on the price of copper. For example, South America is a key region for mining copper. In 2007, Bolivia nationalized the country’s mining industry, causing severe disruption in the supply and pushing the price higher.

 

The US housing market

Copper is widely used in housebuilding. Given the vast size of the US domestic market, it is wise to keep track of the American housing market. Data such GDP (Gross Domestic Product) and Non-Farm Payrolls are key clues for the future price of copper.

 

Substitution

This is where traders seek cheaper options when the price of a good or asset increases. The can serve to depress the price of a copper price as cheaper metals like nickel or iron are sought out when copper is expensive.

Example of copper trading

Trading copper in practice 

Your research suggests a stronger than estimated GDP figure from China and you expect the price of copper to rise.

You buy 10 contracts of copper at 3.1140. This position size equals a gain or loss of $10 per 0.0001 price movement.

Winning scenario

A couple of days later, the copper market pushes higher – to 3.1490 - and you decide to close your position and take your profit. Your winnings are calculated as follows: (3.1490 – 3.1140) x $10 = $350

Losing scenario

Alternatively, demand for copper falls after the Chinese economy underperforms and the price falls to 3.045. Your losses are calculated as follows: (3.1140 – 3.0460) x $10 = $680

Practice trading metals with £50,000 virtual funds
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