How to trade copper?
An in-depth analysis on the trading opportunities in the copper market
Copper trading – The basics
Copper is a red-coloured metal that is believed to be the first metal ever used by humans. Today, copper is widely used in industrial manufacturing for the production of a large number of every day items, such as electric wiring, microwaves and home heating systems.
Unlike gold, silver and platinum, copper is available in greater quantities in nature, it costs less and therefore it’s not viewed as a currency. The mass industrialisation of the developing world has pushed the production of copper higher since 2011.
Due to its use in a diverse range of industries, the price of copper is often used as a barometer for the performance of the global economy. That’s why you might hear commodity traders referring to it as Dr. Copper. With such a strong position in the world economy, let’s take a look at the unique characteristic of the market, the factors that affect the price and how traders can take advantage of them.
Key features of copper
- Top copper producing countries
About 20 million tons of copper are mined annually in countries around the world, with the following accounting for the majority of the mining:
- Top copper consuming countries
The countries that account for the larger consumption of copper, and therefore are key in determining its demand and price, include:
Copper is one of the metals that is being regularly recycled. Almost 10% of the global copper supply comes from recycling.
What affects the price of copper?
Considering the wide use of copper in the economy and the large number of countries involved in trading it, it might look hard to determine the factors that have a major impact on the price of copper. To help traders understand what moves the copper markets, below we break down these factors in four main categories.
- Demand from emerging countries
Emerging markets with fast developing economies are among the key drivers of copper prices. The growth that China, India and Brazil have seen in the recent decades increased the demand for copper significantly. A key indicator for copper traders to keep an eye on is performance of such countries and their ability to keep up their growth rate.
- Supply uncertainty
It is worth noting that when it comes to copper, political instability can have a direct effect on the price. Let’s take South America for example, a key region in mining copper. Back in 2007, Bolivia’s President nationalized the country’s mining industry causing a disruption in the supply and pushing the price higher.
- The housing market in the US
Since copper is used widely in home building, the magnitude of the US horsing market, makes it a key economy to keep track of. Reposts such as the US GDP (Gross Domestic Product) and Non-Farm Payrolls are key to traders looking for clues about the price of copper.
Historical copper prices
The below chart shows the fluctuations of the price of copper since 1970. Following a downtrend from 2011 to 2015, copper prices have been on the rise for the past two years. When compared to gold, there has been a strong correlation over the decades, despite the fact that copper is mainly an industrial commodity and gold is deemed to have monetary value. As a rule of thumb, when traders are confident about the global economy, the risk-on mood is likely to push the copper prices higher.
Copper price chart 1975 - 2017
Example of copper trading
Let’s see how trading copper works in practice. Your research suggests a stronger than estimated GDP figure from China and you expect the price of copper to rise. For that reason, you buy 10 contracts of copper at 3.1140. This position size equals a gain or loss of $10 per 0.0001 price movement.
A couple of days later, the copper market pushes higher and you decide to close your position and take your profit. Your winnings are calculated as follows: (2.6750 – 2.6400) x $10 = $350
Now that you know the copper market inside out, the next step is to
- Start trading
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Losses can exceed deposits.