- Copper is a highly tradeable commodity.
- Copper prices are in US Dollars. The dollar's price has an effect on copper's price.
- Copper is becoming more popular as an investment option, along with other options.
- As looked at in our primer for copper, copper prices tend to do well when emerging markets are growing as demand derives from building and construction.
- Trading strategies for copper may include both fundamental and technical analysis.
Copper, a commodity with many key uses in industry, is closely linked to economic growth. Hedgers and speculators often use copper trading to protect or exploit future price movements. Copper trading is available to both individuals and institutions, making it a popular commodity trading option.
WHY TRADE COPER? AND HOW DOES COPPER TRADDING WORK
Accessibility is one of the advantages to copper trading. Copper is traded through a variety of avenues like futures, options, equities and CFDs. Copper ETFs (exchange traded fund) can be used to gain exposure.
Copper is a soft malleable metallic with similar properties to gold and silver. Most of its demand comes from electronic products, building construction, and transportation equipment. It is a strong conductor of electricity and heat, and therefore has a wide range of industrial uses which also leads it to trade in high volumes - a good thing for traders because it can lead to reduced spreads and potentially cleaner chart patterns.
The demand from emerging markets like India and China is a major factor in the movement of copper's price. These countries are in high demand for copper during times of economic growth. This helps to raise the price of the metal. Copper prices tend to drop when there is less demand. This dynamic should be known by traders when trading copper.
Copper traders often use fundamental and/or technical analysis to help them plan their trading strategies. This helps them predict whether copper's price will rise or fall. A trader can sell or buy copper if they are confident with their forecast. In this way, a trading strategy can also help a trader to manage their risk, identify buy and sell signals in the market and set reasonable take-profit and stop-loss levels with aim of positive risk to reward ratios.
COPPER TRADING HOUR
Copper trades on CME Globex or CME ClearPort
Sunday through Friday, 6:00 p.m. to 5:00 pm. (5:00 p.m. to 4:00 p.m. Chicago Time/CT). Each day begins at 5:00 PM.
WHAT ARE THE KEY FACTORS THAT AFFECT THE PRICE COPPER?
Like many other metals, copper is inversely correlated (see chart below) to the US Dollar which means that when the US Dollar depreciates, copper prices generally rise and vice versa. This relationship does not exist in a one-to-one fashion (delta 1), but it is highly correlated.
The reason why the US Dollar is an influencing factor on copper is because copper is priced in USD. A buyer might have to pay less in his/her home currency to buy a certain amount of copper if the Dollar falls. Copper becomes less expensive to purchase. This causes an increase in demand, and eventually, a rise in copper's price.
Refining copper means melting the metal to get rid of impurities. This is a very energy-intensive process that accounts for a significant portion of the overall cost. Oil prices tend follow a similar trajectory to copper (see chart below). However, oil prices are affected in many ways by copper which could support the positive relationship. It is evident that copper and oil have a relationship, regardless of the details. This could give valuable insight into copper market. The popularity of renewable energy sources is increasing, which could disrupt the historic price dynamics between copper and oil.
Copper is often associated with industrial growth and overall economic growth. Copper is a key component of economic growth. This includes infrastructure, manufacturing, and construction. Copper prices tend to reflect the amount of copper consumed (or demand). An increase in copper demand will generally be followed by an increase copper price, and vice versa. Copper is widely considered the king of base metals because it is used in the fastest growing emerging and established economies.
The general economics of supply and demand are observed which can be used as a rule of thumb when trading copper:
- Increase in supply - Lesser demand
- Supply decreases - Demand rises
China has a major impact on copper demand and supply. China is the largest buyer of copper worldwide. China does have its own copper mines, but China needs additional copper supply from other countries. When trading copper, it is important to take into account the Chinese economy. As China continues its growth trajectory, we can expect continued demand for copper (see chart). It is important that you note that China is determined to be self-sufficient over the long-term, which could impact future demand/supply dynamics.