The Ultimate Guide to
What is copper?
Copper is classified as an industrial metal commodity. It is mined from the ground in various forms such as Sulphide ore. Copper is a component of many different alloys such as Bronze. Copper has a number of medical and industrial uses. Due to its very good conducting properties, copper is used in making electrical wires. It is a component of many reagents used in medical laboratories for a number of biochemical tests. In historical times, it was used to produce coins.
Fundamental Influences
In 2016, copper was produced in the largest quantities in Chile, Peru, China, United States, Australia, DR Congo, Zambia, Canada, Russia and Mexico. China consumes most of the copper produced in the world, accounting for 40% of global copper usage. In 2015, China consumed 9,942,000 metric tonnes of copper, surpassing consumption of copper in Europe, USA and Japan combined.
Copper consumption by region. Statista.com
Copper prices are therefore subject to several fundamental factors:
a) Chinese GDP and manufacturing data: Over time, China has emerged as the number 1 consumer of copper in the world, accounting for 40% of global copper consumption. A contracting Chinese economy connotes a slowdown in manufacturing and therefore lesser demand for copper, which could signal a fall in prices.
b) Global supply-demand dynamics.
c) Supply disruptions such as strikes by workers of major copper mining companies.
d) Copper is widely used in electrical and plumbing works. Therefore, trends in construction can also be used to predict the price of copper.
Trading decisions are usually based on the direction of shift of any of these fundamental influences.
How is Copper Traded?
The most common financial instruments for trading copper are:
Spot
Futures
Options
Contracts-for-Difference (CFD) assets
Exchange Traded Funds
What are the Most Popular Traded Forms of Copper?
The most popular traded form of copper is high-grade copper, usually marked as HG. The active months for the futures contract is the month which follows the present month. Once the contract expires, the active month now converts to the spot month. For instance, the copper contract currently being traded is represented as follows:
Copper (HG) Active Months
March (H)
May (K)
July (N)
September (U)
December (Z)
As at the time of writing this article (February 2017), the contract marked “H” is considered the active month. Once time crosses into March 2017, then the next active month will be the “K” contract while the March contract converts into the spot month.
Trading Copper: Futures vs CFD
To illustrate the similarities and differences in how copper is traded as a futures asset or as a CFD instrument, we will look at the contract specifications on LCG Brokers for the copper asset. On the LCG Brokers platform, copper is traded as a single CFD asset.
Trading copper as a CFD does not involve actual delivery of the commodity. This is why most CFD copper trading is done on online exchanges. What the trader aims to do in copper CFD trading is to purchase contracts which will be settled on the basis of differences in the price of the asset between trade entry and trade expiry.
Futures trading in copper is mostly done on physical exchanges and also involve physical delivery of the commodity such as The ICE exchange.
LCG Brokers Contract Specifications for Copper
Copper is traded as a CFD asset on the platform of LCG Brokers. Here are the contract specifications for Copper as a traded asset with LCG.
a) Market: The copper contract is based on pricing on contracts of Copper on the US NYMEX exchange.
b) Underlying asset: High Grade Copper.
c) Minimum trade size: 0.1 lots
d) Minimum spread: 60 pips
e) Value of 1 pip per lot: $2.50
f) Contract months: The contract months for change of the Copper contracts are March, May, July, September and December.
It is important to track these months as they signify the end of old contracts and start of new ones. Any open trades on the expiring contracts will be automatically closed and trades settled in profit or loss.
g) Trading times: The trading times are: Monday 2300 hours– Fri 2200hrs (with a daily break at 2200hrs – 2300hrs). All times are British Standard Time (BST)
h) Minimum price fluctuation: 0.1 ticks.
i) Maximum Leverage: 1:100
j) Expiry and Rollover days: The expiry and rollover day for the Copper asset is the 3rd Friday of the month preceding the contract expiry. If that day is not a business day, the day immediately preceding that day should be used.
k) Underlying market expiry day: This is taken as the 3rd last business day of the delivery month.
l) Margin Requirement: The margin requirement for High Grade Copper CFD trading on LCG Brokers is 1%. A copper CFD trade that costs $5,000 to set up will require a margin of just $50 from the trader.
Trading in Copper involves bi-directional price movements; traders can benefit from rising or falling prices. When the trader expects rising prices, the trader will go long or buy Copper contracts. If a trader expects prices to fall, the trader will go short or sell contracts.
– Prices are quoted in pairs: the sell price is on the left side and the buying price is on the right side. The profit or loss on a trade is determined by the price at which the trade was entered and exited.
– Any positions held overnight (i.e. after 10pm London time) attract a holding cost.
– You can set a Stop Loss and a Take Profit (TP). You can also set a Trailing Stop and a Guaranteed Stop Loss.
– Entry orders can be Market orders, Limit orders or Stop Entry orders.
*All information collected from https://www.lcg.com/uk/, see website for full terms and conditions. Your capital is at risk. Last updated on February 27, 2017.
Spot Copper vs Copper Futures
Copper trading on a spot vs futures basis can be looked at in terms of trading copper based on immediate vs future pricing.
Spot copper trading is:
- Mainly speculators trying to benefit from the changes in price as they occur in the market.
- Is the form of copper trading done on a CFD broker’s platform.
- Positions are closed automatically when the existing contract expires.
- Does not involve physical exchange of the commodity from trader to dealer.
Copper futures trading is:
- Done primarily to hedge against adverse price fluctuations that may occur at the delivery time of the product in future.
- Principally done on the futures exchanges.
- Involves physical exchange of the commodity.
Both spot and futures copper trading can provide trading opportunities in a variety of situations, such as when there is a cyclical shift in construction and industrial data as well as government-mediated price shifts.
Five Copper-Related Commodities
Similar metal commodity include:
Gold
Silver
Platinum
Palladium
Nickel
Top 3 Copper Futures Trading Exchanges
London Metal Exchange (LME; Europe),
the Shanghai Metal Exchange (SHME; Asia)
New York Mercantile Exchange (COMEX/NYMEX; US).
Summary: Trading Copper
An understanding of the market fundamentals that move Copper prices as well as technical analysis on the charts is essential for those interesting in trading copper. It is always important to note that leverage can work in the trader’s favour and also against the trader. Leverage can magnify profits as well as losses.
