How to trade copper commodities

How to trade copper commodities

Reading time: 7 minutes

Dubbed the ‘King of Green Metals’ copper sits high in the list of the most important precious metals in the world. As a widely used industrial metal yet less expensive compared to silver and gold, it is almost indispensable in industries like construction, electronics, transportation, etc. It can be found in many products used on a daily basis— electric vehicles, plumbing, batteries, solar power systems, mobile phones, communication cables, among others. Its universal applicability makes copper play a central role in global economies, which then makes it one of the most actively traded commodities in the global financial markets.

Benefits of trading copper

Copper is a good barometer for economic health because of its strong correlation to infrastructure development. During periods of economic growth, countries that invest in major infrastructure projects drive up the demand for copper. In contrast, during economic downturns, demand for copper declines as these projects are suspended.

Factors affecting the price of copper

Supply and demand

Like all commodities, the price of copper is largely determined by macroeconomic principles, primarily by supply-and-demand dynamics. When there’s an increase in demand for copper in industries that need it for electrification and transmission, the price of copper goes up.

Natural disasters

Copper mining operations can be disrupted by natural disasters like floods, earthquakes, and hurricanes. These extreme weather events can disrupt mining activities as well as halt the transportation of this industrial metal to its destination, temporarily cutting off the supply chain, which in turn drives copper prices up.

The lengthy development of new copper mines can contribute to supply shortages. For instance, new copper mines require 7-10 years from discovery to production. As a result, supply cannot always respond quickly to rising demand.

The green movement

The global transition toward sustainable technologies and more renewable sources of energy drives the increasing demand for green metals like copper. Moreover, increasing investments related to power infrastructure enhance even more the need for copper.

Global economic conditions

The global shift toward sustainable technologies and more renewable sources of energy drives the increasing demand for green metals like copper. Moreover, the outpouring of investments in power infrastructure may further increase demand for copper.

Monetary policy

The price of commodities, including copper, is heavily influenced by the economic policies of the US Federal Reserve (Fed). Interest rates can also influence commodity prices, but the relationship may not be too strong and consistent.

How to trade copper

There are several ways to trade copper. Two of the most common are futures and Contracts for Difference (CFDs). The first is through deliverable futures contracts that can be exchanged on different markets. However, investors may not like the idea and logistics associated with storing physical reserves of copper. You can go for the second option, which is through CFDs where you can trade copper price movements and access the copper markets without directly owning the asset. CFDs allow you to trade on the rising or falling prices of raw materials or various commodities like oil, natural gas, gold, including copper.

If you’re a beginner, online trading platforms like FP Markets can enable you to trade commodity CFDs. Through the platform, you will have to do market analysis and risk management to identify potential trading opportunities and determine the best moments to buy and sell.

Step 1: Select the copper-related instrument - Decide whether you want exposure through physical copper, futures, CFDs or ETFs.

Step 2: Choose your trading method - Copper futures are often traded through physical delivery. Copper CFDs on the other hand allow traders to speculate on the price difference between opening and closing positions without owning the underlying asset.

Step 3: Choose your risk management strategy - Use stop-loss and take-profit orders to automatically close trades at your predefined levels.

Step 4: Open a copper trade - With FP Markets, you can have access to powerful trading platforms like MetaTrader 4 or MetaTrader 5 to execute your trading plan.

What trading strategies can be used for copper trading?

Prior to executing trades, it’s important to know the many different strategic approaches based on market conditions.

In trending markets, you can consider the following techniques:

• Moving averages: When a faster moving average (10-day) crosses above a slower one (50-day), it may signal an uptrend. A crossover in the opposite direction may indicate prices are beginning to fall.
• Breakout trading: Higher trading volume during a breakout above resistance or below support often suggests stronger market conviction, which increases the likelihood that the price will continue moving in that direction.
• MACD indicator: The MACD indicator compares short and long-term momentum to gauge the strength of a trend. If price and the MACD begin moving in opposite directions, it may suggest that a trend reversal is on the horizon.

For range-bound markets, you can place trades for copper between established support and resistance levels:

• Mean reversion: This is based on the idea that prices may revert towards their historical average after reaching unusually high or low levels. Traders may look to buy near support and sell near resistance when markets are moving within a range.
• Oscillator indicators: The Relative Strength Index or RSI is especially useful in range-bound markets. A reading below 30 may indicate that an asset has been oversold and could be due for a rebound, while a reading above 70 can suggest overbought conditions where upward momentum may begin to fade.
• Bollinger Band techniques: These adaptive price bands respond to shifts in volatility and can help identify possible turning points. The lower band often acts as a potential area of buying interest, while the upper band may indicate that prices are nearing a potential pullback.

Trade copper CFDs with FP Markets

Now that you know the factors influencing the price of copper, and strategies to start trading copper, you can start weighing if copper aligns with your financial goals and risk tolerance. Before executing your trade, always stay on top of the latest market insights.

A reliable trading platform like FP Markets can give you access to real-time pricing, advanced charting tools and marketing insights to help you trade copper and a wide range of global markets with confidence. Open a trading account with FP Markets and start trading copper today.