Copper is one of the metals preferred by traders, although it is largely surpassed in trading volumes by both silver and gold. The differences with the latter two, however, are numerous and make copper trading among the most difficult of all, when it comes to commodities. What separates copper from silver and gold? The answer, basically, is intuitive. In fact, copper, while being (certainly in its own way) a precious metal,
is not a safe haven asset. Or at least, it is not only a safe haven asset. It is indeed a raw material of fundamental importance for the production systems of all countries. It is in fact used to produce, among other things:
- Electrical wires and cables
- Electrical energy switches and collectors
- Heat sinks
- Pipes for transporting drinking water, gas and liquid fuels
- Sheets and strips for construction, aimed at producing the most varied components: facades, gutters, flashings primarily
- Finishes for furnishing furniture
- Components for microwave ovens (in particular thermionic valves with cathode ray tubes and magnetrons)
It is evident, therefore, that the dynamics affecting the copper market concern production-related issues. From this point of view, the distance between copper and gold/silver is abysmal. These two metals, in fact, are rarely used in industry, if we exclude the production of jewels and, indeed, are often used as an alternative to currencies from an investment perspective. This translates into dynamics that are completely different from those of copper and that have much more to do with the concept of a safe haven asset.
This is the first element that those who want to try their hand at
copper trading, perhaps as an absolute novice, should keep in mind. It is not at all a foregone element, since, in general, there is a tendency to include copper in a triad with gold and silver, improperly combining the three metals which, as we have seen, from a "trading oriented" point of view have little in common.
It is therefore good to investigate what are the dynamics that really affect the price of copper; the elements that influence demand and supply, the market movers that it is good to follow. Obviously, it is necessary to understand what are, to date, the tools available for those who want to make money trading copper.
Copper market movers
As in all markets that deal with a raw material, be it a metal or not, to identify copper market movers it is necessary to make a reasoning on demand and supply. It is always her who deals the cards: the law of demand and supply. If the former exceeds the latter, the price rises. If the latter exceeds the former, the price falls. This has been seen in the last year, characterized by OPEC's attempts to cut oil production, and thus supply.
The questions to ask are therefore the following:
what are the events that affect the demand for copper? What are the events that instead affect the supply?
To answer the first question, it is good to insert two elements into the reasoning: sectors and countries. So, ask other questions. Which countries consume the most copper? Which sectors require the most copper to function at their best?
To answer the first question, just look at the statistics.
The world's largest consumers of copper are: the United States, Japan, Germany, South Korea and Italy. Not surprisingly, they are the countries that have the strongest manufacturing in the world. This is not surprising, considering that copper, in fact, is one of the protagonists of industry, small or large.
To answer the second question, on the other hand, it is sufficient to make some logical reasoning. If copper is mainly used in the production of electrical components, it can be deduced that, somewhat ecumenically, copper depends on the entire secondary sector and, conversely, the entire secondary sector depends on copper.
The conclusion is therefore the following: the market movers related to copper demand are the production indicators of the United States, Japan, Germany and Italy. Specifically:
industrial production and manufacturing PMI.
If attention is shifted to supply, the situation is more complex. The starting point, however, is linear. Just ask:
which are the world's largest copper producers? Incidentally, the answer is: Chile, United States, China, Australia. The problem is finding "events", but also parameters or indicators, that affect the rate of copper extraction and production. In general, those parameters that, in some way, detect the vitality of a country, such as GDP and, again, industrial production (after all, copper is not just extracted, but also processed, if you want to transform it into a raw material ready for use in industry) could have an impact. Legislative interventions also have a big impact, when they obviously concern the sector. The latter, however, are much more unpredictable.
Broadly speaking, industrial production and manufacturing PMI of consumer countries represent very useful and, from a certain point of view, even sufficient market movers.
How to trade copper
Unlike currencies, i.e. Forex, trading copper - like all commodities for that matter - almost never means buying and selling... Copper. Trading, from a speculative perspective such as that of trading, especially online, does not involve the possession of the asset. This, in fact, appears exclusively as an
underlying. Copper trading is therefore essentially trading on derivative instruments.
The choice is abundant but the instruments preferred by traders are Futures and CFDs. A bit like for gold and silver in short.
Futures are real contracts, through which a price for the transaction and a date are established.
CFDs... Too. The only big difference lies in the fact that futures are regulated and standardized instruments; while CFDs are Over The Counter, so these parameters are left to free negotiation (usually by market maker brokers). This divergence gives rise to a whole series of differences. For example, CFDs have a higher spread, lower commissions and higher leverage. Broadly speaking, it can be said that CFDs are riskier instruments, more suitable for real speculation. Futures, being regulated, are instead also used (but not only) to protect investments and capital from sudden and substantial price variations.
The offer of brokers is very wide in one sense or the other. The most numerous brokers, however, are those who deal in CFDs, so online traders are more accustomed to this instrument rather than Futures. As always, however, it is also and above all a matter of personal taste, or rather of trading styles.
