Trade Copper CFDs Online | FXTRADING.com - International

Trade Copper CFDs Online

Speculate on the global economy via our Copper CFD (XCUUSD)

Known as Dr Copper due to its ability to predict economic expansion or contraction, copper has been a favoured tool by professional money managers, institutions and investors for decades. Gain access to real-time copper prices with competitive spreads via our copper CFD. Take advantage of a fast execution trading environment with a regulated broker and enjoy low margins and higher leverage, without the burden of a futures account.

A Primer on Copper

Copper is considered to be the earliest non-precious metal, which is estimated to have come into use around 8000 BC. Due to its soft properties it was recognised as a versatile metal from the onset. And when it was eventually discovered that adding tin to the mix hardened copper it paved the way for the Bronze Age, which saw weapons and tools traditionally made from stone now made from bronze.

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Copper is currently the third most used industrial metal in the world, behind iron ore and aluminium.

Over the years it has been used for coins and jewellery, although as copper is widely available (and therefore not rare) its value has remained low relative to silver and gold. Yet it is a versatile metal which melts at a relatively low temperature and conducts electricity very well. Due to these properties it is widely used in electronic equipment, industrial machinery, motors and wiring. But is also used in construction for plumbing and roofing.

Over one third of copper production comes from Chile alone, with the rest of the major plays including China, Peru, US, and Australia. China is by far the world’s largest copper importer due to their vast construction projects, which explains why Chinese data is so closely watched to trade copper prices.

As a speculative tool, copper futures contracts are traded the world over, although most of the volume is seen on the New York Mercantile Exchange (NYMEX), Mumbai-based Multi commodity trading Exchange (MCX), Shanghai Futures Exchange (SHFE) and the London Metal Exchange (LME).

However, futures contracts are not readily available for all investors and their commissions and maintenance charges are relatively high compared to other forms of derivatives such as CFDs.

How Can You Trade Copper CFDs?

FXTRADING.com provide CFDs (contracts for difference) which are a form of derivative. As CFDs are a derivative and not traded on an underlying  exchange, the CFD trader is not entering a contract to take physical delivery of any goods or the owner of any asset.

Yet CFDs provide the trader with the ability to trade long and short in rising and falling markets. Moreover, traders gain access to much more favourable margin requirements which makes them much more affordable to trade than their futures counterpart.

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Long example: Copper CFD (XCUUSD)
A trader buys 20 contracts of the XCUUSD CFD at USD $347.50

  • If the price rises to $375 the trader could exit for a profit around $5,500
    • (# contracts x contract size) x (exit price – entry)
    • (20 x 10) x (375.00 – 347.50)
  • If prices fall to $333.50 the trader could exit for a loss around -$2,800
    • (# contracts x contract size) x (exit price – entry)
    • (20 x 10) x (333.50 – 347.50)
  • A 2% margin requirement with 50:1 leverage requires $1,390 of capital
    • (# contracts x contract size x price) / leverage
    • (20 x 10 x 347.50) / 50

 

Short example: Copper CFD (XCUUSD)
A trader sells 10 contracts of the XCUUSD CFD at USD $385.00

  • If the index falls to $305.00 the trader could exit for a profit around $8,000
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 10) x (385 – 305)
  • If the index rises to $420 the trader could exit for a loss of around -$3,500
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 10) x (385 – 420)
  • A 2% margin requirement with 50:1 leverage requires $770 of capital
    • (# contracts x contract size x price) / leverage
    • (10 x 10 x 385) / 50

 

Costs Associated with Copper CFDs

Spread:
For every market within MT4 there is a bid and ask spread. The difference between the two (ask- bid) is the spread, which represents the cost to enter the trade. The spread is a variable rate which fluctuates throughout trading session, and its width (or cost) is dictated by the amount of available liquidity and trading volume.

During periods of higher trading activity we usually expect the spread to be thinner (lower cost) than periods of low trading activity.

The spread can be seen within MT4 on a deal ticket and the market watch window.

Swaps:
A daily holding fee is calculated each day (midnight server time) for any open trades. This is known as the swap, and it can be either positive or negative (a debit or a credit) depending on the underlying interbank rates and whether the trader is long or short. As swap rates for our copper CFD is based in US dollars a currency conversion will take place if your account is denominated in another currency.

As interest rates are calculated 365 days per year our copper CFD is tradable 5 days per week, Friday is a ‘triple swap day’ to account for the weekend. This means the debit or credit to open positions may be three times higher than a typical swap day.

Market Drivers of Copper Prices

  • Supply and demand
  • Global economy
  • Economic Data
  • US dollar
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Supply and demand
Whilst prices fluctuations of all markets can be attributed to supply and demand, commodities like copper are arguably more sensitive to these forces. Yet the forces behind supply and demand for copper come in many forms.

As the majority of copper mines are based in South America (and in particular Chile) then any supply shocks due to mines in the area can make a material impact on prices. Therefore strikes, bad weather, earthquakes and geopolitical instability can squeeze supply and send copper prices soaring. And more subtle causes can include the cost of extraction and quality of mined ore.

Yet scrap metal availability is another factor for prices. Scrap copper accounts for around one third of the global supply, so a notable increase or decrease in available scrap will impact prices.

Global Economy
The health of the global economy has a direct impact on demand. A weak economy will see a drop in demand which can send prices lower, whilst a thriving economy can see copper prices pick up in anticipation of higher demand.

As the gears of an economy shift slowly they form the backbone of multi-month of even multi-year trends. In turn this can create major bullish and bearish cycles on copper prices.

Economic data
Taking this a step further, economic data provides a sneak peek into the underlying health of economic trends. Therefore economic reports which provide clues to GDP such as PMI reports can have a direct impact on copper prices.

In particular, data from China can provide good opportunities to trade copper. As strong data assumes means a stronger economy, it assumes greater demand for construction and commodities such as copper, and therefore we can see higher copper prices following the news release. Conversely, weak economic data can send copper prices lower around the release of the reports as it signals a weaker economy.

US Dollar
Given that copper is mostly traded in the US dollar then it can share an inverted correlation with USD over the long run. Whilst correlations do not always hold true and their potency fluctuates over time, traders are aware that a stronger move in copper can be expected when there is also a strong move in dollar in either direction.

Seasonality and Copper Prices

Commodities such as copper can display seasonal patterns, which means they show a tendency to outperform or underperform over certain periods of the year. Seasonal patterns are not so much as a prediction to the future, but a look at how the past has performed. So traders study these seasonal relationships alongside other forms of analysis to help the try and fine tune their strategies. Here are a few statistics we have noted for copper prices over a 28-year period.

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Monthly close price statistics:

Between January 1991 and December 2019

  • On average, July produced the highest monthly return of +2.15%
  • July also had the highest ‘win rate’, closing higher 67.9% of the time
  • The most bearish month on average was August at -1.05%
  • October produced the lowest ‘win rate, closing lower 65.5% of the time
  • 8 out of the 12 months produced positive average returns
  • May, August, September and October produced negative returns on average.

Why Trade Copper CFDs?

  • Trade long and short
  • Trade reactions to economic data
  • Trade a directional view on the global economy
  • Hedge Copper Stocks or an ETF
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Trade long and short
CFDs allow traders to speculate both long (rising markets) and short (falling markets). Whilst futures contracts also allow this there is the risk that the market may enter limit up or limit down, which can trap traders into unpleasantly volatile trades and prevent others from entering.

Trade Reactions to Economic Data
With copper being at the heart of production and therefor the global economy, it remains sensitive to a multitude of economic reports which makes it ideal for news traders seeking a quick bursts of volatility.

Trade a Directional View on the Global Economy
Yet copper can also be traded over longer time horizons as their prices can follow global trends such as the ‘reflation trade’, recessions and economic recoveries.

Hedge Copper Stocks or an ETF
Investors who trade equity portfolios or ETFs can use copper CFDs to hedge their stocks at a fraction of the upfront cost of their original investment. An investor may want to hedge their copper investments to help mitigate risks ahead of an upcoming event which may see volatility rise (such as a presidential election) or perhaps they just need to hedge their portfolio over the weekend to avoid any unwelcome weekend gaps.

Why Trade Copper CFDs with FXTRADING.com?

  • Zero-commission trading
  • No dealing desk or re-quotes
  • Multiple deposit options
  • Scalpers and HFTs welcome
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Zero-Commission Trading
The only upfront charge to enter a commodity CFD trade is the spread.

No Dealing Desk or Re-Quotes
We provide our traders with STP (straight through processing) as we have no dealing desk to interfere with trades. And with no dealing desk means there are no frustrating requotes.

Multiple Deposit Options
Fund your account with AUD, GBP, EUR or USD via Skrill, Neteller, Poli or bank transfer.

Scalpers and HFTs Welcome
Our trading infrastructure is tailored to the needs of active traders who require tight spreads and no dealing desk.

 

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