How to Buy and Trade Copper ETFs and Futures
Exchange traded funds – ETFs – tracking the value of precious metals have been a big hit with investors. The idea of investing in the value of a particular metal has been expanded to cover the price of copper. The available copper tracking ETFs allow you to profit from either an increase in the price of copper or a decrease if you expect the industrial metal to fall in value.
Verify or deposit the money you want to use to buy a copper ETF into your brokerage account. The buying and selling of ETF shares is accomplished in the same manner as for stock shares — placing buy or sell orders through your brokerage account.
Decide whether you want to hold a copper position for a longer period — longer than a week — or trade short term. If you think copper will decline in value you can buy an inverse copper ETF. At the time of publication, there were five copper tracking ETFs available. The funds with the symbols JJC, CPER and CUPM directly track the price of copper as it trades on the commodity futures markets. The fund trading under LCPR generates price value changes at two times the price change of copper and SCPR changes value in the opposite direction of copper prices with twice the value change. LCPR and SCPR are suitable for short-term trading.
Purchase shares of your selected copper ETF by placing a buy order with the stock symbol and number of shares through your online brokerage account. ETF shares trade on the stock exchange, and your order will be filled almost immediately during market hours. Confirm that the order was filled by checking your account summary page, which should list the copper ETF shares and the purchase price.
Copper is one of the most important base metals, and the metal is used by a wide range of industries. COMEX copper is the copper futures contract that trades on Commodity Exchange division of the New York Mercantile Exchange. With copper futures you can purchase contracts with delivery dates out to five years in the future. Of course, you can always sell your futures position to lock in a profit.
Commodity Futures Broker
To buy copper or any other type of futures, you need to open an account with a commodity futures broker. These brokers are registered with the Commodity Futures Trading Commission and National Futures Association in the same manner stockbrokers register with the Financial Industry Regulatory Authority. You can place trades either by calling a live broker or using broker-supplied software to make trades from your computer. The use of live brokers to place trades is still a part of the futures trading business.
COMEX Copper Futures
The COMEX copper futures contract is for the future delivery of 25,000 pounds of Grade 1 copper. Contract months are available for every month for the next two years and then quarterly out to five years. Active traders focus on the current or next month prices, which will closely match the spot price of copper. An open futures position can always be rolled out to a future contract date to avoid reaching the end of trading on a contract and be liable to buy 25,000 pounds of copper. Copper is priced per pound out to 0.05 cent increments.
Buying and Selling
When your trade copper futures contracts, you can initiate a trade with either a buy or sell order. You buy to profit from a rising copper price or sell to profit from a falling price. The opposite order type closes the trade. When you place a trade, the broker requires the payment of a margin deposit. In February 2013, the margin for COMEX futures was $3,410 per contract. The use of margin allows you to leverage changes in the price of copper, since 25,000 pounds of copper is worth over $90,000 at the $3.70 copper price of early 2013.
Profits and Losses
Once you have a position in copper futures, you will earn a profit or loss based on how much the price of copper changes. For example, you bought one contract with a price of $3.70; copper moves up to $3.80 for a 10 cent gain; 10 cents on 25,000 pounds produces a $2,500 profit. If copper went down instead of up, the broker would require you to put up more margin money or close out the trade. The maintenance margin of $3,100 means that at a $310 loss level, your broker would be asking for more money to keep the position open.
E-mini Copper
COMEX also offers an e-mini version of the copper futures contract. The e-mini copper is half the size — 12,500 pounds — of the regular copper futures and the initial and maintenance margin amounts are also half-sized. E-mini contracts also settle for cash instead of copper, so there is no worry of accidentally buying 6 tons of copper.
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