Tag Archive | "copper commodity prices"

Investing in Copper Via a Copper ETF


Using A Copper ETF For Copper Commodity Investment

Copper ETFCopper is a commodity that can be bought and sold via various copper commodity contracts at commodities exchanges.  A commodity is a fungible item; meaning it can be replaced or exchanged by another identical product of similar quality that is produced anywhere.

Since trading copper commodity contracts involves buying commodity futures and options that can be highly volatile and risky, many traders and investors are not inclined to buy and sell copper via copper commodity contracts.  An easy alternative that allows traders and investors to participate in the copper market is buying and selling an interest in copper via a Copper Exchange Traded Fund (ETF).

While buying a Copper ETF is not the same as buying physical copper and does not have the potential for windfall profits that copper commodity contracts have, a Copper ETF does allow a trader or investor profit from changes in the price of copper futures without assuming the risk of buying copper commodity contracts.  The performance of a Copper ETF is directly correlated to the performance of the underlying copper commodity contracts and options that the Copper ETF holds.  If the copper commodity futures contracts rise in price, then the associated copper commodity contracts and options that the Copper ETF holds also increase in value, which causes the value of the Copper ETF to increase in price.  The Copper ETF loses value if the copper commodity futures contracts fall in price.

Investing or trading the copper market by buying or selling short a Copper ETF is inherently less risky than buying or shorting copper commodity contracts, since a Copper ETF spreads the risk out by buying multiple copper commodity contracts and reinvests the proceeds before the contracts expire, ensuring that the Copper ETF does not lose all of its value, as the futures and options contracts expire.  Buying, selling, or selling short a Copper ETF is literally as easy as buying or selling as a stock.  You use the symbol for the Copper ETF to enter buy, sell, and short sale orders, just as you would any stock.

When the copper commodity contracts and options expire, the Copper ETF buys more of the copper commodity contracts and options for future months, in accordance with their bylaws.

Understanding Price Decay When Investing In A Copper ETF

While investing in the copper market via a Copper ETF is a good way to limit investment risk, investors and traders need to understand price decay that can reduce the value of the Copper ETF over time if copper futures are not rising in price.  Price decay occurs when copper futures contracts in further out months are more expensive than the current futures contract.  Since the manager of a Copper ETF has to sell the current copper commodity contracts before they expire and “roll them over” into copper contracts for future months, the price of the Copper ETF can decay in price if the current copper commodity contracts that they sell are worth less than further out months that they must buy to maintain their position in copper.  Even a modest difference in the price of the current and further out copper commodity contracts can cause a significant decay in the price of a Copper ETF over a long period of time, as the Copper ETF holds less copper commodity contracts due to the higher prices that must be paid for copper commodity contracts in the further out months.

Those who wish to make copper commodity investment part of their investment strategy are encouraged to learn as much as possible about what a Copper ETF is, which can be a very useful investment tool to make money on commodity price changes and can serve as a hedge against price declines in other investments.

To learn more about futures, see Buying and Selling Futures.  To learn more about options on commodity futures, see Option Trading Basics.

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Copper Commodity Price: Buy Low Now, Sell High Later


The Rise and Fall of Copper Commodity Price

copper commodity price

The recent fall in copper commodity price has only been a minor setback in an otherwise stellar year. Copper has risen to the top of the commodity ladder due to its frequent use by Chinese manufacturers. In fact, China’s demand of the commodity caused its price to rise continuously throughout June and far into July. Over the last few days, however, copper commodity price has seen a drastic drop. This is largely because China has decreased its factory activity, resulting in a decreased demand for copper.

Should the Copper Commodity Price Drop Affect My Investment Decisions?

Changes in market conditions should always affect investment decisions, but there is no need to panic quite yet. In fact, a fall in copper commodity price may mark the perfect moment to make an investment. The old adage, “buy low, sell high,” may be overused, but that does not stop it from being useful advice. Copper is cheap right now, but the price is likely to go up in the near future,

Consider the demand for copper. Copper is one of the main materials in most electronics. Smart phones, gaming systems and computers all use components made of copper. In fact, this is why the demand has been so great over the last decade. Just because China has decreased production of these products does not mean that consumer demand has lessened. With the rise of mobile technology, electronics sales are skyrocketing, and each of these devices contains wires, circuit boards and computer chips made from copper. The current lull in the market signifies the perfect time to make an investment. Investing in copper while copper commodity price is still low may guarantee a huge return when the next round of smart phones goes into production.

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