Tag Archive | "Copper ETF"

A Copper ETF Offers An Investment In The World Economy


A Copper ETF Investment Offers Broad Economic Exposure

Copper ETFInvesting in a copper ETF is not just an investment in the widely used industrial and commercial metal commodity.  Copper is such a widely used industrial and commercial metal that an investment in a copper ETF is a de facto investment in the world economy.  In fact, copper is so closely tied to the performance of the world economy that many economists and stock market advisors follow the price of copper to help them understand the strength or weakness of the world economy.

An Exchange Traded Fund (ETF), such as a copper ETF, is a fund that holds a basket of securities (either stocks, financial securities, or futures contracts) related to the sector that the fund is focused on.  The value of a copper ETF can be based upon securities issued by companies that derive the majority of their revenues from the copper mining industry.  The value of a copper ETF can be also be based upon commodity futures that track the futures contract prices that market participants are paying to buy copper at any given time.

An example of a copper ETF that derives its value from copper mining industry stocks and financial securities is the Global X Copper Miners ETF (COPX).  The COPX is made up of stocks and financial securities that generally correspond to the price and yield performance, before fees and expenses, of the Solactive Global Copper Miners Index.  At any give time, at least 80% of the fund’s total assets are invested in securities that are economically tied to the copper mining industry.

An example of a copper ETF that derives its value from copper commodity futures is the iPath Dow Jones UBS Copper Total (JJC).  The JJC is made up of copper commodity futures that generally correspond to the price and yield performance, before fees and expenses, of the Dow Jones-UBS Copper Total Return Sub-Index.  The fund is designed to reflect the performance on the copper futures contracts traded on the New York Commodities Exchange that comprise its valuation.

Using A Copper ETF As An Emerging Market Proxy

Some stock market investors invest in a copper ETF to invest in high growth emerging markets, such as Brazil, Russia, India, and China (BRIC); otherwise known as the BRIC countries.  The thinking behind this investment strategy is that buying a copper ETF allows an investor to gain exposure to the high growth BRIC economies since these fast growing economies use a lot of copper as they grow and modernize, and the price of copper should rise in response.

Stay up to date on Copper ETF by getting on our FREE eMail list!

Posted in ETFComments Off on A Copper ETF Offers An Investment In The World Economy

iShares Copper ETF Invests In Physical Copper


iShares Copper ETF Will Offer Investment in Physical Copper

iShares 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 copper 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).

Copper ETFs that are available to traders and investors traditionally only offer investment in copper indirectly via the copper commodity contracts and options that are held by the Copper ETFs.  iShares, which is managed by BlackRock and is the largest ETF company, filed with the United States Securities and Exchange Commission (SEC) in the fall of 2010 to offer a physical iShares Copper ETF that will be called the iShares Copper Trust.  This means that instead of investing indirectly in the copper markets via commodity futures and options, the iShares Copper ETF would actually own physical copper, which would be purchased on the commodities markets and held in warehouses.  The amount of copper that is physically held by the iShares Copper ETF would be dependent upon the amount of money invested in the fund.

According to the iShares Copper Trust SEC filing, the price of the shares will be based on the price of copper that trades on the London Metals Exchange. The copper that the iShares Copper ETF physically holds will be stored in warehouses in the United States or in other locations, if approved by the trustees of the trust.

Why Investing In Copper Makes Sense

Copper is a popular industrial metal to invest in because it is used in so many industrial, commercial, and consumer applications, particularly in electrical, plumbing, and building applications.  As the world economy grows and billions of people demand better standards of living, demand for products made out of copper electrical, plumbing, and building materials grows, which causes the price of copper to rise on commodities exchanges around the world.

The iShares Copper ETF will allow investors to participate directly in the copper markets and to profit from growing world demand for copper by investing in physical copper.  The major benefit of buying physical copper via the iShares Copper ETF, verses investing in copper via a Copper ETF that derives its value from copper commodity futures and options, is that the potential for price decay is removed when an investment is made in an ETF that invests in physical copper.  This means that the money invested will have more potential to grow over time, since it will not be encumbered by price decay.

Price decay occurs when copper futures contracts in further out months are more expensive than the current futures contract.  Since the manager of a commodities contract based 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.  The iShares Copper ETF will derive its value from the physical copper that it will store in warehouses, thus avoiding the issue of price decay.

As of August 2011, the iShares Copper ETF is not yet available for trading and investing.  However, once the iShares Copper ETF is launched, those interested in trading or investing in copper would be wise to take a look at this direct physical copper ETF to make the most of their trades or investment in copper.

To learn more about copper ETFs, see Investing in Copper Via a Copper ETF.

Stay up to date on the latest news for investors by getting on our FREE eMail list!

Posted in ETFComments Off on iShares Copper ETF Invests In Physical Copper

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.

Stay up to date on Copper ETF by getting on our FREE eMail list!

Posted in ETFComments Off on Investing in Copper Via a Copper ETF


Sign Up for Text Message Alerts

By clicking 'Join Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Follow Us on

Facebook

Twitter

Google+

Pinterest

Trade With…


© 2021 MJ Capital, LLC | All rights reserved