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Know the world of Copper Futures |
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Copper, as any other good or merchandise, is traded between producers and consumers. Producers sell their present or future production to clients, who transform the metal into shapes or alloys, so that downstream fabricators can transform these into different end-use products.
One of the most important factors in trading a commodity such as copper, is the settling of the price for the present day (spot price) or for future days.
The role of a commodity exchange is to facilitate and make transparent the process of settling prices. Three commodity exchanges provide the facilities to trade copper: The London Metal Exchange (LME), the Commodity Exchange Division of the New York Mercantile Exchange (COMEX/NYMEX), and the Shanghai Metal Exchange (SHME).
In these exchanges, prices are settled by bid and offer, reflecting the market's perception of supply and demand of a commodity on a particular day.
On the LME, copper is traded in 25 tonne lots and quoted in US dollars per tonne; on COMEX, copper is traded in lots of 25,000 pounds and quoted in US cents per pound; and on the SHME, copper is traded in lots of 5 tonnes and quoted in Renminbi per tonne.
Exchanges also provide for the trading of futures and options contracts. These allow producers and consumers to fix a price in the future, thus providing a hedge against price variations.
In this process the participation of speculators, who are ready to buy the risk of price variation in exchange for monetary reward, gives liquidity to the market. A futures or options contract defines the quality of the product, the size of the lot, delivery dates, delivery warehouses, and other aspects related to the trading process.
Contracts are unique for each exchange. The existence of futures contracts also allows producers and their clients to agree on different price settling schemes to accommodate different interests.
Exchanges also provide for warehousing facilities that enable market participants to make or take physical delivery of copper, in accordance with each exchange's criteria. back to the News |
