What are Copper Futures?

Copper futures as an insurance policy

A copper futures contract typically represents 25 metric tons of copper. Each contract is a firm commitment to make or accept delivery of a specified quantity and quality of the metal. Delivery is set for a particular month at a price agreed upon at the time the commitment is made.

Many investors see this as an “insurance policy” for their portfolio. Those who consume or produce copper can manage copper price risk by employing a short hedge to lock in a selling price for the copper they produce, or a long hedge to secure a purchase price for copper they know they will need.

To implement a long hedge, enough futures need to be purchased to cover the quantity of copper required by the business operator. The downside of long hedges is that if the price of copper ends up falling, the buyer would have been better off without the hedge.

Copper futures are also traded by speculators who take more of a risk in order to possibly profit from a favorable copper price movement. The aim of these speculators is to buy copper futures when they believe copper prices will go up, and sell when they think prices for the red metal will fall.