Copper Options & Futures

Futures Basics

Metal Futures

Selling (Going Short) Copper Futures to Profit from a Fall in Copper Prices

If you are bearish on copper, you can profit from a fall in copper price by taking up a short position in the copper futures market. You can do so by selling (shorting) one or more copper futures contracts at a futures exchange.

Example: Short Copper Futures Trade

You decide to go short one near-month LME Copper 'A' Grade Futures contract at the price of USD 3,171/ton. Since each Copper 'A' Grade futures contract represents 25 tonnes of copper, the value of the contract is USD 79,275. To enter the short futures position, you have to put up an initial margin of USD 15,000.

A week later, the price of copper falls and correspondingly, the price of LME Copper 'A' Grade futures drops to USD 2,854 per tonne. Each contract is now worth only USD 71,348. So by closing out your futures position now, you can exit your short position in Copper 'A' Grade Futures with a profit of USD 7,928.

Margin Requirements & Leverage

In the examples shown above, although copper prices have moved by only 10%, the ROI generated is 0%. This leverage is made possible by the relatively low margin (approximately 19%) required to control a large amount of copper represented by each contract.

Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.

Related Articles

• Copper Futures Basics
• Buying Copper Futures to Profit from a Rise in Copper Prices
• Copper Options Basics
• Copper Call Option Trading Basics
• Copper Put Option Trading Basics
• Hedging Against Rising Copper Prices with Copper Futures
• Hedging Against Falling Copper Prices with Copper Futures