U.S. copper is up again, +12.95 cents (+2.73%) at 4.8780 and I think we will be getting off the train for a bit. Between a Barron's story on Friday and ZeroHedge relaying a call for a double over the weekend the inherent leverage in the futures bears watching.
One of the reasons we prefer futures to equities—actually there are a few but—is that very same leverage on your initial margin.In the case of copper it is 16:1, meaning a 1% move in the contract, say from $3.99 where we thought the stars had aligned, a 1% move is 16% on your invested cash for a directional bet.
Thus the 22% upmove in the futures translates to 357% cash-on-cash.
And because it works both ways you can find out very quickly how dangerous this little game is. A 10 cent drop from current levels whacks your initial margin for 33%. This is why directional speculators almost always end up becoming trend-followers. For non-commercials commodities are for tradin' not investin'.
And from Mr. Neil Hume:
Copper must rally 50% for supply to meet demand, Glencore chief says https://t.co/qF01c8IQfv via @financialtimes
— Neil Hume (@humenm) May 7, 2021
How to milk a pea: the battle for the plant-based drinks market https://t.co/NqTONoXisX via @financialtimes
— Neil Hume (@humenm) May 8, 2021
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