From oil to copper: how to trade wisely when capitalising on mega trends

The global economy is an incredibly complex system making it challenging for investors to try and trade individual themes, but mega trends are far easier to predict and understand. 

Megatrends, such as the explosion in demand for copper that’s currently taking place due to the green energy revolution, can last for a decade or more. And because these trends tend to touch all corners of the financial system, there are plenty of options for traders and investors to profit.

Traders need to consider their options carefully and use strict risk and reward controls when working in these markets. They need to ensure they can capitalise on the growth that results from megatrends while limiting downside risk if the trend suddenly fizzles out.

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The global megatrends 

Some of the most critical global megatrends currently taking place are in the commodity sector. As mentioned above, global demand for copper is surging as countries try to rewire their economies for the green energy revolution. There’s also a megatrend in rare earth metals, particularly lithium, a key component of lithium-ion batteries, which power electric vehicles.

Alongside the green energy themes outlined here, an interesting mega trend is developing in the hydrocarbon market. It might seem intuitive to say there’s an emerging megatrend in the hydrocarbon market when the world is trying to decarbonise aggressively, however, the way we use hydrocarbons is shifting.

Companies and countries are trying to move away from dirty, polluting fossil fuel sources, such as coal and diesel. Instead, they are switching to cleaner gas, particularly liquefied natural gas, which is easy to transport worldwide and far less polluting than other fossil fuel sources. The booming demand for liquified natural gas (LNG) is already generating fat profits for the companies involved in this industry, from the oil and gas service companies, which help develop and maintain the wells, to the tanker companies transporting the gas (or liquid) around the world.

Outside commodities, trends include the artificial intelligence boom and the collapse of the Chinese housing market. 

Trading trends wisely 

Traders can use a range of tools and instruments in the financial markets to play all of these trends. However, it's important to remember to trade wisely as these trends, while they can last for decades, can quickly unravel. 

The copper trend is a good example. Traders can ride this trend in several ways, from buying copper futures to betting on the price of the commodity with a spread bet of CFD. There are also ETFs and ETCs that track the price of the commodity using futures contracts of the physical metal. All of these different approaches have different advantages and drawback. 

Buying copper futures directly requires a lot of upfront capital, making it challenging for small traders to invest in the market. Leverage is often used to boost buying power, but also exposes traders to bigger losses - the same is true with spread betting and CFD trading. If you’re planning to use either of these strategies, it’s vital to have a strong risk control framework in place. You need to know how much you can afford to lose and set stop losses accordingly. 

Another option to invest in the copper themes is to buy shares in the companies producing the metal. Once again, it’s vital to control risk if using this approach and remember leverage isn’t a shortcut to fast profits. 

Investors and traders can use the same set of tools to trade the hydrocarbon megatrend. It’s possible to buy futures, CFDs and spread bets on a range of hydrocarbon commodities, from oil to natural gas, although some of these markets, for example, the coal and LNG markets, are hard for smaller traders and investors to access directly. 

Here, it may be better to trade the shares in the companies playing a key role in the sector, the likes of Shell and BP in the UK and Chevron and Exxon in the US. Another option, and a company that touches virtually every section of the commodity sector, is the trading and production giant Glencore.

Put simply, there are lots of ways to trade global megatrends, but whichever approach you use, it’s vital to manage risk. It’s just as crucial for traders to manage losses as it is to generate profits.