How To Invest In Nickel Futures Contracts

Gone are the days when nickel was seen as just an industrial metal. With demand soaring from stainless steel makers and battery producers, nickel has become one of the most sought-after commodities for investors looking to profit from the price appreciation of metals.

Investing in nickel futures isn’t as simple as just buying up physical metal bars. In this detailed guide, you’ll learn about futures contracts, allowing you to wager on nickel prices without owning metal.

What are Nickel Futures Contracts?

Nickel futures contracts are legally binding agreements to buy or sell a standardized amount of nickel at a predetermined price on a specified future date. They are traded on exchanges like the London Metal Exchange (LME), enabling producers and consumers to hedge against volatile nickel prices.

For example, an electric vehicle battery manufacturer needing nickel in 6 months could buy a futures contract now to lock in a price. This protects them from potentially higher nickel prices down the road. A nickel miner could also sell futures contracts to guarantee a selling price and revenue.

Nickel futures are standardized contracts with these specifications:

• Quantity: 6 metric tons
• Quality: Minimum 99.8% purity
• Trading Unit: US dollars per metric ton
• Tick Size: $5 per ton
• Contract Cycle: Monthly contracts listed for 27 months
• Settlement: Cash settlement upon expiration, no physical delivery

Futures contracts trade during regular exchange hours with real-time price quotes. They are leveraged instruments, meaning you only have to put down a small initial margin deposit instead of paying the full value upfront.

Leverage provides exposure with less capital but also amplifies losses, so utilize risk management practices.

How Do Nickel Futures Contracts Work?

When you enter into a nickel futures contract, you agree to buy or sell a standardized quantity of nickel, currently set at six metric tons per contract, at a predetermined price on a specified future date.

The price you agree upon when entering the contract is the futures price. This price will fluctuate over time based on supply and demand in the nickel market. If prices rise, buyers will benefit from having locked in a lower price through their futures contracts. If prices fall, sellers will benefit.

Rather than taking physical delivery of nickel, most futures contracts are cash-settled. This means that on the expiration date, the holder of a long position will receive a payment if the settlement price is higher than the original futures price they paid.

If it is lower, they will owe money. For example, if you bought a contract for $25,000 per ton and the settlement price was $27,000, you would earn $2,000 per ton profit, or $12,000 total across the 6-ton contract.

Traders can also close out positions early, before expiration, by making an offsetting trade. If you initially bought a contract, you would sell it back to exit the position.

Any profits or losses based on the buying and selling prices would be realized at this point. This flexibility allows traders to capitalize on price movements in either direction or limit losses by closing out losing positions.

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3 Most Heavily Traded Nickel ETFs Today

1. iPath Bloomberg Nickel Subindex Total Return ETN (JJN)

JJN is one of the most heavily traded nickel ETFs. This ETN directly tracks the Bloomberg Nickel Subindex Total Return, which follows futures contracts on nickel.

This ETN has over $50 million in assets under management and sees an average daily trading volume of over 50,000 shares. This makes it a very liquid way to get exposure to nickel prices.

2. iPath Pure Beta Nickel ETN (NINI)

Like JJN, NINI also tracks an index of nickel futures contracts. However, NINI aims to eliminate single commodity risk by selecting a basket of contracts across the futures curve.

With over $30 million in AUM, NINI has a high daily volume, averaging around 40,000 shares per day. Its focus on risk management makes it appealing to conservative investors.

3. Global X Disruptive Materials ETF (DMAT)

DMAT is a newcomer to the ETF space, launched in January 2022. This niche fund invests in companies that produce rare earth metals, including nickel.

As a brand-new ETF, DMAT has yet to build a large asset base. As of February 2024, it manages approximately $4 million in net assets. Despite its small size, DMAT offers a way to invest in nickel and other precious metals that are highly traded in the market.

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Trading Nickel Futures Contracts

Now, let’s discuss how actually to trade nickel futures contracts. The process involves seven steps:

1. Find a broker that offers futures trading and open an account. One of the popular choices is Markets.com, which provides a contract for differences (CFDs) trading method.
2. Deposit funds into your account to cover the initial margin requirements. Margin needs are typically 5-15% of the contract’s total value.
3. Pick a futures contract month to trade based on your outlook and investment timeline. Nearby contract months tend to be the most liquid.
4. Place a buy or sell order for your desired number of contracts. You can set different order types like market, limit, and stop orders.
5. Monitor the futures prices and stay on top of factors impacting supply/demand. Nickel prices can be volatile.
6. Close out your position before expiration by selling if you initially bought or buying if you initially sold.
7. Settle your trade and collect any profits or pay any losses based on the closing price. Your broker will handle the settlement.

Utilize stop losses and maintain proper position sizing to control risk. Trading futures requires discipline, research, and risk management skills. Work closely with your broker to implement effective trading strategies.

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Closing Thoughts

For traders looking to profit from the soaring demand for nickel, futures contracts present lucrative opportunities. This guide has shown that these standardized agreements allow you to wager on nickel prices without storing physical metal.

Using leverage, you can gain significant exposure to nickel spot price movements with less capital required upfront.

Be sure to utilize disciplined risk management tactics like stop losses and appropriate position sizing.

Ready to trade with markets.com? Creating an account is easy!

“When considering “CFDs” for trading and price predictions, remember that trading CFDs involves a significant risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be considered investment advice.”