Iron

Iron is one of the most important commodities in the world economy, playing a key role in the manufacturing of steel. This guide explains how to trade iron ore, from different investment products to factors that influence the metal’s price. Our team have also reviewed and listed the best iron brokers:

What Is Iron Trading?

Iron ore is a popular commodity for online trading, either through buying and selling the metal directly or by speculating on ore prices using derivatives like CFDs.

The spot price of iron ore fluctuates regularly, providing short-term trading opportunities. Additionally, iron ore can be a long-term bet if you anticipate sustained economic growth, particularly in developing economies, and a hedge against inflation, as its price tends to at least keep pace with USD inflation.

98% of all iron ore is used to manufacture steel, which is crucial for infrastructure projects such as buildings and transportation. High iron prices can thus have a knock-on effect on an entire economy.

The world’s largest iron ore producers in 2022 were Australia (880 billion metric tons), Brazil (410 billion metric tons), China (380 billion metric tons) and India (290 billion metric tons).

The largest importers were China, Japan and South Korea. China is by far the largest importer, accounting for around 70% of all global iron ore imports.

Iron Chart

History

Iron has been a key metal for thousands of years. Its strength and durability make it good for many trading uses, from machinery and the hulls of ships to bridges, buildings, and aeroplanes.

The iron trade started to become standardised in the UK with the formation of the Ironmongers Livery Company in 1463. Members of this company were deemed to be iron traders and merchants that were reliable and trustworthy, akin to modern-day brokers through which you can trade iron.

Following the end of World War II, a benchmark price of iron ore was agreed upon each January to last for the entire year. This was the policy up until the 21st century when, to improve transparency for all parties across the supply chain, the frequency that the benchmark price changed increased.

Initially, many of the biggest producers agreed to set new benchmark trading prices every quarter but today, the prices are changed daily.

Factors That Influence The Price Of Iron

The main factor determining iron ore’s price is supply and demand. A range of factors may increase demand or lower supply, raising prices, or vice versa.

Economic Growth

Economic growth increases demand for steel and thus iron ore. This is especially true in developing economies, where there is a higher demand for infrastructure projects.

The main country to watch in this respect is China, the world’s largest consumer of iron ore. A thriving Chinese economy will often increase demand for the metal as infrastructure and construction projects boom.

At the same time, the growing middle classes in emerging countries will have more disposable income to spend on products such as cars, which also require iron ore to manufacture.

Currency Strength

If the currency of a producer and prominent exporter of iron ore weakens, it can be more affordable for buyers, dropping the metal’s price. Conversely, a stronger currency for exports can mean iron ore becomes more expensive.

Also note that iron ore is priced in US Dollars, so the USA’s economic performance will have a direct impact on iron prices. A weak dollar will usually drive iron prices up, particularly if investors fear a period of high inflation.

Weather

Weather can have an impact on iron ore prices if a large producer is struck by events that prevent or make it prohibitively expensive to mine the ore.

A good example of this is when Cyclone Damien hit Australia in February 2020. The cyclone impacted the Pilbara region where there were several iron ore mines, causing the destruction of transport links and leading to the temporary closure of mines. As a result, exports from Australia were reduced and the price of iron increased by more than $10 per ton.

Unexpected Events

A crisis can lead to sudden volatility in iron ore prices. This could be a large geopolitical event like the Russian invasion of Ukraine in 2022 or a more localised event, such as the Brazil Mining Disaster in 2019.

When the Brumandinho dam in Brazil collapsed in January 2019, it caused flooding in the local area which included many iron ore mines operated by Vale, one of the world’s largest iron producers. This disruption reduced the global supply of iron and sent the price climbing by around 20% by April.

Technological Developments

Advances in technology or changes in the way that it is used can have an impact on iron ore prices. For example, efforts towards decarbonisation mean that steelmakers now require premium-quality iron ore to produce steel, and this reduces the total amount of ore that is useful for manufacturing.

A technological advance that makes it easier to create high-quality steel could have the opposite effect, effectively increasing supply and lowering prices.

How To Trade Iron

Instruments

Traders can speculate on iron ore prices through a range of products:

• Futures – Futures contracts are an agreement between parties to trade a certain amount of iron ore at a predetermined price upon expiration of the contract. If the price of iron ore increases above this strike price, the buyer will profit. If iron ore drops in value, the seller will profit. Futures contracts are traded on international exchanges such as the Chicago Mercantile Exchange (CME).
• Options – These are similar to futures contracts but with the key difference that the contract buyer has no obligation to exercise the contract. This means that if the price turns against them, the buyer can let the contract expire and limit their losses to the premium paid for the option.
• CFDs – A contract for difference (CFD) is a widely available derivative in which the trader speculates on price movements of iron ore without buying or selling the underlying metal. The difference between the asset’s price when the trader opens the contract and when the contract is closed determines the profit or loss of the trade. CFDs can also be traded with leverage, boosting purchasing power.
• Stocks & ETFs – You can indirectly trade iron ore by investing in stocks of mining companies or in ETFs in the USA or China, for example, that cover iron ore producers. Mining companies such as Rio Tinto, Glencore and BHP Group are major suppliers that are listed on the London Stock Exchange. Exchange-traded funds invest in a group of assets, usually organised around a certain theme. A mining or hard commodities ETF may include several stocks that have exposure to iron ore.

Strategies

Consider the following factors when developing an iron ore trading strategy.

Firstly, consider the timeframe you intend to trade – how long do you expect to have an open position? This could be as short as a few seconds or minutes or as long as several years. The timeframe of a trade has a significant impact on the strategy you will use and the tools you will need for analysis.

Evaluate your risk appetite to determine how much money you are willing to stake for a given gain. Every trade has reward-to-risk and understanding this will help you grasp whether the maximum expected reward is worth the potential loss.

Another aspect of developing a strategy is how you will source information to support your trades, for example, technical and/or fundamental analysis.

Technical analysis comes from using indicators and charting patterns such as moving averages, the relative strength index and Bollinger Bands, amongst other volatility and volume tools. These indicators take historical data for price changes in iron ore to help you make predictions for future fluctuations and then make trades accordingly. Technical analysis tends to be most useful for short- to medium-term trades.

Fundamental analysis involves researching the broader factors impacting iron ore trading markets. This often involves reading news and announcements relevant to iron ore and using these to inform your trades.

For iron ore, a good way for traders to keep up to date with news is by following publications such as NS Energy, which reports on commodities markets. Long-term traders tend to rely more on fundamental than on technical analysis.

Register with a broker that offers a demo account so that you can develop iron strategies and practice them under real market conditions. These accounts allow you to make risk-free investments using simulated funds, but in all other respects work exactly like real-money trading.

Trading Hours

Iron ore trading hours depend on the instrument and the broker you are using, with derivatives such as iron ore futures being traded during hours set by the exchange.

The CME, for example, is open between 10pm Sunday evening and 9pm Friday evening (GMT) with an hour break every day starting at 9pm.

Comparing Iron Ore Brokers

Consider the following factors when choosing an iron ore trading broker:

• Instruments – Iron brokers offer different trading instruments, including CFDs, ETFs, futures and options. You can check the markets and instruments the brokerage supports by visiting their website. Alternatively, use our ranking of top iron ore brokers.
• Fees – Iron brokers may charge a commission per trade, though many brands such as IG Index offer commission-free trading on metals meaning you are effectively charged through the bid-ask spreads. The exact fees vary between iron brokers, the best of which will publish transparent pricing structures on their websites with no tricks. You should also take into account deposit and withdrawal charges, data fees, and inactivity penalties.
• Trading Platform – The platform is used to conduct analysis with charts and indicators and to execute trades, so it is important to find a platform you are comfortable with. Some iron brokers such as City Index offer the choice between third-party platforms like MetaTrader 4, TradingView, a mobile app and a web trader, while some will only offer downloadable proprietary software or a combination of the two. Note, iron ore trading symbols may vary between platforms.
• Regulation – Legitimate brokers with iron ore trading are regulated by the Financial Conduct Authority (FCA) in the UK. These firms are authorised to provide retail trading services and must follow various safety measures to protect clients. IG Index, City Index and eToro all hold licenses with the FCA and offer iron trading with secure logins and other measures.
• Customer Support – Check the customer support options of your shortlisted iron ore trading brokers. The best brokers will have an accessible support team available at least during trade hours through live chat or over the phone. Check user reviews for insights into the reliability of support teams during the registration and process.

Bottom Line On Iron Trading

Iron is a popular commodity that can be used as part of short-term or long-term trading strategies. Investors can use iron to speculate on steel demand, and Chinese economic growth, or to hedge against inflation and the US Dollar. However, it is a volatile asset, so it is important to have a risk management strategy. Refer to our list of the best iron ore brokers to start trading online.

FAQ

Article Sources

Iron Ore Mining & Production Data (U.S. Geological Survey)

Iron Imports & Exports (Trade Map)

IG Index Iron Ore Trading Conditions

City Index Iron Ore Trading Conditions