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Essentials Of Metals Trading

When we trade in metals, we generally seek to make a profit through the evolution of the price of metals.Investing in these products allows us to diversify our portfolio and thereby manage the risk associated with it.The price of metals will depend on the supply and demand for them.

Precious metals

Precious metals are chemical elements that are characterised by being solid under normal conditions, transmitting electricity, being malleable and in limited supply.

Trading precious metals requires extreme caution. Occasionally, metals markets are extremely volatile and there are no clear fundamental analysis metrics such as price/earnings ratios or interest rates.

However, when thinking about precious metals as an investment, there is a wide variety of instruments available, including CFDs,or directly in shares of commodity producing companies.

In addition, contracts for difference are a leveraged product. For example, a 10% margin, provided by your CFD broker, means that you have to deposit only 10% of the total value of your trade and the rest is covered by your CFD provider.

Contracts for difference may be the best option for traders who do not really want to buy and physically own precious metals. In addition to fixing the storage problem, CFDs allow traders to benefit from the price direction of either commodity. It doesn't matter if the precious metal price is going south or north, you can find a way to profit in either direction.

Due to their characteristics, these metals are in demand as an input in the manufacture of luxury products such as jewellery and as a store of value. This group includes gold, silver, platinum, and palladium.

As securities, they are considered as safe-haven assets as their price tends to stay the same or increase in times of economic uncertainty and therefore, they are the securities in which investors take refuge.

Gold

Gold is the number one precious metal used by traders and investors as an investment vehicle. It is also used for various industrial purposes, such as electronics, computing, dentistry, aerospace, and glass manufacturing.  Gold also maintains its leading position in the commodities market.

The best way to invest in gold for you will depend on your level of risk and the reason you want to invest in gold. However, gold spread is one of the safest and most appreciated assets, as it is a liquid,safe haven asset, it protects against inflation and it’s excellent to diversify your portfolio.

Silver

It is also used in electronics, energy, medicine, and jewellery. Silver is another popular choice among traders when it comes to commodity trading and for centuries, people have used this metal as a popular investment and store of value.

Considered one of the world's oldest currencies, silver has always been quite volatile in value. Industrial and investment demand is capable of significantly driving the price of silver in either direction. Experiencing a strong positive correlation with gold, silver tends to follow the direction of gold.

Platinum

The main component of the platinum group metals, also known as PGMs. Platinum has two main application cases: catalytic converters for automobiles and jewellery. As such, it is one of the world's most expensive raw materials, and even rarer than gold.

Platinum is also subject to strong industrial and investment demand, which affects its price. South Africa's platinum supply, which accounts for a large percentage of the precious metal's production, also has a strong impact on its price.

Palladium

Another member of the platinum group, palladium is an extremely rare precious metal that is also used to produce catalytic converters, dental equipment, and electronic parts. With the advent of recent emission standards for the entire automotive industry, palladium has become not only a luxury metal, but an essential commodity that prevents air pollution.

Like other precious metals, palladium has always been volatile, making it both risky and attractive to investors looking for a good return.

How to trade metals?

There is different ways of trading metals:

Spot

It is possible to trade in metals directly,to speculate and buy bullion metals such as gold, zinc, or lead.However, although this idea may be attractive, it will also have a few drawbacks, such as the extra expense required to store these products or the lack of liquidity of these products, as it will be necessary to go to very specialised places to trade them physically.

Financial derivatives

Financial derivatives, or CFDs, are complex products, where the return on investment is derived from the evolution of the price of a third asset.

In traditional markets, you can buy shares in companies, but how do you buy shares in metals? This option is not possible, but you can buy metals futures. Through the trading of these futures, the price of the asset is determined.Futures are contracts between two parties where they agree to exchange a certain asset on a predetermined date at a fixed price. These instruments can be used as hedging instruments.

CFDs stand for Contract For Difference. This type of contract allows the trader to speculate on the evolution of a financial asset with a minimum outlay. This tool allows you, among other possibilities, to invest in precious metals or base metals without having to make a large outlay.

The profit or loss of CFDs is determined by the difference between the entry price of the security and its exit price. CFDs usually operate with leverage, which multiplies the exposure that the investor has on the underlying asset, affecting the result of the operation.

Are metals worth investing in?

Historically, metals have beena safe haven asset, so even in times of crisis, investing in metals is always a worthwhile opportunity.

Source: multibankfx

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