Trading Metals

Course name: CFD markets

Commodities are basic necessities that are used for consumption all across the world. Commodities are quite an important element in our lives. If we look around, we are surrounded by numerous types of commodities whether it is the food we eat, the energy resources we consume, or metals that are used in machinery, automobiles, electronics, and jewelry. A commodity market is a financial market that involves the exchange of physical commodities such as oil, metals, meat, natural gas, and wheat.

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The commodities are divided according to their usage such as

  • Metals, are known as ‘Hard Commodities’ includes Gold, Platinum, Silver, Copper and Palladium
  • Agricultural products, also called ‘Soft Commodities’ consists of wheat, rice, cocoa, sugar, cotton, and corn
  • Energy resources that includes oil, natural gas, and crude oil

Why Invest in Metals?

It is a common fact that before the advent of paper currency, metals such as gold and silver were used as a mode of exchange between goods and services. However, with time and technology, the gold and silver coins were replaced by paper currencies that we see and use. But, even today many countries use a Gold Standard to convert its currency into a fixed amount of gold

Precious metals diversify an investment portfolio and hedge against any uncertain financial times and rising inflation. Gold is known to retain its value over time while silver, platinum, and palladium are other valuable metals that provide an opportunity of investment. To invest in precious metals, you can physically own metals, or you can use derivative instruments such as metal exchange traded fund (ETFs) and mutual funds. Characteristics of trading in precious metals such as gold, silver, and platinum are

  • Stability against financial uncertainty

Precious metals can retain its significant value even if paper currency devalues.

  • Serve as a wall against inflation

The value of metals remains stable and is not negatively correlated like other investment options such as stocks, or indices.

  • Diversifies the trading portfolio

Among all the other commodities, metal trading is considered to be a stable invest as the physical quality of the metals do not deteriorate with time. In contrast, agricultural products need regular maintenance and are perishable.

  • CFDs (Contract for Difference) are popular among traders

The value of precious metals is quite volatile, which allows CFD traders to speculate prices no matter the direction of the price.

  • Tangible in nature

Unlike other commodities, metals are tangible, easy maintenance, and not damaged by water or fire.

Metal Trading

The exchange of different metals such as gold, silver, platinum, and copper is called ‘Metal Trading’, and it is closely linked in shaping global economies and currencies of the world. Of all the metals, gold, silver, and platinum have always been regarded as the most precious and valuable metals, which is why there are also considered as an asset that a person can invest in.

The precious metal is commonly traded in popular exchanges all over the world such as London Metals Exchange (LME), New York Mercantile Exchange, and also exchanges in China and Japan. The precious metals are graded according to its worth and value with Gold being the leader, followed by Silver, Platinum, Palladium, and Copper.

Trading Gold

Gold has always been considered a symbol of extraordinary wealth. Since ancient civilizations, gold has been used as a medium of exchange, and used in expensive jewelry and artefacts. Gold has lustrous quality, sturdy, durable and quite difficult to extract which has added to its value. The value of gold is determined by the market, and it changes every day, but the price is not affected by the forces of supply and demand.

In times of inflation, when the value of shares, bonds, and currencies drop, people rush to invest in gold as its value remains about the same and does not particular depreciate negatively. Gold is one of the best assets that you can own and even store and carry in times of economic instability.

Trading Silver

Silver is the second most valuable metal after gold, and it is also wide industrial use and even used in crafting jewelry. The silver market prices are more inconsistent as compared to gold. The supply and demand of silver change significantly due to its industrial application. Silver is now widely used in batteries, electrical appliances, superconductor, and microcircuits.

Trading Platinum

Platinum is another highly valuable metal and is traded just like gold and silver on the commodities market. Platinum is quite scarce, which makes it even more precious than gold in regular market activity and when there is political stability. Platinum is regarded as the most volatile metal, and its price is determined by its uses which include in automotive catalysts, jewelry, and petroleum refining catalysts.

List of Options for Metal Trading

Metals are hard commodities and represent quite a diverse market due to a variety of available metals from valuable gold, silver platinum to copper, iron, aluminium, and zinc. Some of the ways in which you can invest in metals are

  • Using Derivative Instruments

The derivative products such as CFD, Futures, and Options offer both leverage and liquidity to the traders who want to magnify their profits however trading with leverage can also magnify their loses. In CFD trading you do not own the metal and only have to speculate the price movements of the underlying asset. You can trade by going both the upward or downward price movements of the metals by going ‘Long’ or ‘Short’.

For example, if a CFD financial service provider offers you leverage to trade, it means you only have to deposit a smaller amount to open a larger trading account and enter the trade while rest of the amount will be covered by the CFD financial service provider.

  • Commodity ETF

Exchange Traded Funds (ETFs) is considered quite an efficient way to buy and sell for all the three precious metals gold, silver, and platinum. But you can only invest in the value of the asset and not claim the physical metal.

  • Bullion

Bullion refers to the coins and bars made from either gold or silver. Bullion is a safe option for passive investors who want to own a tangible asset that has a value in critical economic conditions.

  • Mutual Funds and Stocks

Investment in metal stocks and mutual funds require technical knowledge on how mining stocks gives value to the asset. You can go for funds with managers who have a proven track record in accessing price of the mining stock.

  • Certificates

The certificates allow investors to own gold without any trouble of storage or transportation.

Precious metals do expand your portfolio and give you ample opportunity to grow, and precious metals will always have a significant value. You need to know your goals and understand the dynamics of metal commodity market before starting any investment. The derivative products allow traders to potentially gain from the both increase and decrease of value in precious metals.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.

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