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Mastering Metals Trading: How to Trade Precious Metals Like a Pro

Mastering Metals Trading: How to Trade Precious Metals Like a Pro, FP Markets

Reading Time: 8 Minutes

Gold and silver are recognised as valuable metals—precious metals that have been (and continue to be) desirable worldwide.

Numerous methods are available to acquire precious metals, such as gold, silver, platinum, and palladium. If you’re just getting started in the precious metals market (a key part of the commodity market), a deep understanding of your traded markets is recommended as well as knowledge of the trading strategies that can be employed.

Though it is well known that crude oil is usually the most important commodity in the world when it comes to commodities and trade, precious metals could be a better choice for investors in this asset class. With its use in industrial processes and a historic role as a store of value, precious metals are among the most popular investments in commodity trading.

Precious Metals: Brief Overview

  • Gold

Gold is a soft, dense, yellow metal (symbol AU) and is considered a precious metal that’s used by individuals and organisations worldwide. For decades, gold has been used as jewellery and money, together with playing a vital role in the electronics industry. Unlike other highly conductive metals, it does not corrode or oxidise.

Mastering Metals Trading: How to Trade Precious Metals Like a Pro, FP Markets

 

  • Silver

Silver is found in its elemental form (symbol Ag) and in ores such as argentite and chlorargyrite (horn silver). This precious metal is primarily extracted by mining for lead-zinc, copper, and copper-nickel ores. The metal is removed directly from the ore or during copper electrolytic refining. Notably, silver is utilised in dental alloys, solder applications, brazing, electrical contacts, and batteries. However, it does tarnish with time.

 

  • Platinum

Platinum (symbol Pt), another well-known precious metal, is constantly more valuable than gold due to its scarcity. Think about this, more platinum is needed to make a ring so they often cost 40-50% more than gold. Platinum has also become more fashionable in recent years.

Mastering Metals Trading: How to Trade Precious Metals Like a Pro, FP Markets

 

  • Palladium

Palladium is a precious metal found primarily in Russia, South Africa, and Canada. It is stronger than platinum and has many uses, ranging from dentistry, automotive applications, the manufacturing industry, and electronics. Also commonly referred to as ‘white gold’, the metal is a gold alloy where its colour has been diminished by alloying with another metal.

The primary application of palladium (symbol Pd) is in automobile catalytic converters. In addition, it is regularly used in jewellery, certain dental fillings, and dental crowns.

Where to Trade Precious Metals?

  • Direct investment in gold bars is a popular method of gaining access to these markets. Bars are available in various sizes to suit the investors’ needs. London hosts one of the world’s largest financial markets for gold bars (bullion). The standard bar size in this country is 400 troy ounces, referred to as a large bar in the market. Additionally, 100 troy ounces, 1 kilogram, and 5 taels (a Chinese unit of weight) are frequently used bar sizes worldwide. The standard size for silver bars is 1,000 troy ounces in the London market. The acceptable sizes for platinum and palladium are between 1 and 6 kilograms on the London market.

 

  • A popular way to invest in precious metals trading is through a mutual fund or an exchange-traded fund (ETF). It is considered an indirect form of investment where investors place their assets into a fund.

 

  • The Commodity Exchange Inc. (COMEX) is a primary market for trading futures contracts and options on aluminium, copper, gold, platinum, palladium, silver and steel.

 

  • Then, of course, there is the CFD market (Contract for Difference). Before beginning your metals CFD trading journey, you should select a reputable broker that provides superior service and support. One of the most important factors to consider when choosing a broker is regulation. A regulated broker ensures the security of your funds as regulatory bodies require that trader funds be held in segregated accounts. The regulation also extends beyond the funds in your account, requiring the broker to safeguard your personal and financial information.

How to Trade Precious Metals?

Several methods exist to start trading precious metals and are unique to each trader and investor.

Gold, clearly the most recognised of all precious metals, is a traditional safe-haven asset; many market participants invest in the yellow metal when the stock market is declining and market turmoil is prevalent.

Fundamental and technical analysis are the two most frequently used methods for analysing metal prices. Fundamental analysis is a technique that relies on the examination of macroeconomic data and market sentiment to forecast price movements. Traders attempt to analyse dynamic global economic conditions, such as inflation, political unease, and negative real interest rates. They then use the data to generate educated trading decisions about their market positioning.

Technical analysis uses insight from market psychology, behavioural economics, quantitative analysis, as well as chart studies. Technical analysts aim to use past price behaviour to predict future market movement. A common way of analysing the precious metal market is through a trend-following system, a trading methodology that seeks to capture trends using proper risk management to absorb price fluctuations.

 

Conclusion

Regarding metals CFDs, gold is the most actively traded commodity. Platinum, palladium, and silver are also widely traded metals. Fortunately, FP Markets provides a unique and trade-friendly environment to trade all of the above, with competitive trading accounts to choose from. A precious metals contract for difference (CFD) is a type of derivative that enables you to trade the movement of the underlying asset, which in this case is a precious metal, without owning the commodity. Furthermore, CFDs are traded on margin, providing the opportunity for greater exposure to the gold market for a fraction of the required purchase of physical gold, for example.

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