What Do Precious Metal Traders Do?
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What Are Precious Metals?
Precious metals are rare, naturally formed chemical elements with various uses and high economic value. The four primary precious metals are gold, silver, platinum and palladium. These metals are most commonly known for their use in jewellery. However, they each have a range of different functions.
Gold has many lesser-known uses. Extremely malleable, it is moulded into thin sheets and used in outer space on astronaut visors and satellites to reflect light and radiation. Small amounts of gold are present in most consumer electronics due to its capacity to conduct electricity without tarnishing over time. Central banks worldwide hold large amounts of gold as it maintains value over time. This varied array of industrial use and long-term value preservation equates to considerable demand and high prices.
Silver is most commonly known for its use in jewellery and silverware. However, it also shares similar qualities to gold and unique lesser-known uses. Silver is widely utilised in the automobile industry to improve electric conductivity. Uniquely, silver is used in medicine and water purifiers to stave off bacteria. These varied uses mean that silver is highly traded while also serving as a long-term store of value.
Platinum has been called 'white gold' due to certain similarities in its use. Also highly pliable and capable of conducting electricity while not tarnishing, it is used in electronics and broader manufacturing to make catalytic converters (devices that lower exhaust emissions) for the automobile industry. Singular uses of platinum are found in healthcare, where it is used in cancer drugs and pacemakers. Platinum prices reflect general economic trends. If the economy is growing, platinum is required for manufacturing which can drive the price upwards. Simultaneously if the economy shrinks, there is less demand, and the price can drop.
Palladium is closely linked with platinum, belonging to the same group on the elemental chart. This similarity is also found in its uses. Palladium is the most effective metal at lowering exhaust emissions through catalytic converters. Demand for this metal outpaces the supply as countries worldwide desperately attempt to reduce emissions. This has caused prices to increase significantly. Currently, palladium is the most expensive precious metal, ranking above gold.
How To Trade Precious Metals?
Precious metal traders are investors who buy and sell precious metals, looking to maximise profit. These commodities are available for purchase in different forms and on varied markets. Investors can purchase physical gold or silver in bullion (pure mould). These are stored in banks or in the safety of their homes. This investment is taken for the hedging quality precious metals offer, maintaining long-term value.
Precious metal traders also look to profit from short-term price movements. This can be done through CFDs (contract for differences), a financial agreement with a broker which allows an investor to trade the spot prices of precious metals. If the investor thinks the price of gold will rise, he can open a long position, whereas if the investor thinks the price will go down, he can open a short position. The result of this trade is gained or lost by the investor. These contracts are available on the FP Markets trading platform, where you can trade precious metals with low cost and high efficiency. Gold and silver CFDs are available against the US Dollar or Australian Dollar with competitive leverage. This allows the trader to open a position beyond the funds available in their account. While this increases the chances of profit, it also increases the possibility of loss. Therefore, risk management is essential.
Precious metal ETFs (exchange-traded funds) are also available for metal traders. These are investment funds made up of various asset classes that attempt to replicate the performance of a specific commodity. They are traded on the equity market like a stock. Gold and Silver ETFs are popular and, therefore, liquid sources of investment. This allows a trader to invest short and long-term, as they can hold their chosen ETF indefinitely.
Commodity-related stocks are another form of precious metal trading. Moulding, distribution and mining precious metal companies are notable investments for traders. If the commodity's future is successful, these companies have a higher chance of remaining successful.
Investment can also occur through futures contracts, agreeing on a set price in the future and also through options trading, taking an option at a set date and price (also in the future). The futures market is more liquid than the physical market, therefore traders generally have more investing opportunities due to their being more willing buyers and sellers. Predicting price change successfully can wield large profits in the derivatives market. However, market volatility means investors can also incur losses.