Precious Metals Trading

Trading precious metals is a popular avenue for those seeking investment opportunities outsides of stocks and shares. Since the uses of commodities like gold, silver and platinum have evolved rapidly, the trading of precious metals online is now supported by a wide range of brokers and trading platforms through various instruments.

This guide covers the fundamentals of precious metals, their trading prices, hours, and strategies. Stay tuned to learn how to start day trading today. We’ve also listed the best precious metals trading brokers below.

Top Precious Metals Trading Brokers

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Precious Metals Trading Explained

There are four primary precious metals used in trading: gold, silver, palladium and platinum. However, other elements such as iridium, rhodium and ruthenium are also classed as precious metals and may be available for day trading at select brokers.

As their categorisation suggests, precious metals are very scarce, which greatly contributes to their value. In addition to trading and investment assets, metals are often used to create jewellery and electronics but see utilisation in areas as diverse as dentistry and glassware.

In terms of investment and trading, precious metals are often perceived as a great store of value in times of economic uncertainty and as a hedge against inflation. That said, it’s also important to recognise that specific precious metals have unique strengths, weaknesses and price determinants.

The differences between precious metals in aspects like supply and practical application present traders with opportunities for potentially profitable day trading and investment, as well as effective hedging.

How to trade precious metals

Today, precious metals are often traded against the US dollar, with popular trading symbols such as XAUUSD (gold) and XAGUSD (silver). In addition to the derivatives markets, precious metals can also be bought, sold and even owned, via physical bullion or coin.

History

Some metals like gold and silver have been considered valuable for a long time, with civilisations long ago appreciating them due to their scarcity and appearance.

In the not-so-distant past, many currencies were minted using precious metal alloys to define their worth. To this day, many countries opt to hold reserves of precious metals to give physical backing to the value of their currency.

While these precious metals have always been symbols of wealth, the trading of commodities such as palladium, platinum and iridium has accelerated relatively recently due to their value in modern chemistry and manufacturing.

What Influences The Price Of Precious Metals?

Trading prices differ significantly depending on the specific element, as well as external global factors. Furthermore, trading prices are influenced not just by market factors, but can also vary due to differences in the quality and grade of the specific precious metal.

Market Determinants

While many look to precious metals to maintain their value during times of economic volatility, there are still various market factors that affect trading prices.

Indeed, periods of geopolitical instability in a region may raise the price of precious metals as traders look for a more secure store of wealth than fiat currency. Metals have historically been effective as a hedge against inflation, with trading prices often correlating with higher inflation rates.

Prices of materials used in manufacturing and technology are affected by the global supply and demand for the goods they are essential to. For example, the rise of a strong middle class in Eastern emerging markets has created high demand for white goods, of which silver is often a necessary component.

Conversely, innovations in technology that replace precious metals with more abundant materials may cause a decline in a precious metal’s trading price.

Quality Determinants

The grade or certification of precious metals is another aspect that has a significant effect on its trading price.

Many metals are alloyed, which means they are mixed with other elements; the ratio of precious metal to alloy compound is referred to as its ‘fineness’. Traders may be familiar with the karat rating of gold, which is a compound-specific measure of fineness. The higher a fineness rating, the greater the worth of a precious metal.

Some precious metals are alloyed with specific elements to improve appearance or function. In these cases, the alloy material will have an impact on trading prices.

Furthermore, some metals that are used in manufacturing may have to meet certain requirements or certifications concerning their condition.

Whilst these commodities tend not to be volatile, degradation can still occur and sellers must ensure their goods adhere to trading rules and standards.

How To Trade Precious Metals

When looking to trade precious metals for day trading or investment purposes, commodities traders have a plethora of available instruments at their disposal.

Spot Trading

Spot trading is the most simple form of commodities trading. It involves trading a set amount of precious metals at current market trading prices, often through a centralised exchange or brokerage.

Buyers of metals through a spot market can often choose between physical, often referred to as bullion, delivery; or to purchase precious metals on an unallocated basis through a bank or intermediary.

With the former, a trader receives their purchased precious metal in physical bars or coins. Physical precious metals trading can be a better option for those worried about counterparty risk or the safety of their local economy.

In the latter, an exchange or bank retains control of the metal whilst the buyer holds the metal on their account. The advantages of this spot trading delivery method include the absence of storage, insurance costs and comparative ease of sale.

Futures Trading

The futures market is highly significant to commodities trading, with much of the precious metals market traded as futures.

When trading futures, the buyer and seller agree on a price for the future purchase of a set amount of the chosen commodity. These future exchanges are locked in via contracts that are usually standardised and bought and sold on centralised exchanges.

Precious metals day trading brokers

Futures utilise leveraged trading to enhance profits from contracts but also come with the risk of increased losses. Traders can use arbitrage techniques to lock in profit from futures contracts or indeed sell on their contract ahead of its expiry.

ETF Trading

Exchange-traded funds, or ETFs, are day-tradable funds that act as trackers for specific markets, industry sectors or commodities. The main advantage of ETFs over traditional funds is that while funds can only be bought and sold at the end of a trading day, ETFs are bought and sold throughout the day as discrete stocks.

The main two forms of ETF investment in precious metals are funds that track either a spot or futures trading price of an asset and those that distribute funds into mining and production trading companies.

With price-tracking ETFs, the day trading of precious metals is both accessible and straightforward. What’s more, seasoned traders can take advantage of leveraged or even inverse tracking ETFs for advanced trading opportunities.

Company Trading

As briefly touched on above, indirect investment is possible through trading shares in companies involved in the mining, refinement and distribution of precious metals.

Trading shares in specific companies allows traders to use many of the instruments in this list such as CFDs, options and ETFs to capitalise on both short and long term opportunities for profit.

However, trading individual metals companies will correlate more to individual firm performance than a precious metal compared to investment in a diversified precious metal ETF.

Options Trading

Options contracts are a popular instrument with which to trade precious metals. Put simply, options contracts involves the speculation on whether an asset can reach a strike price at a set expiry time.

However, available options contracts will differ depending on your local jurisdiction, with key differences between American-style exchange-traded options contracts and over-the-counter contracts offered by brokers in the rest of the world.

American-style options contracts are traded on regulated exchanges, offering call and put options to traders with the option to close out a contract at any point.

Options contracts in the rest of the world are known as over-the-counter, where individual brokers set odds for contracts. These contracts cannot be cashed out early, but have a set gain and loss amount based on the success or failure of the contract.

CFD Trading

A contract-for-difference, or CFD, is an advanced financial derivative used to speculate on whether the price of an asset will rise or fall.

The basic premise of CFD trading is that the difference in the settlement price between trade entry and exit is paid, either by the brokerage in successful trades, or the trader in failed contracts.

CFDs don’t have an expiry time but are subject to daily financing costs and additional overnight charges, making them more suited to intra-day trading.

A CFD is an over-the-counter contract, meaning that they are offered by specific brokers rather than traded on an exchange. Traders can go either long or short on precious metals trading prices using CFDs and don’t need to own any of the underlying assets. Contracts can typically be leveraged up to 1:30.

Spread Betting

Similarly to CFDs, spread betting allows traders to speculate on the price of an asset without having to purchase or take delivery of a precious metal. Traders wager on either a price increase or decrease from its current state, with bettors rewarded for each “point” the price moves in their predicted direction.

Spread betting is popular due to its inherent leverage as well as tax advantages in some jurisdictions where gambling profits are tax-free. Whilst the leverage of a spread bet is appealing due to the high potential for gains, spread betting can also lead to substantial losses and bets should be managed with caution.

Trading Benefits

Trading precious metals can be advantageous for those who exercise proper caution and risk management. Some key benefits include:

  • Physical Assets – Those that wish to invest in precious metals have peace of mind that they are investing in a tangible material with intrinsic value. Because of their use in industry, the value is never likely to completely collapse, as many investments in stocks or crypto have done.
  • Significant Growth Potential – An often believed myth about precious metals is that they are significantly outperformed by the markets and only return growth in line with inflation. Contrary to this, over the last 20 years both gold and silver have seen far greater growth than both the S&P 500 and Dow Jones.
  • Range Of Available Trading Instruments – An area where commodities trading excels is the wide range of instruments that can be applied. Precious metals trading is available with CFDs, ETFs, spread betting, futures contracts and spot market trading.
  • Resistance To Market Instability – While prices can drop in times of global financial uncertainty, the lasting intrinsic value of precious metals means that they are often considered as a comparatively safe store of value. For investors in regions with unstable currencies or political environments, an investment in precious metals may be, if you’ll pardon the pun, worth its weight in gold.

Trading Drawbacks

Conversely, precious metals trading can come with inherent risks and pitfalls. Traders should consider the following disadvantages:

  • No Dividends – While gold and silver may outperform the market over some periods, the real power of market investments is attributed to the compounding dividends. Precious metals investments do not have dividend payments and as a result, aren’t optimal assets for long term investment.
  • Low Volatility – Precious metals are viewed by many as a hedge against market volatility. Compared to other financial assets such as crypto and stocks, trading metals derivatives may not be as profitable due to this stability.
  • Storage And Insurance Costs – For those who wish to invest in physical precious metals trading, the associated safe storage and insurance costs can be steep. When compared to assets that don’t need to be stored, this is a significant disadvantage.

Trading Strategies

The majority of successful traders will eventually formulate individual strategies when trading precious metals, so here are a few suggested areas to explore:

Artbitrage

As opposed to speculation or investment in the price of an asset, arbitrage aims to take advantage of price discrepancies between different brokers or exchanges offering the trading of precious metals. For example, if one exchange is selling spot platinum for $950 per ounce and another is offering $960, traders can simultaneously buy and sell the precious metal for a $10 profit.

Because of the 24 hours, seven days a week international commodities market, precious metals are ripe for arbitrage opportunities. However, the physical nature of these commodities can attach unique difficulties, especially when arbing on exchanges internationally.

Technical Analysis

Some traders rely strongly on precious metals trading signals from graphs and charts to make future price predictions. For trading prices influenced predominantly by market sentiment such as gold, predictions based on technical analysis can yield significant profits.

Precious metals strategies

Price predictions can be acted on either through purchasing precious metals in the spot and futures markets or speculated on through derivates like CFDs or spread betting.

Price Determinant Monitoring

Whilst the trading price of some precious metals is largely based on sentiment, the values of other metals are primarily influenced by supply and demand elements. These metals tend to be heavily used in manufacturing and technology.

Monitoring precious metals trading news such as scarcity or popularity of the goods an asset is used in, or new regulations around mining can allow traders to predict the future price of a precious metal.

How To Start Trading

Want to get started trading precious metals? Here is a guide detailing the basics of trading precious metals online:

Pick A Metal

With several precious metals to choose from with unique uses and applications, traders need to first decide on which asset they wish to trade.

When comparing commodities, things to consider include typical trading volume, size of spreads, how widely available the asset is and how volatile the precious metal is. Depending on the method of trading, any combination of these factors can be advantageous for traders.

Decide On A Trading Instrument

An advantage of commodities trading is the wide range of instruments available for speculation. Long-term investors or those looking for stable portfolio diversification may favour copper companies and futures tracking ETFs, whilst derivatives like options contracts and spread betting are more suited to short term speculation.

Finalise Your Strategy

First and foremost, a successful investment strategy requires a commitment to a specific time frame and substantiated predictions of trading prices within this period.

Some traders may favour technical analysis to try and predict trends while others may look for extrinsic factors such as precious metals trading news and global economic health. Many successful traders will consider both to construct a fuller picture of the future trading market.

Find A Trading Platform

When trading precious metals, almost all market activity will require an intermediary in the form of a broker or exchange. For those trading with precious metals brokers, it’s essential to ensure that a brokerage supports your preferred trading instruments, with derivatives such as CFDs and spot trading often having little platform overlap.

In addition to supporting preferred trading assets and instruments, the most important aspect of a broker is safety and reliability. Ensure that the broker or exchange is registered by a reputable regulator and take the time to research other clients’ reviews and experiences.

Other trading platform features to look out for include fee structure, margin and leverage capability, available trading platforms and apps, as well as deposit and withdrawal methods.

Open A Trading Account

After deciding on an online platform, the next step is to create a trading account and deposit the funds you wish to speculate or invest. In the case of leveraged trading, it’s a good idea to deposit extra funds to prevent early margin calls.

Some trading sites may require verification documents to fulfil their Know Your Customer (KYC) requirements to a regulator, but most brokers make signing up a straightforward process.

Depositing funds into a trading account is also usually straightforward, with the best brokers offering a selection of funding options such as bank transfer, PayPal or Skrill.

Select Your Product

With everything now in place to make your desired trade, use the brokerage website or associated platform to navigate to your desired asset. Make sure that you are comfortable with the process of your selected instrument and ideally have practised your strategy on a demo account before speculating with real funds.

Select the trading instrument you require and enter the terms of your trade. This can be a simple process like placing a market buy order for spot precious metals trading or more complex like opening an options contract.

Place And Monitor Your Trade

It’s time to place your trade. For some over-the-counter trades such as spread betting or some options contracts, this is the end of your active involvement in the trade. However, for CFDs, stock and ETF purchases and American options contracts, traders can monitor the details of their trade and capitalise on market movements to take potential profits or minimise losses.

Precious Metals Trading Tips

Before we wrap up this guide to trading precious metals, here are a few extra tips:

Trading Hours

Precious metals market trading hours are 24 hours a day, seven days a week. This is achieved through the utilisation of multiple geographical commodities exchanges which ensures that at least one market is always open while keeping market hours sensible for local timezones.

Even if a trader’s local exchange is not open, an international exchange for trading precious metals will be open for global use at any given time.

Education

Whether seeking a greater understanding of the price determinants of specific precious metals or advanced options trading techniques, it is a good idea to maximise your education before you start trading.

Many online brokers and precious metals trading platforms offer educational tools and content to traders, while there are also courses or books available for more in-depth and specific knowledge.

Demo Account

As with all complex markets and advanced derivatives, it is advised to familiarise yourself using paper trading, also known as demo funds, before staking real capital. For trading precious metals, many brokers offer demo accounts so that traders can get used to a specific platform, market and financial instruments at their own pace.

Final Word On Precious Metals Trading

Precious metals trading has great economic utility, from providing a solid hedge against inflation and market volatility to capitalising on ever-changing supply and demand through day trading.

The range of trading instruments available for use with various brokers and platforms means that there is something for every trading style. Furthermore, the variety of dissimilar assets within the precious metals category enhances its diversity.

The most popular metals have been a reliable store of value for thousands of years while precious metals that are used heavily in electronics and manufacturing may see even higher values in the future.

Whatever the future, the precious metals trading market seems to be going nowhere.

FAQ

What Are The Precious Metals Trading Hours?

Due to the multiple exchanges operating in their distinct time zones across the globe, commodities markets can be accessed 24 hours a day, seven days a week. Individual brokers or exchanges that trade options or other derivatives may only trade in their local market hours, however.

Is There A Precious Metals Trading App?

Many modern commodities firms have created apps for opening and monitoring trades. Brokers that opt to use popular universal trading platforms such as MetaTrader 4 and 5 also provide mobile apps for on-the-go precious metals trading.

Is Precious Metals Trading Available In The UK?

Due to the global nature of the commodities market, traders in the UK and indeed around the world can participate in precious metals trading in its many forms. That said, one trading instrument that may not be available to UK residents is American options trading.

Can I Make A Profit Trading Precious Metals Online?

Both investments and derivatives trading using precious metals can lead to potential profits for successful traders. However, trading can also involve substantial risk. Always use robust risk management techniques and exit strategies.

Do I Have To Pay A Precious Metals Trading Tax?

Tax laws around trading precious metals can be complicated based on your jurisdiction. While some forms of trading such as spread betting can shield traders from tax in some parts of the world, precious metals investment in bullion can be subject to higher bands of capital gains tax in countries such as the US.