While most assets come and go with time, some of them are timeless. Commodities like precious metals have been traded since antiquity, acting as the main indicators of wealth and prosperity, since their value did not fluctuate due to local events. Today, metal trading is a great way for beginner traders to start making a steady profit – let’s take a closer look at its specifics.
What metals can be traded?
You’ve definitely already heard of trading gold, which has historically retained an extremely high value because of its resistance to rust, plasticity, and ability to conduct heat and electricity much more efficiently than many other metals. People also seem to like its shine and color, making it a primary metal used for jewelry.
Gold isn’t the only metal that can be traded, however. Base metals trading also involves silver, platinum, and palladium, giving you a range of choices to consider when trading in metals. Gold is the most stable out of the bunch, and palladium has historically been the most volatile.
How to trade metals?
There are a variety of ways to trade metals, with most of them involving speculating on metal prices instead of directly purchasing the commodity. Using financial derivatives like CFDs, traders can speculate on gold, silver, and other metals price fluctuations, making profits on both falling and rising markets.
Commodity stocks and ETFs are another way of trading metals, offering low expense ratios and lower commissions than regular trading, as well as much better liquidity. Traders frequently use the strategy of spot metal trading, which is exchanging a metal – usually gold or silver – for currency. Similar to forex, spot metal trading places a given precious metal against a currency of trader’s choice, just like in currency pairs. For example, a trader can decide to trade gold against the British Pound, which would create a XAUGBP pair.
What are the advantages of metal trading?
Precious metals are considered a safe haven for traders when markets are uncertain. Even when currencies and stock prices fall down, gold and silver are known to make for good long-term investments. Despite short-lived downtrends, gold has increased in price by almost 50% in the last 5 years, with silver being close behind at over 30%.
Metal trading can also be a great way to diversify your portfolio, using gold to hedge against current affairs like high inflation and stock prices falling all over the world. They also offer much higher liquidity than most other markets and provide traders with the ability to make profits on both short and long positions, similar to Forex trading.
