Last Updated on 21 September, 2020 by Therobusttrader

Palladium is a rare and lustrous silvery-white metal discovered in 1803 by an English chemist, William Hyde Wollaston. It is among the most widely used of the six elements referred to as the platinum group metals (PGMs), which includes platinum, rhodium, ruthenium, iridium, and osmium. Although it wasn’t popular initially, trades in palladium futures have witnessed a steady growth in recent times.

Palladium futures is the easiest and cheapest way to access the palladium market. One palladium futures contract (PA) is equivalent to 100 troy ounces of the commodity, and the price quotation is in U.S. dollars and cents per troy ounce. The minimum price fluctuation is 10 cents per troy ounce or $10.00 per contract.

The metal possesses unique physical and chemical properties which make it very useful to a wide range of industries. Its corrosion-resistant nature, conductivity, and catalytic functions are important in many industrial processes. So, palladium futures are becoming increasingly popular among commodity traders.

Palladium Futures Contract Specifications
Symbol
PA
Exchange
CME
Tick Size
$10
Point Value
$100
Contract Size
100 troy ounces
Contract Months
Monthly contracts are listed for 3 consecutive months while quarterly contracts (Mar, Jun, Sep, Dec) are listed for 15 months.
Trading Hours
Sunday - Friday 5:00 p.m. - 4:00 p.m. CT including a 60-minute break each day beginning at 4:00 p.m. CT
Settlement
Physical
Last Trading Day
Third last business day of the contract month.

 

Uses of Palladium

While the element is not produced in large quantities, palladium futures are steadily increasing in value at a faster rate than other precious metals. And the reason is not unrelated to its numerous uses, which include the following:

Automobile: Palladium functions as a catalyst in several reactions and is used in the production of catalytic converters, which trap and oxidize carbon in automobile exhaust pipes.

Electronics: Either palladium or its silver alloys are used in constructing multi-layer ceramic capacitors (MLCC), which help to control the flow of current in circuits. Palladium is also used in component and connector plating in consumer electronics.

Dentistry: Alloys of palladium with silver, copper, zinc, or gold are used to decrease corrosion and increase the metallic luster of dental inlays, crowns, and bridges.

Jewelry: Because of the shiny and malleable nature of palladium (often dubbed white gold), it is becoming popular in jewelry production.

Carbon monoxide detectors: Palladium compounds are useful in carbon monoxide detectors.

Groundwater treatment: The element is also used in the treatment of groundwater.

The Largest Producers and Consumers of Palladium

The top leader in palladium production is Russia, followed by South Africa. Other major producers are Canada, the United States, and Zimbabwe. South Africa has the largest reserve of palladium. In fact, its palladium reserves account for about 90 percent of the world’s reserves. Other countries with sizeable palladium reserves are Zimbabwe, Russia, the US, and Canada.

The top consumers of the commodity are North America, China, the European Union, and Japan. Palladium futures contracts are the main means of trading the commodity, and they are offered on major commodity exchanges.

Why Trade Palladium Futures Contracts?

Trading Palladium Futures

Trading Palladium Futures

Traders have different reasons for playing the palladium futures market. Some trade for speculative purposes, while some come to the market to hedge against inflation or diversify their investment portfolios. For those involved in producing the commodity, palladium futures contract provides a way to manage price risks.

Hedging against price fluctuation: The producers of palladium come to the futures market to protect their investment from price fluctuations, while the companies that make use of the commodity, such as automobile manufacturers, electronics makers, and others, may buy the contracts to maintain a stable supply.

Speculation: The majority of the traders in the palladium futures market are there to speculate on price changes. Their sole aim is to benefit from the opportunities presented by the increased volatility in the palladium market.

Diversifying portfolio: To some investors and fund managers, the commodity market provides a way to diversify their investments away from stocks and bonds, and palladium has been gaining serious attention in recent times. Investing in multiple asset classes helps to reduce systemic risk.

Inflation hedge: Fiat money tends to depreciate during periods of high inflation, while commodity prices appreciate. So both individuals and investment funds purchase palladium futures to protect their portfolios against losses from inflation.

Palladium Futures Trading Strategies

Palladium Futures Trading Strategy

Palladium Futures Trading Strategy

Finding trading strategies for the palladium futures market isn’t as easy as in the S&P500 or other similar futures markets, but if you find one, you will be rewarded with a trading strategy that has a big chance of fitting in well with your portfolio!

In fact, the image above is an example of a palladium trading strategy that we trade at the moment!

If you’re interested in getting edges to use as inspiration for your own trading strategies, we recommend that you have a closer look at our edge membership!

How Palladium Futures are Traded

Palladium futures contracts are offered on the Tokyo Commodity Exchange (TOCOM) and the New York Mercantile Exchange (NYMEX), which is a member of the Chicago Mercantile Exchange (CME) Group. The NYMEX palladium contracts can be traded from any part of the world through the CME Globex electronic trading platform.

One palladium futures contract (PA) is equivalent to 100 troy ounces of the commodity, and the price quotation is in U.S. dollars and cents per troy ounce. The minimum price fluctuation is 10 cents per troy ounce or $10.00 per contract.

Trading is conducted over 15 months, beginning with the current month and the next two consecutive months before moving into the quarterly cycle of March, June, September, and December. The last trading day is the third business day prior to the end of the delivery month. 

At expiration, the contract is settled by physical delivery. Traders, who don’t want to take or make delivery of the commodity, can roll over their contracts to the next expiration months.

To start trading palladium futures, you need to create an account with the exchange through a certified commodity broker and deposit the required margin. Since it is a leveraged instrument, you need not have the full dollar worth of the contract before you can trade it.

However, you should be cautious about leveraged instruments — while they can make you more money, they can also make you lose more.

Factors That Affect Palladium Futures

A lot of factors can affect the prices of palladium futures contracts, and here are some of them:

Automobile demand: Most of the demand for palladium (about 75 percent) comes from the automobile industry, where it is used in making catalytic converter. Thus, an increase in automobile demand will lead to an increase in palladium demand, which can push up palladium prices.

Supply constraints: Russia and South Africa account for about 75 percent of the global palladium supply. So, political situations or labor disputes in those countries can lead to supply disruptions and affect prices.

Prices of substitutes: Other PGM elements, such as platinum and rhodium, can serve as substitutes for making catalytic converters if palladium prices become too high.

The U.S. dollar: A stronger U.S. dollars can act as an incentive for producers to increase their output, and the increase in supply will likely push palladium prices down.

Palladium Futures Seasonality

Here is a seasonal chart of the Palladium Futures Market:

Palladium Futures

Palladium Futures Seasonality

Conclusion

Palladium is a rare metal with unique physical and chemical properties. It is mostly used in making catalytic converters for automobiles but is also used in a wide variety of industrial processes, dentistry, jewelry. Palladium futures are traded on various commodity exchanges, including the TOCOM and the CME Group.

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