Last Updated on 11 September, 2023 by Samuelsson
Platinum futures trading strategies are a popular choice among traders due to the unique properties of platinum. As a dense, silvery-white precious metal, platinum is highly valued for its versatility and durability. It is soft, ductile, and malleable, making it easy to work with and shape into a variety of forms. In addition, platinum is highly unreactive and resistant to corrosion, even at high temperatures. This makes it a noble metal, highly prized for its durability and resistance to wear and tear.
In addition to its physical properties, platinum is also a valuable commodity in the world of futures trading. As one of the six platinum group metals (PGMs), which include palladium, rhodium, ruthenium, iridium, and osmium, platinum is widely sought after by traders and investors looking to capitalize on price fluctuations in the commodities market. Whether you are a seasoned trader or new to the world of platinum futures, there are a range of strategies to consider when navigating this complex and dynamic market
Platinum futures market are perfect for those who want easy and cheap exposure to the platinum market. One platinum futures contract (PL) is equivalent to 50 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 $5.00 per contract.
With an average abundance of approximately 5 μg/kg in Earth’s crust, platinum is one of the rarest elements on our planet. Owing to its scarcity in the Earth’s crust, the annual production is only about a few hundred tonnes. Platinum futures are very popular in the commodity market due to its importance in diverse industrial processes.
Uses of Platinum
As a versatile commodity with a wide range of uses in different industries, platinum futures are widely traded on commodity exchanges. Its usefulness cuts across the following:
Auto industry: Platinum is used by automobile manufacturers to make catalytic converters, which control the emission of carbon from exhaust pipes of diesel-run vehicles. About 40 percent of platinum demand is from the automobile industry.
Dentistry: Due to its inert nature, platinum is used in making dental crowns and certain dentistry equipment.
Other industries: There are several other industrial uses of platinum, such as in oxygen sensors, spark plugs, turbine engines, and others. These account for about 25 percent of global platinum demand.
Jewelry: The lustrous nature of platinum makes it a popular choice in making necklaces, rings, bracelets, and watches. Up to 30 percent of the global platinum demand is for jewelry and ornaments.
Investment: Some investors keep the physical commodity (in the form of coins, ingots, or bars) as a store of wealth. About 5 percent of platinum demand is for this purpose.
The Largest Producers and Consumers of Platinum
Accounting for about 80% of the world’s platinum production, South Africa is, by far, the largest producer of platinum. Other top producers are Russia, Zimbabwe, Canada, and the United States. As regards PGM reserves, South Africa has more than 90 percent of the Earth’s PGM reserves. Zimbabwe, Russia, the US, and Canada are other countries with sizeable PGM reserves.
Europe is the largest consumer of platinum, accounting for about 50 percent of the annual global demand for platinum. North America, Japan, and China also consume a great percentage of the world’s platinum supply. The commodity is traded via platinum futures contracts on the commodity exchanges.
Why Trade Platinum Futures Contracts?
There are different reasons for playing the platinum futures market. It could be for speculative purposes but could also be a way of hedging against inflation or diversifying investment portfolios. The main stakeholders in the platinum production-utilization chain come to the futures market to manage price risks.
Hedging against price fluctuation: The producers of the commodity may sell platinum futures contracts to protect their businesses from price fluctuations, while the end-users, such as automobile producers and jewelry makers, may buy the contracts to maintain a stable supply of the commodity.
Speculative trading: Aside from the stakeholders, most of the traders in the platinum futures market trade purely for speculative reasons. The speculators try to benefit from the regular changes in the price of the commodity.
Diversifying portfolio: Many investors and fund managers come to the platinum market to diversify their portfolio. By investing in commodities like platinum, these investors are spreading their risk across different asset classes, so if there is a bear market in one asset class, their portfolio won’t suffer a major hit.
Inflation hedge: While paper money loses value due to inflation, commodities appreciate in value when inflation bites hard. Thus, platinum can be used to hedge against inflation. Certain investors buy the physical commodity, such as platinum coins, ingots, or bars, to keep as a store of wealth. In fact, investors account for about 5% of global gross demand annually.
How to Trade Platinum Futures
The New York Mercantile Exchange (NYMEX), a member of the Chicago Mercantile Exchange (CME) Group, offers platinum futures contracts. Through the CME Globex electronic trading platform, the contracts can be traded from any part of the world.
One platinum futures contract (PL) is equivalent to 50 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 $5.00 per contract.
Trading is conducted over 15 months beginning with the current month and the next two calendar months before moving into the quarterly cycle of January, April, July, and October. At expiration, the contract is settled by physical delivery, and platinum delivered under this contract shall have a minimum purity of 99.95%. Traders, who don’t want to take or make delivery of the commodity, can roll over their contracts to the next expiration months.
All you need to do to start trading platinum futures is to create an account with the exchange through a certified commodity broker and deposit the required margin. Platinum futures are leveraged instruments, so you need not have the full dollar worth of the contract before trading it.
In addition to the CME platforms, platinum futures are also traded on the Tokyo Commodity Exchange (TOCOM).
Platinum Futures Trading Strategies
Here is a trading strategy in Platinum.
Finding platinum trading strategies for platinum futures isn’t as easy as finding strategies for more common markets, like the trading strategies for S&P-500. However, upon finding one, you will very likely be rewarded with a trading strategy that fits well into your current portfolio of strategies.
If you want to get some inspiration for building strategies on the metal futures markets, we recommend that you have a look at our edge membership!
Factors That Affect Platinum Futures
There are many factors that can affect the prices of platinum futures, and these are some of them:
The situation in South Africa: South Africa accounts for about 80 percent of the global platinum supply and 90 percent of proven reserves. Thus, socio-political events in the country, such as labor strikes and policy changes can affect platinum supply.
Automobile demand: The automobile industry uses about 40 percent of the platinum supply in making catalytic converters. If demand for automobiles decline or the taste shifts to electric vehicles, the demand for platinum may decline.
Alternative catalytic converters: There are other metals that compete with platinum for use in catalytic converters. Palladium is a typical example.
Platinum Futures Seasonality
Platinum is a precious metal that is used in a variety of industrial and jewelry applications. The price of platinum is influenced by various factors, including supply and demand dynamics, economic conditions, and investor sentiment. Seasonality can also play a role in the price of platinum and other commodities.
Seasonality refers to recurring patterns in the price of a commodity that occur at specific times of the year. These patterns can be caused by a variety of factors, such as changes in demand for the commodity, shifts in the supply of the commodity, and the influence of holidays and other cultural events.
It is important to note that seasonality is not a guaranteed phenomenon and can vary from year to year. It is always a good idea to do your own research and analysis before making any investment decisions.
How to make a trading strategy in Plantum futures
There are many different trading strategies that can be used when trading platinum futures. It’s important to choose a strategy that aligns with your investment objectives, risk tolerance, and experience level. Here are a few things to consider when developing a platinum trading strategy:
Market conditions: Platinum prices can be influenced by a variety of factors, including supply and demand dynamics, economic conditions, and geopolitical events. It’s important to stay up-to-date on these factors and how they may impact platinum prices.
Risk management: As with any investment, it’s important to manage risk when trading platinum futures. This can include using stop-loss orders, diversifying your portfolio, and being aware of your overall level of exposure to platinum.
Technical analysis: Many traders use technical analysis to identify patterns and trends in platinum prices that may indicate buying or selling opportunities. This can include looking at chart patterns, moving averages, and other indicators.
Fundamentals analysis: Some traders focus on fundamental factors when making trading decisions, such as changes in global platinum supply and demand or the state of the economy.
Trading strategies: There are many different strategies that traders can use when trading platinum futures. Some common strategies include day trading, swing trading, and trend following. It’s important to choose a strategy that aligns with your investment goals and risk tolerance.
It’s also a good idea to practice trading using a simulated account before risking real money. This can help you gain experience and refine your strategy without the risk of losing money.
Platinum futures strategies, edges and backtests
There are several strategies that traders can use when trading platinum futures, such as trend following, countertrend, and range trading.
Trend following involves buying platinum futures when prices are rising and selling when they are falling. This strategy is based on the idea that platinum prices tend to trend in a particular direction over time, and traders can profit by riding these trends.
Countertrend strategies involve taking positions that are opposite to the current trend. For example, if platinum prices are rising, a countertrend trader might sell platinum futures in the expectation that prices will fall. These strategies can be risky because they go against the dominant trend, but they can also be profitable if the trend does indeed reverse.
Range trading involves buying platinum futures when prices are low and selling when they are high. This strategy is based on the idea that platinum prices will fluctuate within a certain range over time and that traders can profit by buying at the lower end of the range and selling at the upper end.
To determine the effectiveness of these strategies, traders can use backtesting, which involves simulating a trading strategy using historical data to see how it would have performed. This can help traders identify potential edges and optimize their trading strategies.
It’s important to note that past performance is not indicative of future results, and traders should carefully consider their risk tolerance and other factors before implementing any trading strategy.
Platinum is a very rare metal that is considered to be more valuable than gold. It is used in making catalytic converters for automobiles, dentistry equipment, jewelry, and others. Platinum futures are traded on various commodity exchanges, including the TOCOM and the CME Group.
Here is our archive with articles about other tradeable futures markets.