All You Need to Know

Why trade in metals?

Since metals are used in everything from jewellery to computers or cars to industrial components, there is never a shortage of demand.

The metal trading marketplace encompasses both precious metals and industrial metals. The most commonly traded metals are gold, silver, and copper, also known as the ‘Big Three’. Gold plays a unique role in the financial marketplace since it is used as a safe haven where investors can hedge funds against inflation, as a backing device for currencies, and has a range of industrial and retail applications. Copper is known as a ‘base metal’, which denotes that it is not a precious metal. However, due to its many industrial applications, copper is a highly valuable commodity. Silver is the least traded of the Big Three, but still holds a wide range of opportunities for investors.

How does metal trading work?

Unlike trading in equities, where an investor buys and sells stocks in a given company, metals are classed as commodities, which means that an investor is putting his money behind an actual product. Where stockholders make money depending on whether the company they have invested in is profitable or not, commodities traders generally make profits depending on whether or not the price of the chosen commodity rises or falls, and what trades the investor has made based on that information.

To be successful in the metals market, investors need to be aware of a range of factors that can impact the overall prices of these commodities. 

How to choose a broker & open an account

The metals marketplace can be highly volatile both for industrial metals and precious metals. This volatility can result in large profits, but also brings with it a huge amount of risk. For this reason, we recommend that investors choose a reliable, professional and reputable broker to represent them in the marketplace.

Although one can find thousands of brokers via the world wide web, it is best to exercise a large amount of caution when choosing a broker. Check that your chosen broker has a good past history of profitable trades, that their reviews are favourable, and that they are properly insured and registered with the appropriate regulatory authorities. Choose your broker wisely and you will be rewarded.

How to buy and trade metal

Whether you want to use metals trading as a long term means to hedge funds against inflation or you are interested in making short term profits from day trades, industrial and precious metals can be a lucrative investment. The first step in trading metal is to decide which area you wish to trade in.

Industrial metals – also called base metals – are commonly traded via futures and options. So investors will commonly be speculating on price fluctuations in short term day trades. Precious metals offer more versatility, as investors can choose long term safe haven investments or opt for day trading in futures and options. Metal markets include COMEX and NYMEX, the London Stock Exchange and the Shanghai Stock Exchange.

Nowadays, there are various ways to trade in precious metals. Two of the most popular ones online include Metal CFDs and Options.

• CFD metals – you can trade on the price movements of metals, without being obliged to buy them. This will give you more freedom, since buying metal would involve finding someone who sells it for the price you’d like to pay, and when you sell it, you’d need to find someone who is ready to buy it for the price you want to sell it at. 
• Options – trading metal options allows you to trade both if the price goes up and if it goes down. When buying, you speculate what price the instrument will reach by a certain time. Then, you pay a premium to the person selling the option. You can by a ‘Call’ if you predict that the price will rise, or buy a ‘Put’ if you anticipate that the currency pair price will fall. By trading options, you will only risk losing the premium.

You can trade both CFD metals and Options with EasyMarkets.

Leverage

Leveraging is a commonly used trading practice. In theory, the practice is simple: traders acquire debt in order to increase their purchasing capabilities. Typically, an investor will purchase stocks or futures using their own money. However, with leveraging, an investor can borrow money from either a broker or a financial institution to increase their buying power. If X is selling at 150 US dollars and you only have 50 US dollars, you can borrow – or leverage – another 100 US dollars to make the purchase. If you can then sell for a profit, you will have made a successful leveraged trade. If not, then you will lose your investment and still owe the leveraged amount. Use leveraging with caution.

Profit

Is trading metals profitable? There are many advantages in both the precious metals market and the base metals market. Metal trading is a great way to diversify a large portfolio. You can spread your investments across a wide range of metals and thus minimise your overall risk.

Metals can be used as both a day trading vehicle and as a means to safeguard funds against inflation, so there can be both long term and short term profits. In terms of precious metals, investors can also buy the physical properties themselves, rather than speculate on price fluctuations. Base metals are always in high demand, so this marketplace can indeed be profitable but is also highly volatile.

Tips to trade metal

If you are now interested in entering the metal trading marketplace, we would like to share with you some of our top tips. First, make sure you choose a good broker. An experienced broker can make sure your trades anticipate market fluctuations and will do most of the research and analysis for you.

Second, it makes sense to diversify heavily in metals trading. Since metals give investors the opportunity to make many different investment types, this is an excellent way to avoid risk. Third, make sure you keep a close watch on both industry developments and geopolitical events, as these can have dramatic impacts on the price of precious and base metals in the marketplace.

Choosing a metal trading style and strategy

Choosing a trading style will both increase your likelihood of profits and minimise stress. People who are more comfortable with long term and slower profits should not adopt a fast-paced, risk-laden day trading style, for example.

What style you choose depends on your own financial goals and how much risk you are comfortable with being exposed to. Are you looking to hedge funds against inflation for your retirement? Or do you want to make profits now at the risk of absorbing losses? By explaining your trading goals to an experienced broker, you will be able to find the best style for you. It may be that you have a diversified portfolio and adopt a mixture of styles.

By using analytical trading strategies, brokers and investors can anticipate market movements and price fluctuations. This helps to safeguard their investments against risk and maximise the chances of making big profits. There are a variety of strategies that experienced traders use to keep one step ahead of the metal market. Evaluating supply and demand pressures is known as ‘fundamental analysis’. Examining market patterns is known as ‘technical analysis’. Researching volume is known as ‘sentiment analysis’. Another strategy is to evaluate market trends by using what is called ‘moving averages’. These methods will increase an investor’s chances of predicting price fluctuations in the metal market. You can use the strategies yourself or simply trust your broker’s judgment.

Set your stops and limits

Minimising your exposure to risk is the key to playing the market successfully, no matter what type of commodity or equity you are trading in. Stop orders and limit orders are tools that investors use to avoid heavy losses. When you instruct your broker to make a stop order or a limit order, you are telling them that you do not want the market price of a stock. What you want is for your order to be filled when a stock hits a price you determine. Stop orders specify that a stock is traded when the price hits a less than favourable amount. A limit order is activated when a stock hits a more favourable price.

Risks

Any type of investment involves risk. Risk is inherent in every aspect of the stock market, it is unavoidable. However, investors can minimise risk simply by being aware of factors that move the particular markets they are investing in.

In the case of the metals market, investors must keep a close eye on political events that impact supply and demand, both in a global sense and in the domestic politics of producing nations, such as Australia. Geopolitical events can have a huge impact on the price of precious metals. Changes in business conditions can severely affect the price of metals, especially base metals. Currency fluctuations can also send base and precious metal prices soaring in either direction.

Conclusion

Overall, trading in precious or base metals provides a range of lucrative opportunities for smart investors. As we have said, the opportunities to diversify your portfolio in the metal market means that you can hedge against risk and adopt both long and short term positions. The highly volatile nature of the metal markets makes it attractive for investors as there are large profits to be made. However, in order to maintain liquidity, investors must keep a vigilant watch over industrial and business conditions as well as overall marketplace sentiment, major geopolitical changes and political events in metal producing companies. Simply make sure that you have a good broker and keep yourself well informed. 

Metals like gold and silver hold a rich history, being utilized as mediums of exchange, stores of value, and investment assets. Their stability and consistent demand in the market capture traders’ attention. Furthermore, metals possess unique traits that make them intriguing subjects for analysis and trading.

Trading metals offers numerous opportunities for profitable trading and investment. In this article, we’ll delve into various aspects of trading metals, starting with an overview of different types of metals and their characteristics as financial assets.

Why Traders Choose Metals as Trading Instruments?

Metals attract traders for several reasons:

1. Variety of Assets: The metals market offers a wide range of diverse assets, allowing traders to choose options that align with their strategies and goals.
2. Portfolio Diversification: Investing in metals serves as a means of diversifying an investment portfolio.
3. Inflation Hedge: Precious metals like gold and silver are often considered as hedges against inflation and economic instability. Traders use them as a tool to preserve capital value.
4. Liquidity: Most metal markets are characterized by high liquidity, enabling quick entry and exit from trades.

Overview of Metals Available for Trading

• Gold: This precious metal is known for its stability during times of crisis, making it a desirable asset for investment diversification.
• Silver: Despite its lower cost compared to gold, silver is in demand as an investment asset due to its wide range of industrial uses.
• Platinum: A rare metal with applications in the automotive and jewelry industries, making it attractive to investors.
• Copper: Copper plays a crucial role in electronics, reflecting industrial conditions.
• Aluminum: Lightweight and durable, aluminum is indispensable in transportation, construction, and packaging.
• Zinc: Its primary use is in protecting steel from corrosion, playing a key role in construction and automotive industries.
• Nickel: Necessary for creating alloys and batteries, nickel plays a vital role in modern technology and energy.

Each of these metals has unique factors influencing its value and attractiveness to investors.

Market Analysis of Metals

Market analysis is key to success in metal trading. Let’s explore the fundamental and technical analysis elements of these markets, as well as the indicators and tools traders need to make informed decisions.

Fundamental Analysis

Fundamental analysis involves a thorough examination of factors that determine supply and demand for metals. Key fundamental aspects include:

1. Economic Data: Traders track economic indicators such as GDP, Consumer Price Index (CPI), and industrial activity to understand the current state of the economy and potential demand for metals.
2. Geopolitical Events: Conflicts, trade wars, and political events can impact metal prices. Instability in metal-producing countries may lead to supply shortages.
3. Seasonal Factors: Some metals are subject to seasonal fluctuations in demand, such as holidays or construction seasons.
4. Macroeconomic Events: Central bank decisions on interest rates and currency policies also affect metal prices.

Technical Analysis

Technical analysis relies on studying past price data and trading volumes to forecast future price movements. Technical analysis of metal markets includes:

1. Price Charts: Analysts use price charts and candlestick patterns to identify trends and key support and resistance levels.
2. Indicators: Technical indicators like moving averages, Relative Strength Index (RSI), and stochastic oscillators help assess overbought or oversold conditions and predict trend reversals.
3. Trading Strategies: Traders develop trading strategies based on technical analysis data, including reversal, breakout, and long-term investment tactics.

1. MACD (Moving Average Convergence Divergence): This indicator analyzes the difference between two moving averages to detect changes in trend strength and direction.
2. Bollinger Bands: These bands create a dynamic price range around a central line, showing volatility levels and potential reversal points.
3. Fibonacci Retracement: This tool uses the golden ratio to identify potential support and resistance levels based on recent price movements.
4. Trading Platforms: Many platforms, including popular ones like MetaTrader 4 (MT4) and MetaTrader 5 (MT5), provide advanced charting tools and real-time price analysis capabilities. These platforms offer a wide range of indicators and analytical tools, making them ideal for technical analysis and efficient trading in metal markets. MT4 and MT5 also support automated trading and offer a variety of options for customizing trading strategies.

Based on their trading strategies and investment goals, traders determine whether to rely on fundamental analysis, technical analysis, or a combination of both for more effective metal trading.

Risk Management Strategies

1. Setting Stop-Loss Orders: A stop-loss order allows you to automatically close a position when the price reaches a certain level. This helps limit losses in case of adverse market movements.
2. Establishing Target Levels: Determine profit levels at which you are willing to close a position. This helps you lock in profits.
3. Position Sizing: Calculate the size of your position based on your capital and risk tolerance. Avoid risking too much of your capital in a single trade.
4. Monitoring News and Events: Staying informed about events that can affect metal prices is crucial. Geopolitical events, economic news, and fundamental data significantly influence the market.
5. Developing a Trading Plan: Before you start trading, create a plan that includes entry and exit strategies, stop-loss levels, and profit targets.
6. Managing Risk: Never risk more than you can afford to lose. Set a maximum risk size for each trade and stick to this rule.
7.  Self-Discipline: It’s essential to adhere to your plan and control your emotions while trading.

Trading Strategies for Metals

Trading metals offers traders a multitude of opportunities to apply various strategies. The primary directions include long-term and short-term trading. Additionally, popular methods such as trend trading and day trading deserve attention, each with its own features and advantages.

Long-Term Trading in Metals

Long-term trading in metals is suitable for investors willing to hold positions for several months or even years. Such traders typically rely on fundamental analysis, including economic and geopolitical factors, and focus on long-term price trends. By regularly reviewing their positions, they capture significant price movements and view metals as long-term investments for capital preservation and growth.

Short-Term Trading in Metals

Short-term trading in metals, also known as day trading, targets traders who close their positions within a single day or even minutes. Key characteristics of short-term trading in metals include:

1. Technical Analysis: Short-term traders use technical analysis to make decisions. They study price charts, employing indicators to identify short-term trends and entry and exit points.
2. Leverage Usage: Short-term traders use leverage to maximize potential profits. However, it’s important to note that this approach also increases the risk of potential losses.
3. Rapid Decision-Making: Short-term traders must make prompt decisions and be prepared for quick market changes.

Popular Trading Strategies for Metals

1. Trend Trading: This strategy is based on identifying and following the current price trend of metals. Traders may use various technical indicators to confirm the trend.
2. Day Trading: Day traders open and close positions within a single day, aiming to profit from short-term price fluctuations.
3. Scalping: Scalpers open and close positions within very short timeframes, profiting from small price movements.
4. Fundamental Analysis: This strategy relies on analyzing fundamental factors such as economic news, geopolitical events, and supply and demand data for metals.

The choice of a trading strategy depends on your goals, the time you’re willing to dedicate to trading, and your experience. Remember the importance of continuous learning and skill improvement in metal trading, and you’ll be on the path to success!

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