Palladium Futures Trading Basics

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Palladium Futures Trading Basics

Palladium futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of palladium (eg. 100 troy ounces) at a predetermined price on a future delivery date.

Some Facts about Palladium

Palladium is a hard, silver-white metal which is usually found alloyed with other metals of the platinum group in platinum ores. Like platinum, palladium has excellent catalytics properties and are often used as catalyst, such as in catalytic converters on automobiles. [Click here to learn about the main uses of Palladium. ]

Palladium Futures Exchanges

You can trade Palladium futures at New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).

NYMEX Palladium futures prices are quoted in dollars and cents per ounce and are traded in lot sizes of 100 troy ounces .

TOCOM Palladium futures are traded in units of 500 grams (16.08 troy ounces) and contract prices are quoted in yen per gram.

Exchange & Product Name Symbol Contract Size Initial Margin
NYMEX Palladium Futures
(Price Quotes)
PA 100 troy ounces
(Full Contract Spec)
USD 2,750 (approx. 15%)
(Latest Margin Info)
TOCOM Palladium Futures
(Price Quotes)
500 grams
(Full Contract Spec)
JPY 60,000 (approx. 23%)
(Latest Margin Info)

Palladium Futures Trading Basics

Consumers and producers of palladium can manage palladium price risk by purchasing and selling palladium futures. Palladium producers can employ a short hedge to lock in a selling price for the palladium they produce while businesses that require palladium can utilize a long hedge to secure a purchase price for the commodity they need.

Palladium futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable palladium price movement. Speculators buy palladium futures when they believe that palladium prices will go up. Conversely, they will sell palladium futures when they think that palladium prices will fall.

Learn More About Palladium Futures & Options Trading

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    Insight On Palladium In 2020: Read This & Start Trading Now

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    Last Updated on December 18, 2020

    4 Reasons You Might Invest in Palladium

    Investors should consider purchasing palladium for the following reasons:

    1. Bet on Automobile Demand
    2. Bet on Supply Constraints
    3. Bet on Investment Demand
    4. Portfolio Diversification

    Is Palladium a Safe Bet Because of the Auto Industry?

    The automobile market is the most critical industry for palladium.

    Investing in the commodity is a way to bet on surging demand for automobiles in emerging market countries such as China and India.

    BYD Qin Hybrid Vehicle in China via Wikimedia

    Similarly, the low-interest rate environment in the United States and Europe should bode well for the automobile industry. Low rates mean affordable access to credit markets. Since most buyers finance automobile purchases, rates play an important role in determining demand.

    As long as rates remain near historically low levels, demand for cars and the catalytic converters that go in them should remain strong.

    Betting on Supply Constraints

    With three-quarters of the global supply of palladium coming from two countries, there is the real possibility for supply shocks in palladium production.

    The United States is a large importer of palladium and has a recent history of tensions with Russia. Should Russia curtail its exports of palladium, the price of the metal could soar.

    Similarly, labor disputes in South Africa or new mining regulations could lead to supply disruptions and higher prices.

    Speculating on Investment Demand

    Investment products focused on palladium are relatively new compared to other precious metals such as gold and silver.

    As more traders discover the favorable supply/demand fundamentals for this commodity, palladium prices could rise. The thin liquidity in the market could exaggerate price gains.

    Diversify Your Portfolio

    Most traders have the vast majority of their assets in stocks and bonds. Commodities such as palladium provide a way to diversify and reduce the overall risk of portfolios.

    Should I Invest in Palladium?

    Traders who want to invest in palladium should consider purchasing it along with a basket of commodities that includes other precious metals (i.e., gold and silver), base metals (i.e., copper, nickel, lead and zinc), agricultural commodities (i.e., dairy, meats and grains) and energy.

    Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity. It also adds overall diversification to a stock and bond portfolio.

    There are three specific trends that could raise palladium prices in the years ahead:

    1. Chinese Demand
    2. Investment Demand
    3. Energy Costs

    Chinese Demand

    China is the top consumer of palladium and could increase its consumption in the years ahead. The Chinese economy has experienced a recent slowdown, although there are signs this may be coming to an end. Investing in palladium is one way to bet on a resurging Chinese economy.

    Investment Demand

    The proliferation of ETFs has exposed more traders to precious metals. As the gold and silver trade becomes crowded, traders could seek new ways to gain exposure to precious metals. Palladium could benefit from this trend.

    Energy Costs

    Higher energy costs make mining an increasingly challenging business. As fuel and electricity costs rise, more mining operations could close or consolidate. This should produce higher palladium prices.

    However, traders should also consider the risks of investing in palladium:

    1. A Global Recession: A global recession could weaken Chinese and US automobile demand.
    2. Cheaper Substitutes: Cheaper substitutes could replace demand for palladium in catalytic converters.
    3. Global Economic or Political Control: Global economic or political turmoil could strengthen the US dollar and weaken demand for precious metals and other commodities.

    What Do the Experts Think About Palladium?

    Most analysts who follow the palladium market pay attention to its price relationship with platinum. One expert sees reasons for optimism about the palladium market compared to platinum:

    Palladium is powering on with the demand for more vehicles. There’s more need for palladium, which cannot be reclaimed as easily or as often from junked automobiles as platinum.

    George Gero, managing director, RBC Wealth Management, New York

    However, another leading analyst sees reasons for caution. He believes that while the rising market share of gasoline-powered vehicles is a positive, the future presents challenges for palladium prices:

    Diesel’s share of the European auto market is falling and the flip side of that is gasoline’s share is rising. Chinese car sales supported palladium, but there will a reality check as tax incentives are removed. In Europe and the United States, car sales look to be peaking.

    Julius Baer analyst Carsten Menke

    How Can I Invest in Palladium?

    Investors have several options for gaining exposure to palladium prices:

    Palladium Trading and Investing Methods Compared

    Method of Investing Complexity Rating (1 = easy, 5=hard) Storage Costs? Security Costs? Expiration Dates? Management Costs? Leverage? Regulated Exchange?
    Palladium Bullion 1 Y Y N N N N
    Palladium Futures 5 N N Y N Y Y
    Palladium Options 5 N N Y N Y Y
    Palladium ETFs 2 Y N N Y N Y
    Palladium Shares 2 N N N N Y Y
    Palladium CFDs 3 N N N N Y Y

    Palladium Bullion

    Physical bullion, such as bars or coins, is the most direct way to invest in palladium. However, investing in bullion requires a secure storage facility. Ultimately, the cost of this storage and the low value-to-weight ratio could make holding physical palladium an impractical proposition.

    Palladium Coin via Wikimedia

    Palladium Futures

    The Chicago Mercantile Exchange (CME) offers a contract on palladium that settles into 100 troy ounces of the commodity.

    The contracts trades globally on the CME Globex electronic trading platform and have a variety of expiration months.

    Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are physically settled by delivery of palladium.

    Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

    Palladium Options on Futures

    The CME offers an American-style options contract on Palladium Futures.

    Options are also a derivative instrument that employ leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

    Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of palladium futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in palladium futures to profit from their trades.

    Palladium ETFs

    These financial instruments trade as shares on exchanges in the same way that stocks do. The ETFS Physical Palladium Shares (NYSEARCA: PALL) invests in physical palladium that it stores in secure vaults.

    Shares of Palladium Companies

    There are many publicly traded companies that have some exposure to palladium prices.

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    While investing in companies can be a leveraged way to gain exposure to palladium prices, many of these companies have significant exposure to other precious metals. In addition, factors such as company management and the overall stock market can also affect these investments:

    ETFS Physical Palladium Shares
    Company Current Price Overview Listings Founded Number of Employees Interesting Fact
    Norilsk Nickel
    The American depositary receipts of the world’s largest palladium producer OTC, London, Frankfurt, Berlin 1993 96,193+ The nickel deposits of Norilsk-Talnakh are the largest nickel-copper-palladium deposits in the world Anglo American Platinum Ltd South African company engaged in the production and sale of platinum group metals. OTC 1995 24,945 In August 2007, British charity War on Want published a report accusing Anglo American Platinum’s parent company Anglo American of profiting from the abuse of people in the developing countries in which the company operates North American Palladium Ltd Canadian company that explores for palladium, platinum, gold, nickel, copper, and other metals. Toronto 1993 201-500 1 of only 2 North American based palladium or platinum producers Platinum Group Metals Ltd Canadian company that explores for and develops precious and base metal properties in South Africa and Canada NYSE 2002 111 The Company is focused on exploration and development of platinum. It has operations in South Africa and Canada

    CFDs

    Illustrative prices only. CFD Service. 80.6% lose money.

    One way to invest in palladium is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of palladium. The value of a CFD is the difference between the price of palladium at the time of purchase and its current price.

    Some regulated brokers worldwide offer CFDs on palladium. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that traders can have exposure to palladium prices without having to purchase shares, ETFs, futures or options.

    Illustrative prices only.

    One of the leading CFD brokers for trading agricultural commodities, like palladium, is Plus 500. Here’s why:

    • No commission on trades (other charges may apply)
    • Free demo account
    • Easy to use (mobile-friendly) platform
    • Industry-leading risk management tools
    • Trade palladium and hundreds of other markets
    • Your funds are safe – publicly listed company regulated by the UK’s Financial Conduct Authority and Cyprus’ Securities and Exchange Commission

    Start Trading at Plus500.com Important: Your capital is at risk. CFD services are suitable for experienced traders only.

    One of the leading CFD brokers for trading metal commodity CFDs, like palladium, is Plus 500. Here’s why:

    • No commission on trades (other charges may apply)
    • Free demo account
    • Easy to use (mobile-friendly) platform
    • Industry-leading risk management tools
    • Trade palladium and hundreds of other CFDs
    • Your funds are safe – publicly listed company regulated by the UK’s Financial Conduct Authority and Cyprus’ Securities and Exchange Commission

    Important: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail trader accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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