Even 10 years ago, many private traders could not make money on metals, since the corresponding futures traded on the COMEX and the London Stock Exchange are among the most "expensive" (they have a high tick value and tight margin requirements). The situation began to change dramatically after the 2009 crisis , when large dealing centers began to enter the retail financial services market , offering, in addition to currency pairs , special contracts for the difference in prices of underlying assets ( CFDs ).
At first, such contracts were used to profit from the exchange rate fluctuations of popular stocks, but later it became obvious that the commodity market provides much more opportunities, both for speculative earnings and in terms of forming long-term investment portfolios.
Currently, CFDs on metals are presented in the specifications of many forex brokers, while their main distinguishing feature is fractional lots , thanks to which a private trader can open positions with a small initial capital . Today we will analyze the features of trading with these instruments.
The financial market consists of the money market and the capital market. This is due to the different nature of financial resources serving fixed and working capital. The money market circulates funds that ensure the movement of short-term loans. In the capital market, however, there is a movement of long-term savings. The stock market operates within the financial market. On it, the object of trade is securities, the value of which should be determined by the assets behind them. The securities market serves both the money market and the capital market. But securities serve only part of the movement of financial resources (besides them, there are also intra-company and inter-company loans, direct bank loans, etc.).
The movement of funds in the financial market is directed from savers to users. Through the financial market, financial resources can be transferred from one sector of the economy to another. There are 4 sectors in total: households, commercial firms, the public sector and financial intermediaries. Most of the households' capital is formed from their own funds. It is here that the main excess of financial resources is formed, directed to financing commercial firms, the state and placed in financial institutions (investment funds, banks, etc.).
A characteristic feature of the development of market relations is the rapid development of the financial market and all its links. The modern financial market is a seven-block system of relatively independent links. A link is a market for a certain group of similar financial assets. Such links of the financial market include the money market, the loan capital market, the real estate market, the foreign exchange market, and the metals market.
To form an investment portfolio, investors often use different instruments - stocks, bonds, unit investment funds, currencies, as well as metals. Metals are essential tools for long- and medium-term investors that provide protection against inflation and major market fluctuations. In the global market, precious metals (gold and silver) are a liquid instrument used by private investors, asset management companies, and hedge funds to diversify their portfolios.
All metals are divided into two large groups - ferrous and non-ferrous. In particular, it is customary to include iron, manganese and chromium in the first category (the last option is controversial, but experts adhere to this very classification), as well as all alloys that contain the listed elements.
According to official statistics, the share of ferrous metallurgy accounts for about 90% of all products produced in the industry, therefore, logic dictates that futures for iron ore and rolled products should be especially popular on the exchange market.
Nevertheless, the bulk of contracts for the supply of steel is concluded directly between the supplier and the buyer (bypassing the exchange), so the liquidity of the futures market even today leaves much to be desired. For the same reason, brokers are in no hurry to introduce CFDs on iron and steel into circulation - there will still be no demand from clients for them, and the risk will increase many times, since it is very problematic to hedge the aggregate position.
Things are completely different with nonferrous metals (they are also called "non-ferrous"). Recall that this category includes all metals, on the surface of which a thin oxide film is formed, which protects the element from further exposure to an aggressive environment.
On the exchange market, the following are especially popular in this category: gold, silver, platinum, palladium, copper, aluminum, zinc and nickel.
The precious metals market consists of the following sectors:
• gold market;
• silver market;
• platinum market;
• palladium market;
• dredged goods market. metals;
• the market for securities quoted in gold.
As a systemic phenomenon, the precious metals market can be viewed from two points of view: functional and institutional.
From a functional point of view, the market for precious metals and precious stones is a trade and financial center in which trade in them and other commercial and property transactions with these assets are concentrated. From this position, the functioning of the precious metals market should ensure the industrial and jewelry consumption of precious metals and precious stones, the creation of the state's gold reserve, insurance against currency risks, and profit from arbitration transactions.
From an institutional point of view, the precious metals market is a collection of specially authorized banks and precious metal exchanges.
The precious metals market includes a set of various relationships between market participants at the stage of exploration, mining, processing, and so on - until the final manufacture of items from precious metals. metals.
The most common metals on the market are by far gold (XAU) and silver (XAG). The gold market is the most liquid , as it is very susceptible to economic and financial changes (in particular to the increase / decrease in interest rates ). In addition, gold has a high correlation with leading world currencies, in particular with the euro and the US dollar.
The cost of metals is fixed twice a day at 10:30 and 15:30 in US dollars per troy ounce. Prices are quoted on the London Metal Exchange and are the official prices used by everyone from market participants to mining companies and central banks .
Global supply and demand has a significant impact on the cost of metals. So, with an increase in demand, prices for metals will decrease, and, accordingly, on the contrary - with a weak demand, the cost of metals will rise. However, this effect occurs mainly in the long term and does not change the short-term price in any way.
Any changes / fluctuations in the economy, which are reflected in reports on unemployment, GDP, manufacturing activity and when interest rates go down or up, affect the price of metals by giving preference to safe assets, which are metals, by market participants.
China occupies a leading position in the production of metals such as gold, copper, aluminum. Consequently, any changes in the production of this country will immediately affect the cost of metals.
In addition, copper is used in all spheres of industry, which means that the price of red metal may depend on the situation and industry trends.
The trade in metals such as palladium and platinum has become much less widespread than the trade in gold and silver. They are characterized by extremely insignificant volatility , therefore, as a rule, the most conservative market players show interest in them.
The interbank non-cash metal market includes a wide range of trading operations:
1) Transactions of the "spot" type are carried out on a spot basis, that is, with the date of crediting-debiting on the second business day after the day of the conclusion of the transaction. All other metal buying and selling deals are called outright deals (outright - "wrong deals"). The Loko-London spot price serves as the basis for calculating the prices that underlie all other transactions.
The standard volume of a transaction in gold on a spot basis on the international market is 5,000 troy ounces, or 155 kg; in silver - 100 thousand troy ounces (called one LEK, 50 thousand troy ounces - polLEK), or about 3 tons; in platinum - 1000 troy ounces.
2) Operations of the "swap" type ( swap - "exchange") are the purchase and sale of metal with the simultaneous presence of the reverse side of the transaction. A standard swap trade is 1 tonne, or 32 thousand ounces.
3) Deposit operations. They are held when it is necessary to attract metal to the account or, conversely, place it for a certain period. Deposit rates for gold are lower than deposit rates for foreign currencies (the difference is about 1.5%), which is explained by the lower liquidity in comparison with foreign currencies.
4) Option - the right (but not the obligation) to sell or buy a specific amount of gold at a specific price on a specific date or for the entire specified period. Such transactions are used for hedging purposes.
5) A futures contract is an agreement between counterparties on the future delivery of metal, which is concluded on the exchange. The execution of all transactions is guaranteed by the Clearing House of the Exchange.
In world practice, gold futures contracts are traded on several exchanges: Comex (New York) and Nimex (New York); platinum trade: Simex (Singapore), Tokom (Tokyo), Luxembourg Gold Exchange.
6) Forward transactions involve the actual purchase or sale of metal for a period exceeding the second business day. The purpose of the buyer's forward transaction is to hedge against future increases in the price of the metal on the spot market. The purpose of entering into a forward transaction by the seller is to hedge against a future decline in the price of the metal on the spot market.
Where metals are traded
Despite the development of high-tech industries and the development of more and more new types of metal substitutes, the price of final industrial products continues to depend heavily on metal prices. In addition, as a result of the improvement and expansion of the use of some non-ferrous metals, more and more interest is shown in such types of raw materials as aluminum, nickel, platinum and others.
Historically, the two largest centers for precious metals trading are London and New York. The first is known as the oldest center, in addition, the volume of metal trading in London is the largest in the world. The second became famous for the large volumes of futures contracts for metals, which are traded on the NYMEX (New York Mercantile Exchange, in translation - New York Mercantile Exchange).
London Metal Exchange LME
Like other commodities, the value of non-ferrous metals is determined on exchanges such as the London Metal Exchange, Shanghai Futures Exchange, Brazilian Commodity Futures Exchange. As the exchange market developed, metal trading moved from forward contracts to futures. The largest trading floor (in terms of trading volume) is the New York Mercantile Exchange (NYMEX). In 1999, NYMEX was ranked among the top ten futures exchanges.
Since 1919, the price of the so-called "London fixing" has been the main reference point for traders around the world and is used in all contracts for the physical delivery of metals. That is, in fact, it is in London that the price of gold and silver is determined.
The metals that are traded on the London Metal Exchange are copper, aluminum, lead, zinc, nickel, tin, platinum and palladium.
Trading on the LME floor is divided into two sessions. During the morning session
, "live trading" (trading on the floor) is held, on the basis of which
official quotations for metals are established. In the daytime session, trading in
aluminum alloys, TAPO's (option on the average trading price) continues and the
contracts to be concluded are being drawn up .
The LME trades six major non-ferrous metals: aluminum, copper, zinc, nickel, lead, titanium and silver, and aluminum alloys. The size of the lot varies from 170 kg up to 25 tons of silver for aluminum and copper.
Metals traded on an exchange must be classified by the exchange.
The LME metal trademark is the officially registered trademark of the metal manufacturer. To register a trademark, it is necessary to complete numerous procedures - for example, to obtain letters of recommendation from two generally recognized metal consumers, quality certificates from official control organizations.
The metal on the London Stock Exchange meets the quality requirements of the standard LME contract, is stocked in lots and placed in LME-registered warehouses, most of which are located in ports in Western Europe and the east and west coasts of the United States (potential consumers should take into account shipping costs to reach their destination). This explains the difference between the price at other outlets and the official price of the LME.
New York Mercantile Exchange NYMEX
This is the New York Mercantile Exchange, which specializes in trading futures and options on various commodities, including precious metals.
Metals such as gold, silver, copper, zinc and aluminum are traded on the exchange today. Since the metal exchange centers are located in Tokyo, Sydney, Zurich and Hong Kong, you can trade metals 24 hours a day.
Pricing on the New York Mercantile Exchange is based on the trades held. Retail prices and the global situation in the world are the main factors behind the dynamics of commodity prices.
New York Stock Exchange "Comex"
The Comex Exchange is a division of the New York Mercantile Exchange that focuses primarily on underlying and options trading.
Nymex specializes in trading in energy and precious metals such as platinum and palladium.
Exchange trading in Russia
In Russia, exchange trading in precious metals is in its infancy. The Russian government began to pay attention to the development of the precious metals market and the need to create a national exchange market in this context only in the late nineties of the last century. Nevertheless, to date, the development of this problem at the federal level leaves much to be desired due to the lack of clear and well-coordinated mechanisms for the practical implementation of elements of exchange trading in precious metals in Russia.
From year to year and from decade to decade, buying gold remains a favorite way of saving savings, the relevance of which increases during periods of economic instability. The gold price does not experience short-term fluctuations, so an instrument like XAU is very attractive for conservative traders.
Gold is a metal with unique properties that is found on the planet in limited quantities. In its pure form, it is quite soft, malleable, ductile. Its color is yellow and it is this property that gave it the Latin designation Aurum. In a very thin sheet, it gives a little to green, and in 999.9 samples it can have a slight reddish. Gold belongs to a group of metals that is not subject to corrosion and oxidation processes, along with platinum, palladium, silver, ruthenium, rhodium, osmium, iridium. It is a metal with a high density, so the ingots weigh much more than we might think. In the jewelry market, gold of various grades is used, which are measured in numerical value or carats. The lowest quality is 300 samples, it is not used in all countries and contains a very large percentage of impurities. The best is considered to be 750 samples,
In banks and gold and foreign exchange reserves, gold is stored in bars or coins that correspond to 999.99 gold content, which is 24 carats or 1000 fineness. There is also even purer gold - 99,999 - but it is very expensive, since the purification procedure is very complicated and costly.
Gold has very high volatility, so it requires a calm attitude and a thoughtful approach. After a relatively long fall in price, the likelihood that gold will return to its previous high positions and even exceed them is very high.
There are no special trading strategies for transactions with precious metals: any TS is applicable to trading precious metals, since all components of trading strategies : technical indicators , linear technical analysis tools, moving averages react to changes in the price itself, regardless of the type of trading instrument.
Gold has always been an indicator of the efficiency of the global economy. During the period of its growth, when consumption grows and, after it, all sectors of the economy rise, the price of gold falls. Conversely, in the event of economic stagnation, rollback or recession, gold is perceived by investors as the most stable and liquid means of saving capital.
Above you can see a map of the world's gold deposits.
The main levers that formulate the rate of gold relative to other currencies are as follows:
• factors of macroeconomics. In recent years, the global economic crisis has had a huge impact on both exchange rates and the value of precious metals, and gold in the first place. As strange as it may sound, it is thanks to the crisis that the price of gold rises with enviable stability;
• energy prices such as oil , gas, coal and others. Oil occupies the main position in this list, and most of the courses are tied to it;
• the US dollar exchange rate, which is the most convertible currency in all countries of the world;
• the geopolitical situation, which, like other factors, affects the rise in prices and fluctuations in currencies. An example of this is the series of political upheavals in the Middle East, which provoked a jump in the value of gold on the stock exchange. The current situation in Ukraine also affects the variation in the price of gold.
Those who start their work in the field of exchange games from scratch should simply take into account two simple rules, and then follow them in their work:
1. When the price of oil rises, so does the price of gold;
2. When the US dollar falls, the price of gold rises and vice versa. The stability of prices and the high demand for precious metals determine the high profitability of this type of investment.
Gold trading has the following advantages:
• low probability of a significant decline in quotations ;
• market stability;
• high liquidity;
• low risks ;
• the possibility of long-term planning;
• good predictability of quotes.
Silver is more volatile than other precious metals, which means there is significant price fluctuation. At the same time, it is a more reliable asset compared to depreciating currencies, which often makes it the obvious choice for investments. The precious metals market does not experience short-term unforeseen fluctuations in the rate during the day, so the likelihood of making a predictable profit when trading silver is quite high.
Strategies for concluding deals for the purchase / sale of this metal are more effective than gold. Silver is characterized by a higher fluctuation of quotations, which makes it possible to make forecasts for a shorter period. Such forecasts can be useful, as silver is more influenced by external and internal factors than gold.
First, the world industry plays an important role in the pricing of this metal. Silver mining companies, as well as its main buyers, shape the supply and demand in the market. Therefore, when predicting price movements, it is necessary not only to follow the general trend in the high-tech and mining industries, but also to pay attention to individual situations. The production problems of one of the main suppliers or the attraction of investments in its mining business can cause corresponding fluctuations in the market.
Secondly, the price of silver depends on the main factors of the world economy - inflation, GDP growth, refinancing rates and decisions of world central banks. In times of economic turmoil, metal prices jump as more investors seek to save their capital from the feverish changes in the foreign exchange market.
Finally, silver is not an unlimited resource, which means that in the long term, its prices will continue to rise. In recent years, its value has tripled, and analysts predict this metal further upward trend .
Unlike trading in gold, transactions involving silver do not require as much capital. At the same time, a relatively wide range of price fluctuations allows you to get good profits even when trading small volumes. In this case, the potential dividends in the medium term may be higher than that of transactions with gold.
Silver is best purchased during economic crises and when the market is strongly overbought. Silver trading attracts traders due to the following advantages:
• Low probability of price collapse;
• Market stability;
• High liquidity;
• Higher volatility compared to gold;
• Relatively low risks;
• Long-term planning possibility;
• Predictability of quotes movement.
Silver, due to its attachment to industrial consumption, usually trades closer to the movement of other assets. When there is a so-called "bullish" trend in the market, silver outperforms gold in growth, providing higher profits. However, if the trend is bearish, the price losses will be greater. In this regard, you should carefully follow the quotes, stay up to date with world economic news , study the market you are interested in and trust your experience.
Without a doubt, the most important and popular (from a speculative point of view) non-ferrous metal is copper, represented in terminals under the ticker HG. This instrument is attractive primarily for its “technicality”, therefore many traders successfully trade CFDs of the same name, without taking into account the fundamental factors.
As you can see, the richest deposits of red metal are located in Chile, therefore events in this country have a direct impact not only on the actual balance of supply and demand in the real market, but also on the actions of speculators.
Examples of such important news include:
• Press releases of large corporations about their intention to open / close mines;
• Workers' strikes;
• Messages on the introduction or cancellation (reduction) of customs duties;
• Devaluation of the Chilean Peso;
• News about earthquakes and mudflows (natural disasters can paralyze the work of mines, after all, Chilean deposits are in an earthquake-prone zone), etc.
If the news front is completely calm, China - the largest manufacturer of electronics, wiring and other products in which copper is the main component - can provide a hint about the direction of medium and long-term trends.
As a rule, copper rises in price against the background of rapid growth in industrial production, and the market enters a bearish phase after a slowdown in the Chinese economy. The Industrial Production metric is commonly used to identify these trends.
In addition, copper prices are highly dependent on the situation in the construction industry, since when building new buildings, a lot of metal is spent on creating electrical wiring. Of course, this demand is indirectly reflected in Industrial Production, but for a more accurate estimate, it is better to look at the publicly available indicator "Newly Built House Prices", which reflects the mood in the real estate market.
The higher the index, the more attractive the market for new home construction becomes. If the indicator falls, this is a clear sign of stagnation in the industry, and in such a situation, developers are more likely to use old warehouse stocks than place new orders for materials.
And another important factor that must be taken into account when trading copper CFDs is related to seasonality . Recall that this term refers to trends that repeat almost every year. As a rule, such patterns are formed due to climatic factors, the actions of investment funds and industrial corporations (as an example, we can cite a situation when a company places orders for materials at the same time of the year).
As you can see, copper is in seasonal demand from mid-November to April 25, and sales are often observed between August 1 and November 15. Micro-trends are also formed in May, June and July, but the probability of their development leaves much to be desired.
Of course, seasonality is not a " Grail " and not a panacea for all "trading" diseases. It seems only at first glance that it is enough to buy / sell an asset in the indicated periods, after which the market is simply obliged to move in the right direction.
Ideally, you should combine seasonality, the above fundamental factors and technical counting (for example, moving average direction , oscillator values, etc.). Only a comprehensive analysis will make it possible to accurately assess the current balance of power and movement potential.
This metal is widely used in all industries, in particular, building materials and structures are made of it (in North America, this demand is about 20% of total consumption), cables, packaging materials, sea vessels, and chemicals. But the biggest expense comes from the aerospace industry.
The fact is that aluminum structures are among the lightest, therefore, together with titanium, they have become an integral component of airplanes and spaceships. Unfortunately, CFDs on titanium do not exist, so you have to limit yourself to trading Al.
The sectoral "peak" of aluminum production was reached in 2007-2008, after which, against the background of the crisis, the volume of production collapsed twice. This trend has become a "guide" for the aluminum market.
It should be noted that in the future (in the future 15-20 years) a new super-cycle may begin on the aluminum market, due to the development of the Solar System by mankind. Indirect signs of this trend are already visible today - even Boeing, which for a long time has specialized mainly in the production of aircraft, began to assemble spacecraft. What can we say about the development of other corporations, which were originally created to go beyond Earth's orbit (for example, SpaceX).
As for the rest of the industries for which aluminum is important, attention should only be paid to the construction sector in the USA and Canada. All other areas have a weak impact on the market, plus everything else, metal recycling has become popular today.