How does trading precious metals work?

Long before human beings were trading Bitcoin and holding mutual funds, even before paper currency or minted coins were commonplace, we used precious metals as both a signifier of wealth and as a method of exchange. These days, metals are a viable option for both investing and day trading.

Within the metal market, gold and silver dominate the conversation but they aren’t the only options available for investing. There are a variety of commodities we pull from the earth, and many of them are traded on exchanges or physically owned by individuals.

Though precious metals like gold might not hold the same mainstream favour they once did, metals are still a valuable method of investing and potentially gaining wealth, and are widely used in investment portfolios today.

How do you trade metals?

If you’re looking to invest in metals, there are a few different avenues you can go down. When it boils down to the basics though, trading commodities like metals is really trading ownership of an actual amount of that metal, usually measured in troy ounces. Whether or not you have that metal in your physical possession is a different story.

With precious metals like gold and silver, you can buy and own actual pieces of these metals. These might come in the forms of bullions, bars or coins. Through institutions like banks, you can purchase different forms of precious metals. You can either keep those metals yourself or you can purchase the physical products without them ever being delivered to you.

As with any investment, it’s important to be smart about your money. Direct investing in metals or any other asset or security comes with its own risk, which we will touch on later.

What metals can you trade?

Within the world of metal trading, there are some major players and some commodities that have flown somewhat under the radar. Of the metals that are traded, your options are split between two types:

What are the advantages of trading metals?

There are a variety of potential benefits to including metals—both precious and base—in your investment portfolio. These include:

• High liquidity. Metals are traded at high volumes every day, so it is likely that you will be able to buy or sell when you want to.
• Better rates for leverage trading. Leverage trading is a specific type of trading that has the opportunity for great gains (and oppositely, losses). Be sure to understand leverage trading before trying your hand at it, as there are more rules surrounding it than your normal trades.
• Long-term stability. Though metals are far from immune to volatility, they are generally seen as stable long-term investments.
• Because both types of metals have practical uses we have come to rely on, and the fact that precious metals are indicators of wealth, there is no signal that these metals will suddenly disappear in the near future.
• Unlike other assets or securities, you can physically hold gold and silver bars and coins. If you possess the metal, there is no way you can be hacked or fall victim to an online scam.
• Countering inflation. Many investors recommend including metals in your portfolio to help counter inflation, since they are physical assets and not contingent on a government. However, no metal is completely immune to inflation.

What are the risks of trading metals?

With all of those upsides, you might be rushing to add gold or another metal to your portfolio. However, take a few moments to understand the risks associated with investing in these commodities.

• Even though they are good for hedging against inflation and used in long-term investing, metals can be one of the most volatile investments out there. Gold, for example, has seen quarterly ranges spanning from 4% to 40%. This is great for experienced day traders  but isn’t appealing to all investors.

How do you get started?

Like any investment, the first step is to understand your own financial position. Nothing is ever a sure bet, so never invest more than you’re willing to lose.

If you want to purchase physical pieces of gold, check out your local bank. If you are interested in trading metals online, look to any platform that trades futures.

For centuries, fortunes have been made and lost on metals like gold. Do your research, trade smart, and these commodities might pay you back in folds.

Disclaimer

The opinions expressed in this blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about day trading and the financial industry. The views reflected in the commentary are subject to change at any time without notice.