Palladium Spread Betting
Palladium is used in the auto industry, and has lots of applications in the electronics sector. Palladium is also a precious metal, which you can find in the commodities menu of your spread betting company. It is not traded as much as other precious metals, such as gold, but has a reasonable size of market, and sufficient liquidity to be worthwhile. It can be subject to gap opens, so you may want to use a Guaranteed Stop when placing your order, even though this will reduce your profit.
Most spread betting providers only seem to quote futures contracts (no rolling daily) on Palladium although some also offer bets on a Palladium ETF with Spot, March, June, and September expiries with spreads around 10 points for the futures. With regards to futures IG is presently quoting the December Quarterly. The current price for a futures bet on Palladium is 644.25 – 646.25. This is actually the price in US dollars and cents per ounce. The minimum bet is £5 per point with IG Index, so you might decide to place a long spread bet, betting that the price will increase, for this amount.
The price increases to 691.5 – 693.5, and you decide to close the bet and take your winnings. As it is a long bet, the bet was placed at the buying price of 646.25 and closed at the selling price of 691.5. This means that you have made a total of 691.5 less 646.25 points, which is 45.25 points. The bet was placed for the minimum amount of £5 per point, so 45.25 times £5, which works out to £226.25, is the amount that you won.
It is not possible to always get it right, so suppose the price goes in the opposite direction to the one you bet, i.e. down. At some stage you will need to cut your losses and close the bet, before you lose too much of your account. Say you close the bet when the price quotation was 632.0 – 634.0. Once again, the long bet is closed at the selling price, which in this case is 632.0.
The total number of points that you have lost is 646.25 less 632.0. This is 14.25 points. Once again, multiply this times your stake and you will find your total losses are £71.25.
As mentioned above, occasionally this metal will have gap opens, that is the opening price on the next day has jumped a long way from the previous day’s trading, and if you have an ordinary stop loss you have lost much more money than you thought you might. To get a Guaranteed Stop Loss for this bet with IG Index will cost you an additional two points on the spread, but you may consider it worthwhile.
In this case, you could have placed a Guaranteed Stop Order 10 points away, which would limit your losses to £50 for this bet. The price for the guaranteed stop loss with IG Index, two points, equates to £10 with this stake, and you pay this price when you take out the bet, whether it is going up or down. However, supposing that the loss noted above was from a gap open, and Palladium never traded 10 points away, at your stop loss level, the guarantee would ensure that you saved £21.25 on the bet, in this case, so instead of losing £71.25 the losing bet would only have cost you £60, including the increased spread.
How to Spread Bet Palladium
The fact that you can spread bet Palladium shows just how diverse the spread trading markets can be. Palladium is a close cousin of platinum, which is more generally recognized, and is a precious metal that is traded on the futures markets. It is mainly found as a by-product from platinum or nickel mining, and the majority of palladium is mined in Russia.
A lot of palladium is used for catalytic converters in the auto industry, and it’s also found in jewellery and used in industrial applications, which will probably increase over time. In general, the supply is not keeping up with the increasing demand, producing an overall bullish outlook for the metal although recently investor interest in platinum has placed palladium on the sidelines. Although palladium is valuable, and is an investment metal, the market is not as large as it is for gold, silver, or platinum. This means that it is more prone to big jumps in price in response to any factors that will move it.
For example, as the leading supplier of palladium, Russia has had times when it has refused to release more of the metal on to the market, creating a market shortage. Some observers think this is because the palladium supply is beginning to run out, but most think that the flow is being controlled to maintain the high value. Either way, this does mean palladium prices are vulnerable to outside forces about some of which little can be found out by the average investor.
Russia’s Norilsk nickel mines produce 44% of global palladium. The second-largest supplier of palladium is South Africa which accounts for another 40% of world supply, and that country too has had difficulties in supply, in this case more to do with labour issues and industrial power supplies to the mines. Much of the rest of global palladium production is made in the USA and Canada.
Platinum is also used in catalytic converters, and with the price of platinum being several times that of palladium it is likely that the latter will increase in use. Palladium is particularly effective when used on diesel engines, so the move to achieve greater mileage by switching to diesel will inevitably increase the relative demand.
Of course, advances in technology could overtake this use, and render palladium much less valuable, with demand cut to about a third; but it is not foreseeable at present, and you should rely on your stop losses to protect you from a catastrophic price shift.
So you can see that spread betting on palladium is not for the fainthearted, but is suitable for those who wish to take on higher risk with the prospect of higher returns. It is up to you when spread trading to have a strategy that can cope with risk and minimize your losses, as inevitably some bets will not make money. If you are nervous about this, perhaps you should consider Guaranteed Stop Losses when betting on palladium prices, but if you are nervous about this you may also wish to spread bet on a less volatile underlying security.
Apart from spread bets and CFDs you could possibly gain exposure to palladium via futures or overseas traded options although of course futures nor options are suitable for the inexperienced investor. Whatever your trading strategy or investing medium, it is customary and prudent to have worked out in advance how large a downside you are able to tolerate on your account, and size your bet appropriately.
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