Platinum is one of the rarest precious metals and one of the most expensive commodities. Due to its unique characteristics, the metal is heavily used in the automotive industry, for jewellery production, in medicine and more. However, a considerable portion of demand for the metal belongs to investors.
Some investors prefer to include tangible holdings into their portfolio. Platinum bars, or bullions, and coins are provided by metals dealers in the same way as gold and silver. Physical platinum comes in a variety of sizes – 1 oz, 5 oz, 10 oz, or as little as 1 or 10 grams, etc.
Purchasing platinum in a physical form means you’ll have to make the necessary storage arrangements. Its high value-to-density ratio implies that the precious metal is cheap to store. However, it has to be kept in a secure place, for example, in deposit boxes, which adds extra cost.
There are some metal dealers that sell platinum bullions and coins online: APMEX.com, BullionVault.com, Moneymetals.com, JMBullion.com and more. If you’ve chosen this form of platinum investments, make sure that the metal meets the necessary quality and purity standards.
Exchange-traded funds, or ETFs, are a common non-physical way to invest in platinum with no need to store the metal. ETFs are designed to track the underlying price of platinum and get exposure to its value.
These instruments are listed financial securities, traded on exchanges, and are easily bought and sold like a share.
For example, one of the most popular platinum ETFs is the ETF Securities Physical Platinum Shares (PPLT). Issued by ETFS Platinum Trust, which buys and keeps platinum bars in secure vaults, the shares reflect the performance of the physical platinum price and gives the investor about the same return as platinum bullions would, less the Trust’s expenses.
Futures and options
These are another two investments that are tied to platinum prices. Platinum futures and options, as well as derivative contracts with other underlying assets, are used for two reasons – hedging and speculating. A futures contract is an agreement to buy or sell the underlying asset at the specified price and at a predetermined time in future.
Buyers and providers of platinum use futures to manage their risks (hedge). Platinum providers lock in the precious metal price to protect themselves from the declining value. Platinum buyers, in turn, use futures to protect themselves from the rising metal value.
Locking in the price by using futures creates considerable speculation opportunities. Speculators buy platinum futures when they assume that the metal will appreciate. Conversely, they sell platinum futures hoping for the price decrease.
Upon the futures expiration date, platinum has to be bought or sold. So, investors have to be capable of accepting the physical delivery of the metal, or have to roll the contracts forward each month. Trading futures, regardless of the underlying asset, requires sophistication and active position management.
The mechanics of options is almost the same as that of futures. However, options imply the right, not the obligation, to buy or sell the asset at a predetermined price. The option can be allowed to expire, if on the expiration date the price doesn’t close above the agreed-upon price. However, the option buyer has to pay the premium for the option’s advantage.
Another option to invest in platinum is through contracts for difference (CFDs).
A CFD is another derivative trading instrument allowing to get exposure to platinum prices with no need to buy and store the precious metal.
When you enter into a CFD contract you agree with your broker to exchange the difference in platinum prices at the beginning and the end of the contract. Suppose you think the value of the metal will go up. You open a CFD to buy platinum and if you turn out to be right, than you get the profit. However, you incur losses if your prediction of the price movement is eventually wrong.
CFD contracts are a leveraged instrument, which means a trader only has to deposit a portion of the required position value. The rest of the funds are provided by the broker. This is called margin trading.
Margin trading is a double-edged sword. On the one hand, it magnifies the trader’s chance for a bigger profit. On the other hand, it increases the risks of losing more funds than you would lose without margin.
At Capital.com you can can trade on platinum prices via CFDs. Use our web and mobile platforms to keep up with the recent platinum prices and charts.