Palladium trading explained: How to trade palladium

Palladium trading is the buying and selling of the palladium metal, its derivatives or stocks of companies involved in the palladium market to attempt to speculate on the price movements.

What is palladium trading?

Palladium is a silvery-white, lustrous metallic element that is one of the six platinum group metals (PGMs) along with platinum, ruthenium, rhodium, iridium and osmium. 

PGMs are extremely rare in the Earth’s crust and highly valued for their superior catalytic features. That rarity means they are considered to be precious metals along with gold and silver, which contributes to the attractiveness of palladium as an investment.

Trading palladium involves speculating on physical palladium by buying and selling the metal, its derivatives or prices for the stocks of companies that produce, sell, or purchase it. 

What is palladium used for?

What is palladium used for other than as an investment asset? Since 1989, the primary use for palladium has been in catalytic converters for fossil fuel and hybrid vehicles, which accounts for around 80% of demand. Palladium catalysts trap hazardous emissions when an engine burns fuel. 

The metal is also used in small volumes in the electronics and medical industries as well as for fine jewellery as an alternative to platinum. Palladium’s abnormal capacity to absorb hydrogen – 900 times higher than its own volume – makes it extremely valuable for the nuclear industry.

Palladium usage in the automotive industry has grown as various countries have introduced strict carbon emission standards. But the rollout of electric vehicles (EVs) is expected to erode demand as they do not use catalysts.

Where is palladium found?

Palladium is mined along with the other platinum group metals in small quantities in a few parts of the world. PGMs are extracted as by-products of nickel and copper processing. Where can palladium be found? There are five producing countries that account for 98% of global palladium production:

1. South Africa

2. Russia

3. Canada

4. US

5. Zimbabwe

Russia accounted for 37% of global palladium production in 2021, according to the United States Geological Survey (USGS). That drove palladium prices close to record highs in response to the war between Russia and Ukraine. South Africa, which has the world’s largest palladium reserves, produced 40% of global supply in 2021. 

Palladium price history

The palladium price chart history reflects market volatility. In terms of historical price action, the commodity reached its record low of $78 an ounce in August 1991. 

The spot palladium metal price gradually recovered in the second half of the decade and then tripled in value from around $300 in 1999 to a peak of $1,047.89 in January 2001. But by October 2001 the price was back down to $343.50 an ounce. Palladium continued to fall in value to $170.35 in May 2003, its lowest level since 1997.

At the peak of the 2007-2008 commodity boom, palladium traded up to $474, then crashed to $178.95 at the end of the year as the global financial crisis took hold. The price recovered to $826.17 in February 2011, but turned lower on concerns about the economic recovery, dropping to $502.10 in January 2016.

The spot palladium price then moved back above $1,000 in January 2018 for the first time since 2001. The price slipped back to $923.65 in August 2018 but moved back above $1,000 the following month and has traded above that level ever since.

The market soared to $2,548.10 on 28 February 2020, a record high at the time, on a combination of high demand and supply shortages. The price retreated to $1,959.30 in May 2020 as the Covid-19 pandemic disrupted automotive production, but the industry quickly rebounded while pandemic-related shutdowns reduced production in South Africa.

Palladium soared above $3,000 in May 2021, after heavy flooding in Russia in February disrupted output from Nornickel (MNODI), the world’s largest producer, while demand continued to grow.  

The spot palladium price graph shows that the metal then lost almost half of its value, retreating to $1,645 in December 2021 as a global semiconductor shortage disrupted automotive production.

The market rebounded in the first few months of 2022, briefly trading back above $3,000 in March as traders anticipated a shortage of supply from Russia after its invasion of Ukraine. 

The palladium price then dipped below $2,000 at the end of June as concerns about the health of the global economy and automotive output weighed on sentiment, and the value of the US dollar climbed to 20-year highs.  

What moves palladium prices?

The main driver for the palladium markets is sentiment among traders and investors. Palladium commodity prices are also influenced by global mining supply, industrial demand and spot market availability.

Supply 

The palladium price has soared to record highs in recent years as supply has not been able to keep pace with growing demand. 

With two countries accounting for more than three quarters of global supply, the market is highly susceptible to supply shocks. Production disruptions in Russia, Covid-19 lockdowns in South Africa and buyers rejecting metal produced in Russia since the start of the war in Ukraine have reduced the amount of palladium available on the market and increased concerns about a long-term supply imbalance.

Past performance is not a reliable indicator of future results

Market sentiment

Sentiment on the wider commodities markets is a key driver for palladium as one of the precious metals that investors could use to diversify and hedge their portfolios. Traders speculate on the value of palladium based on market sentiment as well as fundamentals. 

But liquidity on the palladium precious metal market is thin compared with other precious metal markets like gold, silver and even platinum. This can drive market volatility even when physical supply and demand are stable. Note that volatility means higher risk of losses.

Industrial demand

Industrial demand for palladium is increasingly dominated by the chemical sector. Consumption in this sector has been growing during the past couple of years. In 2021, it kept close to all-time highs.

In contrast, palladium consumption in electronics has been declining, as palladium has been substituted by nickel in multi-layer ceramic capacitors (MLCC), which are used in power supply circuits.

The decline of dental demand continued in 2021, due to high prices. Dentists were pushed to adopt other materials such as base metal alloys, resin and ceramics.

Past Performance is not a reliable indicator of future results.

Automotive demand: EV industry

The automotive industry accounts for the majority of the physical demand for palladium, so vehicle production levels and policies on vehicle emissions have a strong influence on prices. Rising demand for cars in emerging economies and stricter emissions limits particularly in China are driving the palladium demand up.

But the EV industry is expected to reduce the demand over time, as EVs do not need catalysts. This could see the metal lose some of its value in future unless new applications emerge.

Past Performance is not a reliable indicator of future results.

Value of the US dollar

Prices for palladium commodities are strongly affected by the value of the US dollar and tend to move in the opposite direction. When the value of the dollar falls against other currencies, palladium prices tend to rise and when the dollar strengthens, palladium prices tend to fall.

How to trade palladium

There are several different types of instruments you can use to trade palladium: from spot trading the physical metal, trading contracts for difference (CFDs), investing in palladium shares and exchange-traded funds (ETFs). 

Spot metal trading

You can trade palladium on the spot market through an online palladium broker or exchange, buying and selling set amounts of the metal at the current, or spot, market price. 

Spot trading enables you to buy and sell physical palladium bars or coins as a hedge against the risks associated with other assets such as stocks, ETFs and bonds. Or you can trade a paper product through a bank or intermediary, which holds the metal on your behalf and covers storage and insurance costs.

Futures

In contrast to spot contracts that buy and sell palladium at the current market price, futures contracts allow you to buy a specific amount of palladium at a set price on a certain date in the future. 

Futures contracts enable you to speculate on the price of palladium whether you expect it to rise or fall. You can cash settle a futures contract before it expires by rolling forward into another futures contract or exchange it for a spot trade.

Stocks

If you want to invest in the market indirectly by trading stocks related to palladium, you can buy or sell shares in companies that mine or refine it. 

Palladium producers also mine and refine other metals, so this can diversify your holdings but increase your exposure to those other markets. You can also use ETFs, options and CFDs to trade on palladium company share prices.

ETFs

You can buy exchange-traded funds (ETFs) that track prices for palladium, or choose those that invest in palladium stocks. 

ETFs offer the convenience of trading stocks on exchanges during market hours while providing more portfolio diversification than investing in a single company. They spread risk across a number of holdings, limiting the impact of a single company’s share price, yet at the same time limit the gains if a single palladium stock rallies.

Options

Options are derivatives that allow you to speculate on the value of a futures contract without the obligation to purchase the asset at expiry. 

Trading options contracts involves agreeing a strike price above or below the current futures contract value where you expect it to reach by the time of expiry. If the futures price moves toward the strike price you will earn a profit; if it moves away from the strike price you lose the premium paid for the contract.

CFDs

Contracts for difference (CFDs) is another popular way to  trade palladium. A CFD is a type of contract between a trader and a broker that aims to potentially profit from the price difference between opening and closing the trade. Note that all trading contains risk of losses.

You can use CFDs to speculate on whether the palladium spot price will rise or fall without having to buy or hold the underlying physical metal. You can use leverage to increase the size of your position without having to commit the full amount of funds. Bear in mind that leverage means that both profits and losses can be magnified.

CFDs are typically used for short-term trading. Unlike futures and options, CFDs do not have a set expiry date, but they are subject to overnight financing charges to cover the cost of leverage and holding the position open. 

Bear in mind that leverage means that both profits and losses can be magnified. Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

What is a palladium trading strategy?

Before you open a position in the commodity, you could have a clear palladium trading strategy in place. There are several different approaches you can take in designing your trading plan. 

A trading strategy can include a combination of fundamental and technical analysis. You can use tools such as a moving average and momentum indicators like Bollinger Bands to identify prices trends and trading signals. Furthermore, by becoming familiar with head and shoulders and triangle patterns, you can try to predict the likely direction of the price and buy or sell accordingly.

Below are six strategies for you to consider using for palladium trading.

Technical strategy

A technical strategy focuses on using analysis tools on price charts to identify entry and exit points for a palladium trade. Learning to use and interpret technical indicators like moving averages, support and resistance levels and relative strength index (RSI) can give you clear signals of when to buy and sell palladium, rather than relying on guesswork and speculation.

Price action strategy

Price action trading looks for patterns in price movements to predict the future direction of the market. If recent price action indicates the palladium price could rise, you can open a long position. On the contrary, if it indicates the price could fall, you can take a short position.

Position trading strategy

Position trading is a long-term buy and hold approach that speculates on the direction of an asset price over a period of time. Position traders use a combination of fundamental and technical analysis to decide when to buy and sell.

Rather than buying and selling palladium in response to minor price fluctuations, following position trading strategy traders could hold a position open using a trailing stop loss and sell when the position has reached a certain price level target.

News trading strategy

A news trading strategy focuses on buying and selling an asset in response to news such as the release of economic data, government policy announcements and geopolitical events. Using a news trading strategy, a trader would have bought palladium at the start of the Russian invasion of Ukraine and sold when the price subsequently rallied amid concerns about the impact on supply. 

Trend trading strategy

Trend trading is also known as position trading. Traders use technical analysis tools to identify whether the market is in an upward trend – reaching higher highs and higher lows – or a downward trend – reaching lower lows and lower highs. If the palladium price is in an upward trend you can take a long position until indicators point to a change in the trend. If the price is in a downward trend you can go short until the trend turns upward. 

Day trading strategy

Traders use technical analysis tools to identify bullish and bearish trends to enter and exit a trade within a single session. Day traders hold their positions open for only minutes or hours, closing them before the end of the day to avoid overnight fees or exposure to developments that could have an impact on the price at the start of the next day’s session.

How to trade palladium CFDs

How is palladium traded using CFDs? CFDs are instruments suitable for short-term positions. If you want to start trading palladium CFDs, sign up for an account with a CFD provider like Capital.com. You can trade palladium CFDs along with other commodities, stocks and exchange traded funds (ETFs) in the same trading account.

Follow these steps to get started:

1. Create and login to your CFD trading account

2. Choose which type of palladium instrument you want to trade

3. Use your preferred trading strategy to identify trading ideas

4. Open your first trade and consider using risk management tools such as a stop-loss order

5. Monitor your trade using technical indicators and fundamental analysis

6. Close your position at your pre-planned exit point 

Pros and cons of trading palladium CFDs

Trading a palladium CFD saves you the effort of buying and storing the physical metal. In addition, CFDs allow to trade palladium in both directions. Whether you have a positive or negative view on the palladium price forecast, you can speculate on both upward and downward future price movement.

The 10% margin offered by Capital.com on the metal means that you have to deposit only 10% of the value of the trade you want to open, and the rest is covered by your CFD provider. For example, if you want to place a trade for $1,000 worth of palladium CFDs and your broker requires a 10% margin, you will only need $100 as the initial capital to open the position.

However, you should be aware that trading CFDs also carries risks as they are leveraged products that can magnify the size of losses if the price moves against your position, as well as magnifying  gains if the price moves in the same direction. It is important to do your own research and understand how leverage works before you start trading CFDs.

Why trade palladium CFDs with Capital.com?

Advanced AI technology at its core: A personalised news feed provides users with unique content depending on their preferences. The neural network analyses in-app behaviour and suggests videos and articles that fit your investment strategy. This will help you to refine your approach when you trade palladium CFDs.

Trading on margin: Thanks to margin trading, Capital.com provides you with the opportunity to trade palladium CFDs and other top-traded commodities, even with a limited amount of funds in your account. Keep in mind that CFDs are leveraged products, which means both profits and losses can be magnified. 

Trading the difference: By trading palladium CFDs, you don’t buy the underlying asset itself. You only speculate on the rise or fall of the palladium price. A CFD trader can go short or long, set stop and limit losses and apply trading scenarios that align with their objectives. CFD trading is similar to traditional trading in terms of its associated strategies. However, CFD trading is usually short-term in nature, due to overnight charges. Plus, there are extra risks associated with leverage as it can magnify both profits and losses.

All-round trading analysis: The browser-based platform allows traders to shape their own market analysis and make forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS and Android.

Sign up at Capital.com and use our web platform or download the investment app to trade CFDs on the go. It will take you just three minutes to get started and access the world’s most traded markets.

Palladium market trading hours

The palladium market is open from 23:00 to 21:59 GMT Monday to Friday and is traded on the New York Mercantile Exchange (NYMEX).

CME Globex provides electronic trading 24 hours/6 days a week:

Sunday to Friday, 6:00 p.m. – 5. p.m. with a 60-minute break each day.

If you choose to trade CFDs, you can track palladium prices live in US dollars with the comprehensive palladium price chart on Capital.com and buy or sell the metal during the following palladium trading hours:

Monday to Thursday, 00:00 – 21:00 and 22.05 – 00.00

Friday, 00.00 – 21.00

Sunday, 22.05 – 00.00

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