Should CFD be traded for metals

 

Even 10 years ago, many private traders could not earn on metals, as the corresponding futures traded on COMEX and the London Stock Exchange are among the most "expensive" (they have high tick value and tight margin requirements). The situation began to change dramatically after the 2009 crisis, when large dilling centers began to enter the retail market of financial services, offering, in addition to currency pairs, special contracts for the difference in prices of basic assets (CFD). 

 

At first, such contracts were used to profit from the exchange rate fluctuations of popular stocks, but later it became apparent that the commodity market provided much more opportunities, both for speculative earnings and in terms of long-term investment portfolios. 

 

Currently, CFDs for metals are represented in the specification of many forex brokers, with their main hallmark being fractional lots, whereby a private trader can open positions with little start-up capital. Today we will understand the peculiarities of trading with these tools. 

 

 

Financial markets 

 

 

The financial market consists of the money market and the capital market. This is due to the different nature of the financial resources that serve fixed and working capital. In the money market, funds are used to facilitate the movement of short-term loans. In the capital market, long-term savings are moving. 

 

Within the financial market there is a stock market. It is traded in securities whose value must be determined by the assets behind them. The securities market serves both the money and capital markets. But securities serve only part of the movement of financial resources (besides them there are internal and inter-firm loans, direct bank loans, etc.). 

 

The movement of funds in the financial market has a direction from savers to users. Financial resources can be transferred from one sector of the economy to another through the financial market. A total of 4 sectors are allocated: households, commercial firms, the public sector and financial intermediaries. Most household capital is generated from own funds. It is here that the main surplus of finance is formed, directed to the financing of 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 homogeneous financial assets. Such links of the financial market include the money market, the loan capital market, the real estate market, the foreign exchange market, the metal market. 

 

Investors often use different instruments - shares, bonds, PIFs, currency, as well as metals - to form an investment portfolio. Metals are the necessary tools for long-term and medium-term investors who provide protection against inflation and serious market fluctuations. In the global market, precious metals (gold and silver) are a liquid tool used by private investors, management companies, and hedge funds to diversify portfolios. 

 

Market of metals 

 

 

All metals are divided into two large groups - black and colored. In particular, it is accepted to include iron, manganese and chromium in the first category (the latter version is controversial, but experts adhere to this classification), as well as all alloys in which the listed elements are present. 

 

According to official statistics, black metallurgy accounts for about 90% of all products produced in the industry, so logic suggests that it is iron ore and rental futures that should be particularly popular in the stock market. 

 

However - the bulk of steel supply contracts are concluded directly between the supplier and the buyer (bypassing the exchange), so liquidity of the futures market even today leaves much to be desired. For the same reason, brokers are slow to put CFD into circulation for iron and steel - there will still be no demand from customers for them, and the risk will increase many times, as hedging the aggregate position is very problematic. 


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