Unlike other types of investment in platinum such as exchange traded funds, futures are not physically backed. However, platinum futures contracts do allow for the delivery of physical platinum, although in practice only some 2 per cent of futures contracts result in the delivery of a physical commodity. The principle of physical delivery helps to ensure that there is convergence in pricing between the physical market and the futures market upon maturity of the futures contract.
Futures enable traders to take a view on the future price of platinum, either to make a profit by potentially benefiting from price fluctuations or to protect themselves against price fluctuations.
Similar objectives can be achieved through other instruments, such as options, swaps, forwards or contracts based on the difference between two prices. Some of these products may not be regulated by an exchange.
However, many investors choose to trade on a regulated futures market such as CME Group for several reasons, including price transparency and deep liquidity.
Furthermore, certain exchanges like NYMEX are fully electronic, operating in real time and able to execute millions of trades per second. They also provide secure clearing services, giving investors further peace of mind regarding settlement and mitigating counterparty risk.