Futures & Mining Stocks and Shares
Platinum futures are financial products that allow participants, including individuals as well as institutions and businesses, to lock in a future platinum price by entering into a binding contract that commits them to buying an amount of platinum at a fixed price at a future date. Investors can then either exercise the contract on its expiry date or - depending upon their view of the market - trade the underlying contract, potentially allowing them to make a profit, subject to market movements. Precious metals futures can be traded on various exchanges, including CME Group, and JPX Group.
The futures market works by matching investors prepared to take on risk (with a view to generating a return based on price fluctuations) with other traders who are looking to avoid risk by having certainty over future prices, for example to manage supply chain costs, so avoiding volatility.
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 two 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 futures market for several reasons, including price transparency and deep liquidity. Furthermore, futures exchanges can be fully electronic, operating in real time and able to execute millions of trades per second. They can also provide secure clearing services, giving investors further peace of mind regarding settlement and mitigating counterparty risk.
In some cases, derivatives are effectively unavailable to private investors.
Platinum mining stocks and shares
Exposure to platinum can also be achieved by investing in platinum mining stocks and shares. This gives investors the ability to invest in companies that produce platinum rather than investing in the physical metal itself.