Platinum Trading Strategy: Backtest and Futures Example Analysis

Platinum futures offer an easy way to gain exposure to the platinum market. Known for its use in jewelry and decorations, platinum is a rare and expensive metal that has found diverse uses in recent times. Apart from its use in making catalytic converters in the automotive industry, platinum is found in up to 20% of the items and services we use every day. Given the high demand for this precious metal and its rarity, platinum futures are actively traded on commodity exchanges and can exhibit huge volatility, which appeals to speculative traders. Do you have a platinum futures strategy?

A platinum futures trading strategy is the method or technique you can use to profitably trade platinum futures contracts, which often includes technical and fundamental analyses of the platinum futures market. Platinum futures are legally binding contracts to deliver or receive the specified quantity of platinum on a future date, at a pre-agreed price.

The contract trades on the CME Globex platform, and it is settled by the physical delivery of the specified quantity and quality of platinum. It allows you to take positions on the direction of platinum prices, either for speculation, portfolio diversification, or hedging purposes.

In this post, we answer some questions about the platinum futures strategy. To make you better acquainted of how to make money in trading, we provide you with an example of how you can backtest a platinum strategy.

Key takeaways

• Platinum has shown a weak price trend over many decades.
• Platinum is most likely a worse investment than gold (over time).
• Commodities are difficult to trade, but we show you some profitable platinum futures trading strategies.
• Platinum might offer great diversification benefits for your portfolio.
• You can also trade the platinum ETF with the ticker code PPLT.

What are platinum futures?

A very heavy, silver-white metal, platinum is soft and ductile and has a high melting point and good resistance to corrosion and chemical attack. It is usually found in platinum ores alloyed with other platinum group metals (PGMs), which include palladium, rhodium, ruthenium, iridium, and osmium.

Platinum is the most widely used of the six elements of the PGMs. It is used in making jewelry, and its excellent catalytic properties make it very useful in catalytic converters on automobiles. Given its diverse uses, platinum is in high demand in the futures market.

Platinum futures are futures contracts with platinum as the underlying asset. They are standardized, exchange-traded contracts representing a legally binding agreement between the seller and the buyer to exchange a specified quantity of platinum (say 50 troy ounces) at a predetermined price on a future delivery date. The contract trades on the CME Globex platform, and it is settled by the physical delivery of the stipulated quantity and quality of platinum.

You can use the contract to speculate on the future price direction of platinum or diversify your investment portfolio into the precious metal market. Some investors and stakeholders in the platinum and automotive industries generally use the contract to hedge their exposure in the platinum market. In contrast, some wealthy individuals may use it to protect their wealth against inflation.

What are platinum futures strategies?

A platinum futures strategy refers to the method or technique you can use to trade platinum futures contracts profitably (hopefully). This usually includes technical and fundamental analyses of the platinum futures market. It aims at achieving optimal market timing, as well as position sizing and risk management techniques.

Technical analysis would involve looking at the charts to determine the important price levels and chart patterns that have predictive value, while fundamental analysis involves examining macroeconomic factors that could affect the market. Your platinum futures strategy must include precise entry and exit signals, preferably by backtesting. With the strategy, you can speculate on the price of platinum, diversify your portfolio, or hedge inflation or your exposure to the market.

Platinum Futures Strategy backtest

Let’s backtest a few platinum trading strategies with proper trading rules and settings.

Platinum is, just like many other commodities, not easy to trade. Strategies are hard to find and many of them don’t last long. We believe the reason is simple: unlike stocks, you don’t have a tailwind in the form of the overnight trading edge, commodities are more prone to erratic news, and most of the supply is from countries where the rule of law can be questioned.

Below is the platinum futures since 2005:

The price has dropped – a lot. One other thing to notice is the massive volatility.

Platinum trading strategy backtest no 1:

Our first backtest of the day is a potential future monthly trading edge. The strategy trades both long and short with opposite signals.

Trading Rules

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As you can see, the parameters have a little bit of it all. The equity curve of the long trades looks like this:

There are 243 trades and the average (unleveraged) gain is 0.54%, the win rate is 64%, and the profit factor is 1.7. The statistics and trading performance are at the low end of the requirements, but the gains are pretty uncorrelated to the overall stock market.

Let’s look at the short trades. As mentioned, the parameters are either the same or opposite:

There are 230 trades, the win rate is 64%, the average gain is 0.59%, and the profit factor is 2.9.

Let’s end this backtest with an equity curve that shows long and short combined:

There are 473 trades, the average gain is 0.57%, the win ratio is 64%, and the profit factor is 1.7. All in all, we believe this is a pretty solid strategy that is completely uncorrelated to the performance of the stock market.

Platinum trading strategy backtest no 2:

We have one more platinum strategy up our sleeve. This is a seasonal trading strategy that trades on a specific day and we also added a volume requirement. Just like the first strategy, this one also trades at the open.

This is what the equity curve looks like:

There are 60 trades, the win rate is 75%, the average gain is 0.66%, and the profit factor is 2.3.

What is seasonality in platinum futures?

Seasonality in trading refers to the tendency of particular assets to produce higher or lower returns at certain seasons of the year. Some commodities, for example, may perform better throughout the summer months, but others may perform better during the Holiday season.

Over the years, it has been noted that platinum futures tend to perform better during the winter and spring months than during the summer and fall. Take a look at the chart below:

What moves the platinum – what affects the platinum the most?

Several factors can affect the price of platinum, including supply and demand, political and economic conditions, and production costs. In general, platinum prices tend to be more volatile than other precious metals like gold and silver due in part to the fact that platinum is a relatively rare metal and is primarily used in a number of industrial applications.

Additionally, platinum is often affected by changes in the automotive and jewelry markets. It is a key component in catalytic converters for cars and trucks and is also used in producing high-end jewelry.

How are platinum futures traded?

Platinum futures contracts are traded on different exchanges worldwide, such as the CME Globex platform. On the CME Globex platform, the market can be traded Friday through Sunday from 5:00 p.m. to 4:00 p.m. Central Time the next day. Trades are halted for one hour between 4:00 p.m. to 5:00 p.m. every trading day.

There are monthly contracts specified for three consecutive months and any January, April, July, and October in the nearest 15 months. One contract unit of platinum futures is equivalent to 50 troy ounces of platinum, and the prices are quoted in US dollars and cents per troy ounce. The contract is settled by physical delivery of the metal, and trading terminates on the third last business day of the contract month.

How do you start trading platinum futures?

To trade the contract, you need a futures broker that will grant you access to the exchanges where platinum futures contracts are traded. The first step to start trading is to register with a futures broker, such as TradeStation, and fund your account. Since futures contracts are leveraged instruments, you need not have the full dollar worth of the contract before you can trade it — you deposit the initial margin or a little more than that.

Alternatively, if you just want to speculate on price movements, you may trade the CFD of platinum futures contracts via an online CFD broker, such as IG or Avatrade. A CFD is a contract between you and the broker to exchange the price difference from when a trade is opened to when it is closed. With CFD, you can trade price fluctuations without worrying about contract expiry and asset delivery.

What is platinum trading at?

As of December 14, 2022, platinum futures (PL) were trading at $1036.90 on the CME Globex platform. See the chart here on TradingView. You can also see the PL chart on CME’s Globex platform.

Please keep in mind that the pricing fluctuates, thus, what is listed here may not be the price when you read this post. Click either of those links to get the current price on the CME platform or through TradingView.

What’s platinum futures hour?

On the CME Globex platform, platinum futures trade from Sunday to Friday, from 5:00 p.m. to 4:00 p.m. Central Time the next day. Trades are halted for one hour between 4:00 p.m. to 5:00 p.m. every trading day (Monday to Thursday).

For Trading at Settlement (TAS), the trading hours are from Sunday to Friday: 6:00 p.m. – 1:05 p.m. (5:00 p.m. – 12:05 p.m. CT). For the CME ClearPort, the schedule is Sunday 5:00 p.m. to Friday 4:00 p.m. CT, but there is no reporting Monday – Thursday from 4:00 p.m. – 5:00 p.m. CT.

Where can I find trading charts?

The chart is available on any trading platform that provides chart services. If your platform does provide charts, you can subscribe to trade charts through a third-party platform like MutiCharts. You can also use the Yahoo Finance chart.

You can also use TradingView, which provides free access to many instrument charts. However, in order to connect to your broker, you must subscribe to the Pro services. The chart is also available on the CME platform.

What are the trading symbols for platinum futures?

The trading symbol for platinum futures on the CME Globex platform is PL. Other product codes for the contract are as follows:

• CME ClearPort: PL
• Clearing: PL
• TAS: PLT

What is the specification for the platinum futures contract?

One contract unit of platinum futures is equivalent to 50 troy ounces on both CME exchanges. The price quotation is in US dollars and cents per ounce. The minimum fluctuation is $0.10 per troy ounce, which translates to a tick size of $5.00 per contract.

There are monthly contracts specified for three consecutive months and any January, April, July, and October in the nearest 15 months. The contract is settled by physical delivery of the metal, and trading terminates on the third last business day of the contract month.

Why should you start trading platinum futures?

There are several reasons why trading platinum futures might be a good idea. For one, platinum is a precious metal with a number of industrial uses, so it can be a good way to diversify your portfolio into the metal market. Most commodity strategies add diversification benefits.

Additionally, platinum prices can sometimes move independently of other precious metals, so trading platinum futures can provide you with the opportunity to potentially profit from price movements in the platinum market.

Finally, trading platinum futures can provide you with the ability to manage your risk in the market if you are a producer or make use of the commodity in your industry.

What is the contract size?

A contract unit of platinum futures is equivalent to 50 troy ounces of platinum. The total dollar worth of a contract depends on the current price of platinum. So, at the current price of platinum, $1036.90 (what it is as of writing), the USD worth of a full contract unit would be 50 x $1036.90 = $51,845.

What is the tick size?

The tick size of the platinum futures contract is $5.00 per contract.

What are the minimum price fluctuations for platinum futures?

The minimum fluctuation of this contract is $0.10 per troy ounce.

Are there any ETFs?

Yes, there are several ETFs tracking the performance of this contract. Some of them include the following:

• Physical Platinum Shares (PPLT)
• Physical Precious Metals Basket Shares (GLTR)
• Sprott Physical Platinum and Platinum Trust (SPPP)
• Granite Shares Platinum Trust (PLTRM)

What affects platinum prices?

There are several factors that can affect the price of platinum, including supply and demand, political and economic events, and the overall state of the global economy. Platinum is a rare and valuable metal, so changes in supply can have a significant impact on its price.

Economic and political events, such as recessions, inflation, and political instability in countries where platinum is mined, can also affect its price. Since South Africa accounts for about 80 percent of the global platinum supply and 90 percent of proven reserves, socio-political events in the country, such as labor strikes and policy changes, can affect the platinum supply.

Additionally, the overall demand for platinum in industries such as jewelry, automotive, and medical can impact its price. The availability and cheapness of alternative catalytic converters, such as palladium, can affect platinum prices.

What is the all-time high for platinum futures?

Based on the TradingView chart for platinum futures (PL), the all-time high for the platinum market is $2308.8. It reached this level in March 2008.

What are the biggest risks in trading platinum futures?

Trading in platinum futures involves the use of leverage, which can amplify potential losses as well as gains. Thus, the biggest risk comes from adverse price movement when using leverage. Losses can be very huge, as they are calculated using the actual value of the contract size traded and deducted from the small margin deposited.

For example, if you trade with a 20x leverage, a 1% negative movement would result in a 20% loss in your account, and a 5% adverse price move would wipe out your account completely.

What is the settlement method?

Physical delivery.

What is the settlement procedure?

The contract is settled by physical delivery of the metal, and trading terminates on the third last business day of the contract month.

What is the block minimum for platinum futures?

The block minimum for Platinum Futures TAS is 10 contracts.

What is the difference between platinum futures and the CFD for platinum?

Platinum futures are standardized contracts that trade on regulated commodity exchanges, while platinum CFDs are simply contracts between a CFD broker and a trader to exchange the difference in price from the opening of a trade to its close.

Which forex pair is the same as platinum futures?

Platinum CFD.

What are some important dates for this market?

Some of the important dates in the platinum market include:

• December 3, 1956: Platinum futures started trading on NYMEX
• October 16, 1984: Options on platinum futures were launched
• March 2008: Platinum made its current all-time high of $2308.8

What is the highest platinum has ever been – its all-time high?

Based on the TradingView chart for platinum futures (PL), the highest level platinum futures have ever reached was $2308.8. It reached this level in March 2008.

What is the lowest platinum has ever been – its all-time low?

Based on the TradingView chart for platinum futures (PL), the lowest level platinum futures have ever fallen to was $267.1, which took place in July 1985.

FAQ platinum trading strategy

You are getting closer to the end of the article, and below we are listing some frequently asked questions about platinum:

What is a platinum trading strategy?

This strategy trades platinum – either the futures contract or the ETF (PPLT). You can also trade options on the futures contract.

What are the benefits of a platinum trading strategy?

Platinum is a perfect way to diversify away from stock trading and get uncorrelated returns. You might kill two birds with one stone: reduce risk and volatility due to uncorrelated returns and, at the same time, increase the return of your portfolio. It also offers investors a measure of protection against market volatility and economic uncertainty.

Is platinum good to trade?

That depends. As mentioned, just as important as a positive expectancy, you need to look at diversification. Most likely, a platinum trading strategy offers great diversification benefits to your portfolio.

Why trade platinum?

Please look at the answers above about diversification benefits. Most traders underestimate the benefits of diversification!

How to trade platinum?

Except for opening a trading account, you need to have a plan. A plan is based on backtests. We don’t recommend technical analysis but rather quantified backtests with strict trading rules and settings so you can gather statistics, metrics, and performance. This is the only way you can find out if you have a positive statistical expectancy!

Is it better to invest in gold or platinum?

Gold is the better long-term investment, hands down. Gold has a long history of being a store of value, while platinum is more of an industrial commodity.

That said, we believe stocks are the best option for long-term investments.

Why is platinum valuable?

Platinum is a metal that is harder than both silver and gold. Platinum is valuable because it’s relatively rare and is used in plenty of industrial products.

Where is platinum mined?

Like most commodities, platinum is mined or supplied in jurisdictions where you can question the rule of law. About 60-80% come from South Africa and Russia.

What are the risks associated with a platinum trading strategy?

Except for inevitable losing trades, the price of platinum is highly dependent on macro factors and erratic news you can’t control. In general, commodities are difficult to trade. You don’t have a “natural” edge in commodities.

How can I start trading platinum?

The first step to trading platinum is to open an account with a broker or investment platform. Once you have an account, you can start researching platinum trading strategies and choose the ones that best fit your trading goals and diversification requirements.

What types of investments can I make with a platinum trading strategy?

You can invest in ETFs, stocks, futures, and options related to platinum. You can also purchase physical platinum, such as coins or bars.

How often should I review my platinum trading strategy?

Only when there is a rational reason to do so. Most traders spend too much time changing their strategies based on short-term noise.

What are the key considerations when developing a platinum trading strategy?

The key considerations are profits and correlation. A strategy should have a positive statistical expectancy, but equally important is how the returns correlate to your portfolio of trading strategies.

However, it would help if you also looked at other factors, such as risk tolerance, investment goals, and trading experience. If you’re a beginner, we don’t recommend starting trading commodities. We believe the stock market offers better strategies and better risk and reward.

Additionally, you should consider the costs associated with trading, such as commissions and fees.

List of trading strategies

We have written over 800 articles on this blog since we started in 2012. Many articles contain specific trading rules that can be backtested for profitability and performance metrics.

The trading rules are compiled into a package where you can purchase all of them (recommended) or just a few of your choice. We have hundreds of trading ideas in the compilation.

The strategies are taken from our source of what are the different types of trading strategies. The strategies are an excellent resource to help you get some trading ideas.

The strategies also come with logic in plain English (plain English is for Python traders).

For a list of the strategies we have made please click on the green banner:

These strategies must not be misunderstood for the premium strategies that we charge a fee for:

Platinum trading strategy – conclusion

You can use the platinum futures strategy to speculate on the future direction of platinum prices, diversify your portfolio into the metal market, or hedge your risk exposure. Like all commodities, platinum is not easy to trade. However, we have provided you with some examples in this article that “prove” you can find a platinum trading strategy.