Trading Strategies

Comprehensive guide to metal trading instruments, strategies, and execution approaches

Futures • Options • ETFs • CFDs

Strategy Selection Framework

Timeframe

Match instrument to your investment horizon: minutes (CFDs), weeks (futures), years (physical/ETFs)

Risk Tolerance

Higher leverage = higher risk: CFDs (50:1) > Futures (10:1) > ETFs (1:1) > Physical (no leverage)

Capital Size

Minimum investment varies: CFDs ($100+), Futures ($5,000+), ETFs ($1,000+), Physical ($50+)

Futures Contracts

Exchange-traded derivatives allowing price speculation or hedging with leverage. Primary venue: CME Group (COMEX for precious, NYMEX for some industrials), LME for base metals.

Key CME Contracts (2026)

Gold (GC)

• Contract size: 100 troy oz ($462,000 notional)
• Tick size: $0.10/oz ($10 per contract)
• 2026 margin: 5-8% (~$23,000-$37,000)
• Trading hours: Nearly 24/5
• Mini (MGC): 10 oz, 1/10th margin

Silver (SI)

• Contract size: 5,000 troy oz ($440,000 notional)
• Tick size: $0.005/oz ($25 per contract)
• 2026 margin: 6-10% (~$26,000-$44,000)
• Mini (SIL): 1,000 oz for smaller accounts

Copper (HG)

• Contract size: 25,000 lbs (~11.3 tonnes)
• Tick size: $0.0005/lb ($12.50 per contract)
• 2026 margin: 7-12% (supply crisis volatility)
• Physical delivery: LME warehouse receipts

Palladium (PA) & Platinum (PL)

• Contract size: 100 oz (Pd), 50 oz (Pt)
• 2026 margins: 8-15% (PGM supply volatility)
• Lower liquidity than gold/silver

When to Use Futures

Best For:

✓ Hedging physical metal exposure
✓ Large positions ($50K+ capital)
✓ Short-term directional trades (days to months)
✓ Arbitrage between markets
✓ Tax advantages (60/40 treatment in US)

Avoid If:

✗ Account under $10,000
✗ Cannot monitor positions daily
✗ No risk management discipline
✗ Seeking passive investment

CME 2026 Margin Changes

New percentage-based margins (replacing fixed dollar amounts):

⚠ Dynamically adjust with price volatility
⚠ Can increase 50-100% during market stress
⚠ Maintenance margin = 75% of initial
⚠ Keep 30-50% buffer to avoid margin calls

Futures Trading Strategy Examples

Trend Following

Enter long on confirmed uptrends (e.g., 50-day MA crosses above 200-day MA for gold futures)

Risk/Reward: 2:1 | Timeframe: Weeks to months | Success rate: 35-45%

Calendar Spread

Long front month, short deferred month to profit from contango collapse (common in copper during supply crunches)

Risk/Reward: 1.5:1 | Timeframe: 1-3 months | Margin requirement: ~30% of outright

Breakout Trading

Buy silver futures on confirmed break above $90 with stop at $87 (ATH breakout strategy)

Risk/Reward: 3:1 | Timeframe: Days to weeks | Works best with high volume confirmation

Producer Hedge

Mining company shorts gold futures to lock in profitable selling price for future production

Hedge effectiveness: 85-95% | Rolling strategy: Quarterly adjustments

Options on Metals

Limited-risk instruments allowing directional bets or income generation. Options on futures (CME) or ETFs (standard equity options).

Basic Strategies

Call Buying (Bullish)

Buy right to purchase metal at strike price. Example: Gold $4,800 call expiring in 60 days.

• Max loss: Premium paid ($2,000-$5,000 typical)
• Max gain: Unlimited above strike + premium
• Breakeven: Strike + premium ($4,850 if $50/oz premium)
• Best when: Expecting sharp rally, low implied volatility

Put Buying (Bearish)

Right to sell at strike. Example: Silver $80 put if expecting correction from $88.

• Max loss: Premium paid
• Max gain: Strike - premium (if metal goes to zero)
• Breakeven: Strike - premium
• Best when: Protective hedging or bearish outlook

Covered Call (Income)

Own GLD ETF, sell out-of-money call to collect premium.

• Income: 1-3% monthly premium collection
• Risk: Cap upside at strike price
• Best when: Neutral to slightly bullish, high IV

Advanced Spreads

Bull Call Spread

Buy $4,800 call, sell $5,000 call on gold. Reduces cost but caps gain.

Example:

Buy $4,800 call: -$3,000 premium
Sell $5,000 call: +$1,200 premium
Net cost: $1,800 | Max gain: $20,000 - $1,800 = $18,200
Profit if gold > $5,000: 911% ROI

Iron Condor (Range-Bound)

Sell copper $4.00-$4.50 call spread + $3.50-$3.00 put spread. Profit if price stays within range.

• Collect premium from 4 legs
• Max profit: Total credit (5-10% monthly possible)
• Max loss: Wing width - credit
• Best in low volatility environments

Straddle/Strangle (Volatility)

Buy ATM call + put (straddle) ahead of FOMC meetings or geopolitical events.

• Profit from large move in either direction
• High cost: 3-7% of notional value
• Breakevens: Strike ± premium
• Ideal for binary event trading

Options Greeks for Metal Traders

Delta (Δ)

Price sensitivity. 0.5 delta = $0.50 gain per $1 move in underlying. ATM options ~0.5, deep ITM ~1.0

Gamma (Γ)

Delta acceleration. High near expiry and ATM. Critical for risk management as expiration approaches

Theta (Θ)

Time decay. Options lose $20-$50/day in last 30 days. Sell options to collect, buy for directional plays

Vega (ν)

Volatility sensitivity. Gold IV ranges 12-30%. Buy options when IV low, sell when high (>20% for gold)

Metal ETFs

Exchange-traded funds providing diversified metal exposure without futures complexity. Ideal for long-term investors and retirement accounts.

Gold ETFs

GLD (SPDR Gold Trust)

Physically-backed, $65B AUM, 0.40% expense ratio

Most liquid, tight spreads

IAU (iShares Gold Trust)

0.25% ER, lower cost alternative

GLDM (SPDR Mini)

0.10% ER, best for long-term holders

Silver ETFs

SLV (iShares Silver Trust)

Largest silver ETF, physically-backed, 0.50% ER

700M oz holdings, high volatility

SIVR (Aberdeen)

0.30% ER, lower cost option

PSLV (Sprott Physical)

Canadian trust, redeemable for physical, premium to NAV

Copper ETFs

COPX (Global X Copper Miners)

Mining equity ETF, 0.65% ER

Leveraged to copper prices (2-3x beta)

CPER (Copper Futures)

Futures-based, 0.85% ER, contango drag risk

Rare Earth ETFs

REMX (VanEck Rare Earth)

25 holdings, 0.57% ER, high China exposure

70% non-US, volatile (30-50% annual swings)

LIT (Lithium ETF)

Battery metals, miners + processors, 0.75% ER

PGM ETFs

PALL (Aberdeen Palladium)

Physically-backed, 0.60% ER

Illiquid but direct exposure

PPLT (Aberdeen Platinum)

Physical platinum, 0.60% ER

Diversified Metal ETFs

DBB (Invesco Base Metals)

Aluminum, zinc, copper mix, 0.75% ER

PICK (iShares MSCI Mining)

Global mining equities, diversified metals, 0.39% ER

ETF Strategy Guidelines

Core Allocation (5-10% portfolio)

• 60% GLD or GLDM (gold stability)
• 30% SLV (silver upside)
• 10% COPX or REMX (growth)
Rebalance quarterly

Tactical Trading

• Use SLV for silver breakout plays
• COPX for copper supply crisis exposure
• REMX for China reopening themes
Higher volatility than physical

Tax Advantages

• Hold in IRA for tax-deferred growth
• Physical ETFs (GLD/SLV): 28% collectibles tax
• Mining equity ETFs: Standard capital gains
Consult tax advisor for optimization

CFDs (Contracts for Difference)

Leveraged derivatives allowing speculation on price movements without owning the underlying. Popular outside US (not available to US retail traders).

High Risk Warning

CFDs are among the riskiest trading instruments. 70-85% of retail CFD traders lose money. Use only if you fully understand the risks.

Leverage amplifies both gains AND losses. A 2% adverse move with 50:1 leverage = 100% account loss.

CFD Characteristics

Leverage Levels

• Gold/Silver: 20:1 to 50:1 (EU: 20:1 cap)
• Base metals: 10:1 to 30:1
• Minor metals: 5:1 to 10:1
• With 50:1, control $50,000 with $1,000

Costs

• Spread: 0.3-1.0 on gold, wider on minor metals
• Overnight financing: 3-8% annually (long), credit (short)
• Commission: $0-$5 per side (broker-dependent)
• Costs compound quickly for multi-day holds

Execution

• Instant execution on platforms (MetaTrader, cTrader)
• No exchange fees or clearing
• 24/5 trading on major metals
• Fractional sizing (0.01 lot = 0.01 oz gold)

When to Use CFDs

Appropriate Uses

✓ Intraday trading (close before day end)
✓ Small accounts ($500-$5,000)
✓ Short-selling (easier than futures)
✓ Markets not accessible via futures (e.g., some African exchanges)
✓ Hedging physical holdings (non-US residents)

Risk Management Rules

1. Never risk more than 1-2% of account per trade
2. Always use stop-loss orders (guaranteed stops cost extra but worth it)
3. Reduce leverage to 5:1 or 10:1 (ignore broker's max)
4. Close positions before weekends (gap risk)
5. Avoid holding through major news events
6. Keep 50% of margin available as buffer

CFD Example: Gold Intraday Trade

Winning Trade

Account: $5,000 | Risk: 1% ($50)
Entry: Long 0.5 lot gold at $4,620 (controls 50 oz = $231,000)
Stop: $4,610 (10 points = $500 risk, position sized accordingly)
Target: $4,645 (25 points = $1,250 profit)
Result: $1,250 profit (25% account gain) in 3 hours

Losing Trade (Poor Risk Management)

Account: $5,000 | No stop-loss set
Entry: Long 2 lots silver at $88 (over-leveraged)
Price drops to $85 overnight (3 points = $15,000 loss)
Margin call triggered, position liquidated
Result: Account wiped out (-100%)

Hedging Strategies for Businesses

Protecting against adverse price movements for companies with metal exposure (miners, manufacturers, jewelers).

Producer Hedges (Miners)

Short Futures Hedge

Lock in selling price for future production.

Example: Gold miner

Expected production: 10,000 oz in Q3 2026
Current price: $4,620 | Cost of production: $2,800
Action: Short 100 gold futures contracts (10,000 oz)
Locked-in margin: $1,820/oz regardless of price moves
If gold drops to $4,200: Hedge saves $420/oz = $4.2M

Put Options Hedge

Downside protection while keeping upside exposure.

Buy $4,400 put options on 10,000 oz gold
Cost: $50/oz premium = $500,000
Protected below $4,400, profit if gold rises above $4,670
More flexible than futures but costs premium

Consumer Hedges (Manufacturers)

Long Futures Hedge

Lock in purchasing price for future needs.

Example: Electronics manufacturer

Need 500 tonnes copper for Q4 production
Current price: $10,000/tonne | Budget: $10,500/t
Action: Long 500 copper futures contracts
If copper rallies to $12,000: Hedge saves $2,000/t = $1M
If copper drops to $9,000: Physical purchase cheaper but futures lose $500k (net: breakeven)

Call Options Hedge

Cap maximum purchase price, benefit if prices fall.

Buy $10,500/t call options on 500 tonnes copper
Cost: $300/t premium = $150,000
Max purchase price: $10,800/t (strike + premium)
If copper drops, buy at spot and lose only premium

Hedge Ratio Optimization

Full Hedge (100%)

Maximum price certainty, zero directional exposure. Used when margins are acceptable and volatility unacceptable.

Example: Government defense contracts with fixed pricing

Partial Hedge (50-70%)

Balance between protection and upside participation. Most common for mining companies.

Hedge 60% of production, sell 40% at spot

Rolling Hedge

Hedge near-term production/needs (3-6 months), roll forward as time passes. Maintains constant protection window.

Adjust quarterly based on inventory and forecasts

Instrument Comparison Matrix

Instrument	Risk Level	Min. Capital	Leverage	Time Horizon	Best For
Physical Metal	Low	$50+	None (1:1)	Years	Long-term wealth preservation
ETFs	Low-Med	$100+	1:1 (2:1 on margin)	Months-Years	Retirement accounts, diversification
Options (Buy)	Medium	$1,000+	Asymmetric (limited loss)	Days-Months	Directional bets, hedging
Futures	High	$5,000+	10:1 to 20:1	Days-Months	Active traders, hedgers
CFDs	Very High	$500+	20:1 to 50:1	Intraday	Experienced day traders only
Options (Sell)	Very High	$10,000+	Unlimited loss potential	Weeks-Months	Income generation, covered calls

Conservative Portfolio

70% Physical gold/silver
20% GLD/SLV ETFs
10% Mining stocks
Target: 5-15% annual return, low volatility

Moderate Portfolio

40% Metal ETFs
30% Mining equities
20% Long options
10% Futures hedges
Target: 15-30% annual return, medium volatility

Aggressive Portfolio

50% Futures positions
30% Options strategies
20% CFDs (intraday)
Target: 50-200% annual return, extreme volatility
Warning: High loss probability