Alert

LEARN HOW TO SET UP AND MANAGE A PORTFOLIO IN 4 EASY STEPS WITH DR. JIM SCHULTZ!

Precious Metals: ETFs vs Futures

Jul 31, 2020

By: Frank Kaberna

Gold is hanging around its most expensive prices since futures on the commodity started trading almost half a century ago in 1974. While the price levels have increased, the action around gold has not. Volatility has only risen slightly in gold products, and it is in fact still below its historical average. As gold feels out new highs in a more calculated manner, its metallic companion silver has almost doubled in volatility. 

Source: dxFeed Index Services (https://indexit.dxfeed.com)

Whether it’s by price extremes or large moves, the curiosity of many stock traders is piqued. But those familiar with stocks may have a hard time finding the right precious metal product to speculate on since the choices vary widely in exposure, size, and look.

 

Metals or Mining Stocks?

Exchange-traded funds (ETFs) that package stocks in the mining business might be the easiest first venture into metals, but ETFs such as XME and GDX can diverge greatly from the commodity itself. Their correlation to the equity market can push them one way as metals pull them the other creating significant long-term deviations.

Precious Metals_ ETFs vs Futures_07-30-20_graphic2.png

Source: dxFeed Index Services (https://indexit.dxfeed.com)

 

Some ETFs that track commodities more closely, like GLD and SLV, can be heavy on capital usage. For example, the shares needed to see daily movement in an SLV position greater than $50 would cost between $1,000 and $2,000. These expensive ETFs make large returns on capital difficult to attain.

 

Capital Efficiency at What Cost? 

Futures contracts on gold and silver can offer large fluctuations for smaller capital requirements than stocks and ETFs, but traditional metal futures such as /GC and /SI can be too large for the everyday investor. Both markets have seen daily moves exceeding $2,000 just in the last week, and silver futures have made multi-thousand dollar moves a regular event.

New futures products like Small Precious Metals (/SPRE) present smaller investors the capital efficiency of futures at a more manageable rate than traditional products. The product moves close to $100 on the average day, and its initial margin is usually around a few hundred dollars. Also, it combines gold and silver into the same product, so you don’t have to decide on which precious metal to trade.

Source: dxFeed Index Services (https://indexit.dxfeed.com)

Save Every Time You Trade the Smalls

The Small Exchange has also created a limited number of subscriptions for a one-time payment of $100 that give traders a lifetime of reduced exchange and market data fees when trading the Smalls.

For more information on the Small Exchange’s products and subscription service, visit smallexchange.com. And be sure to check out my new show on tastytrade, Small Stakes, where Pete Mulmat and I will show viewers how to navigate Small Exchange products every Monday-Friday and always on demand.

If you’d like to find out where to trade the Smalls products check out the list of brokers that offer their products, or tastytrade’s preferred broker tastyworks.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”). tastytrade is a trademark/servicemark owned by tastytrade.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.

© copyright 2013 – 2021 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on tastytrade.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.