PA vs PL: Spread Trading the Palladium–Platinum Relationship
PA vs PL spread trading is one of the few structured ways to trade Palladium without getting shredded by single-contract volatility. Palladium and Platinum compete for the same industrial demand, so the spread reflects real substitution flows — not random speculation. If you want to understand Palladium futures, you must understand this relationship.
Why the PA–PL Spread Exists
The PA–PL spread exists because both metals serve similar roles in catalytic converters. Automakers shift loadings between them based on price, availability, and regulatory needs. When one metal becomes too expensive, the other benefits.
- PA expensive → demand shifts toward PL
- PL supply issues → demand shifts back to PA
- Rhodium volatility → spillover into both metals
This mirrors the substitution pressures discussed in how PL and Rh influence PA.
How to Structure the Spread
The traditional approach is simple: long one, short the other. But the contract sizes and volatility profiles mean you can’t treat PA and PL as equal weights.
Basic structures
- Long PA / Short PL → bullish PA relative to PL
- Long PL / Short PA → bearish PA relative to PL
You adjust size by volatility. PA moves more violently, so your PA leg is usually smaller to keep risk balanced.
When the Spread Trends
The PA–PL spread trends when the fundamentals diverge. This is why spread traders monitor industrial reports, automotive output, and geopolitical supply risks. These drivers move slow, which creates long, tradable spread cycles.
- PA supply disruption → spread widens in favor of PA
- PL demand surge → spread narrows or flips
- Major emission rule changes → long-term structural moves
The same supply risks you saw in PA geopolitical supply risks directly influence these long cycles.
When the Spread Becomes Unreliable
Not every divergence is a trade. Some periods are noisy, especially around fast macro shocks or sudden Platinum moves unrelated to catalytic demand.
- Macro events unrelated to PGMs
- Thin liquidity days (holidays, roll periods)
- Rhodium shocks that distort PA without helping PL
When noise dominates, the spread stops reflecting real substitution — and you should avoid it.
Execution Challenges (Don’t Ignore These)
PA and PL are thin contracts. The spread may look attractive on a chart, but fills are another story. You’re juggling two execution problems at once.
| Challenge | Impact |
|---|---|
| Thin books | Slippage hits both legs |
| Asymmetric volatility | PA outruns PL fast |
| Spread dislocations | False signals during roll periods |
This is why spread traders often wait for high-liquidity windows discussed in the best times to trade PA.
Final Takeaways
PA vs PL spread trading works because both metals fight for the same industrial demand. When one metal becomes cheap or scarce, the other reacts — and the spread trends accordingly. But PA and PL are thin contracts, so execution matters more than theory. If you can’t manage risk across two volatile legs, the spread will chew you up fast.