An Introduction To Gold Futures Trading
Trading gold futures does not involve gold to exchange hands. A gold future describes a commitment by the buyer to buy a certain quantity of gold at a pre-determined price in a future time. Gold futures are one of the best way to gain leveraged exposure however they are volatile. Gold futures are a fascinating and important territory, but they do not deserve the level of mysticism and fear they seem to generate. The futures priesthood that 'informs' gold-stock traders often takes facts out of context and also disseminates half-truths designed to sway sentiment.
Gold's significance in world markets makes COMEX Division gold futures and options an important risk management tool for commercial traders. Investors watch Comex data as an indicator of froth in the market. Trading gold futures securities happens largely on paper: the majority of the gold bought or sold in the futures market never exchanges hands. Gold futures are typically traded by "speculators," investors who buy or sell gold futures but are not interested in the physical gold, versus "hedgers," who do value the gold by itself as an asset. Trading gold futures also has low commissions.
Gold options can be powerful and cost-effective investing instruments, which can be used to own desired quantity of gold in future, and can also be used to hedge price moves of gold that you hold. Every futures contract is equivalent to 100 troy ounces.
Prices in an organized derivatives market mirror the perception of market participants about the future and lead the prices of underlying to the perceived future level. The prices of derivatives converge with prices of the underlying at the end of the derivative contract. Prices fluctuate based on supply and demand (although the twice-daily gold fix in London aids set a reference point for prices). The price of gold in the spot gold market-known as the "spot price"-is the price quoted for the spot gold, which includes delivery, to be paid two days following the date of the actual transaction.
In closing, let me stress once again that gold futures are not a risk free financial commodity and should be considered judiciously. Investments should only be made with risk assets which is money you can afford to lose and it would not cause you to change your lifestyle in any way.
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