Gold Futures Trading:The Basics
Trading gold futures does not involve gold to exchange hands. A gold future refers to an agreement by the buyer to buy a specific amount of gold at a pre-determined price in a future time. Gold futures are the best way to achieve leveraged exposure however they are volatile. Gold futures are a fascinating and important realm, but they do not deserve the level of mysticism and dread they seem to cause. The futures priesthood that 'informs' gold-stock traders frequently takes events outside of context and also disseminates misleading information designed to sway sentiment.
Gold's importance in global markets makes COMEX Division gold futures and options an essential risk management tool for commercial traders. Traders watch Comex contracts as an indicator of fizz in the market. Trading gold futures securities happens largely on paper: the majority of the gold bought or sold in the futures market never moves. Gold futures are normally negotiated by "speculators," investors who purchase or sell gold futures but aren't interested in the actual physical gold, versus "hedgers," who do value the gold by itself as an asset. Trading gold futures also has low commissions.
Gold options are also powerful and cost-effective investing tools, that can be used to own desired quantity of gold in future, and could also be used to hedge price changes of gold that you have. Every futures contract is equivalent to 100 troy ounces.
Prices in an organized derivatives market reflect the assumption of market participants regarding 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 expiration of the derivative contract. Prices swing 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-identified as the "spot price"-is the price quoted for the spot gold, including delivery, to be paid two days after the date of the actual deal.
In closing, let me stress again that gold futures are not a risk free financial commodity and must be considered judiciously. Investments should only be made with risk resources which is money you could afford to lose and it would not cause you to change your standard of living in any manner.
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