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An Introduction To Gold Futures Trading
Trading gold futures does not require gold to exchange hands. A gold future identifies a commitment by the buyer to buy a specific quantity of gold at a pre-set price in a future time. Gold futures are the very best way to gain leveraged exposure however can be unpredictable. Gold futures are a fascinating and important territory, but they do not deserve the level of mysticism and dread they seem to create. The futures priesthood that 'informs' gold-stock operators often takes events out of context and also disseminates half-truths intended to sway sentiment.
Gold's significance in global markets makes COMEX Division gold futures and options an important risk management tool for commercial operators. Investors watch Comex contracts as an indicator of froth in the market. Trading gold futures securities happens mostly on paper: a large portion of the gold bought or sold in the futures market never exchanges hands. Gold futures are normally traded by "speculators," operators who buy or sell gold futures but aren't interested in the physical gold, versus "hedgers," who do value the gold by itself as an investment. Trading gold futures also has low commissions.
Gold options are powerful and cost-effective investing tools, which can be used to own desired amount of gold in future, and can also be used to hedge price changes of gold that you hold. Every futures contract is for 100 troy ounces.
Prices in an organized derivatives market replicate the assumption of market participants concerning the future and lead the prices of underlying to the alleged future level. The prices of derivatives converge with prices of the underlying at the expiration 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 set for the spot gold, which includes delivery, to be paid two days after the date of the actual contract.
To summarize, let me stress again that gold futures are not a risk free financial commodity and should be considered cautiously. Investments should only be made with risk assets which is capital you can afford to lose and it would not cause you to change your standard of living in any way.
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