As a commodity, any gold investment holds a so-called “futures market” which allows investors to speculate on future prices of the metal. It is also the venue for offering to sell and purchase gold at particular prices on a future date. Futures trading usually take place at the Commodities Exchange or COMEX in New York City, USA. Futures contracts are described as uniform deals between two parties. One agrees to deliver a particular amount of gold while the other receives a specific time in the future.
Trading Futures
Investors can enter into a contract for buying or selling gold futures for several days with the prevailing exchange rate on that day. The difference will be the profit for current transactions. There is a single margin system for trading. Traders pay from five to 10 percent of the entire value. Failure to pay means that you are not given ownership of the gold. Various websites provide information on futures contracts without any charge. Anyone can take part in these exchanges. Gold futures are closed from a few days or even months before actual expiration so the gold cannot be delivered physically. Once the futures expire, many traders opt to make exchanges via electronic transfer instead of physical transport. Prices and historical data of gold futures can teach investors looking for the chance to make gold investments.
Over-the-Counter Trading
Professional traders create terms for their futures trading on an informal basis. They trade directly with one another also known as over the counter deals. You can avoid difficulties of detailed negotiations by trading regular futures agreements on financial futures exchanges. Under this type of contract, the exchange decides on settlement date, contract amount, and delivery terms. You determine the size of your overall investment by buying a number of standard contracts.
Standard transactions on the financial futures exchange provide two main benefits. There is greater liquidity compared to the over the counter scheme which allows the investor to sell the future anytime. It is generally not possible with the over the counter future. Likewise, a central clearer will secure the trade against possible non-payment and take care of margin calculations. This person collects and holds margins for both vendors and buyers.
Dealing Futures
Find a competent broker if you wish to enter into gold futures trading. The futures broker is part of the futures exchange. This specialist manages your relationship with the market. He or she will get in touch with you for the central clearer to perform tasks such as collection of margins. It is necessary to sign a comprehensive document which explains that you accept considerable risks of futures trading. The process of setting up accounts will take a number of days because the broker needs to check your identity and credit worthiness.
Be wary of hidden costs in financing. This will not allow you to save on expenses since you finance the margin but not the purchase. It is important that you are aware of mechanics in computations of futures prices. Otherwise, this will remain a mystery where your money will go. Spot gold price is meant for instant settlement which is reference price for the precious worldwide. The futures contract will most probably be priced at a different echelon than spot gold. The discrepancy tracks closely financing cost of equivalent acquisition in the spot market.