If you are looking to hedge against inflation or looking to indulge in an alternative investment class, gold futures contract is where you should be looking at because it fits the bill.
This article is meant to expose you to the basics of gold futures contracts and give you some insight on gold options trading.
I will be deceiving you though if I tell you that the gold business is all gloomy. It comes with lots of risks, and as an investor, you might lose your investment. H
So what is Gold futures contracts?
In the market, they call it the precious metals futures contract, and it is a legally binding agreement between two parties for the delivery of gold in the future at a set/agreed price.
The agreed upon price is used by hedgers to mitigate their price risk while purchasing or selling the precious metal.
The set price is also beneficial to speculators in the sense that it affords them the opportunity to also participate in the markets.
Gold Futures contracts
The futures contract is a very standard agreement with so many details being taken care of; it is a futures exchange option concerning quantity, quality, time and place of delivery.
In a Gold futures contract, there are two main positions a trader can take;
- The long (buy) position: this entails an obligation by the investor to accept delivery of the physical metal. In simpler terms, it is the buying of the commodity with the expectation that the asset will rise in value after some time. In this context, a gold investor with the long position will be expecting to hold on to the commodity with the hope of a rise in price.
- The short (sell) position: this entails an obligation to make a delivery. This position occurs when an investor anticipates that the value of the commodity will likely decrease in the short term. Most futures contracts sales even before the delivery date. Even the long position holders most times initiate the short position in the contract for so many reasons thereby invalidating the long position.
Gold Options Trading
The precious metal (gold) is traded in dollars/cent and measured in
In a market scenario for example, if gold is trading at $1000 per ounce, the contract value would be 1000 x 100 ounce, that is $100,000.
So if an investor has a long position at $1000 and sells at $1100, the profit after trading will be incredible.
But also remember that if the market is bad and the investor ends up selling at a lower price, he/she also inherits the loss.
In conclusion, the gold futures comes with so much profitable value at its peak but also has its risks and thus might not be suitable for everybody.
Gold futures trading requires certain expertise, and if one wants to venture into the business, it’s we advice you seek out an expert to help you so as not to begin with a loss.
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