Gold Futures Trading – Advantages and Risks
There are several rewarding ways to invest in gold. Some people buy gold bullion bars and coins and store them for their affluent appeal, while others invest in ownership certificates and exchange funds. Another kind of gold investment that offers quick and high profits is called gold futures trading.
Gold Futures Trading–what is it?
Gold futures trading is a legal agreement between a buyer and a goal investment dealer for gold bought at a specific price to be delivered at an agreed date. The agreement of a gold future trade standardizes the quality and quantity of the gold, as well as the delivery date, decided between the two parties. Only the price remains the variable in the agreement.
Gold futures trade is an appealing way of investment because it allows investors to use the precious metal commodity for a trade without paying the full price upfront.
Put another way, gold futures are an agreement in which a person promises to purchase gold at a specified date in exchange for an initial payment and a commitment to fulfill the payment at the decided date of delivery.
How to Invest in Future Trades?
When investing in gold futures, you have to decide the quantity of gold you want to purchase for trading. Gold futures are generally offered in 100 ounces, 33.2 ounces, and 10 ounces. The precious commodity is traded in dollars per ounce. So, if the value of gold is 500 dollars per ounce, the agreement will be signed at a value of 50,000 dollars to purchase 100 ounces of gold.
If the value of gold increases from 500 to 520 dollars, the investor can sell those 100 ounces at the value of 520 and earn 2000 dollars on the trade. This requires the investor to keep up with the highs and lows of the market and often predict how the gold market will hold up.
Advantages of Gold Futures Trading
Along with earning quick profits, there are other advantages to futures trading. Some of them are listed below:
Low Cost for Execution
An investor will only pay a small amount upfront to get contract ownership. This margin is usually set around 10 percent of the agreement value they’ll have to pay to start trading.
If the investor predicts the movement of gold correctly, they’ll be able to achieve high profits in a very short time.
Disadvantages of Gold Futures Trading
The gold futures trading market is considered to be volatile, which means that there’s always a threat of a major crisis. Also, gold prices are constantly fluctuating, which can cause an investor to predict the wrong gold movement and lose money in the process.
A rise in interest rate may cause the investor to lose money in terms of liable securities during the trading period.