Gold Futures

Toll Free US Only: The investor should understand that there are problems when a market loses its transparency. Traders are treated as equals at our firm. This is relatively stable.

Topping up the Margin

They lose even when they are right in the medium term, because futures are fatal to your wealth on an unpredicted and temporary price blip. Big professional traders invent the contractual terms of their futures trading on an ad-hoc basis and trade directly with each other. Fortunately you would be spared the pain and the mathematics of detailed negotiations because you will almost certainly trade a standardized futures contract on a financial futures exchange.

In a standardized contract the exchange itself decides the settlement date, the contract amount, the delivery conditions etc. You can make up the size of your overall investment buy buying several of these standard contracts. Note that gold futures are dated instruments which cease trading before their declared settlement date.

At the time trading stops most private traders will have sold their longs or bought back their shorts. There will be a few left who deliberately run the contract to settlement - and actually want to make or take delivery of the whole amount of gold they bought.

On a successful financial futures exchange those running the contract to settlement will be a small minority. The majority will be speculators looking to profit from price moves, without any expectation of getting involved on bullion settlements. The suspension of dealing a few days before settlement day allows the positions to be sorted out and reconciled such that the people still holding the 'longs' can arrange to pay in full and the people holding the 'shorts' can arrange supply of the full amount of the gold sold.

Some futures brokers refuse to run customer positions to settlement. Lacking the facilities to handle good delivery gold bullion they will require their investors to close out their positions, and - should they want to retain their position in gold - re-invest in a new futures contract for the next available standardised settlement date. These rollovers are expensive.

As a rule of thumb if your gold position is likely to be held for more than three months i. To deal gold futures you need to find yourself a futures broker. The futures broker will be a member of a futures exchange. The broker will manage your relationship with the market, and contact you on behalf of the central clearer to - for example - collect margin from you. Your broker will require you to sign a detailed document explaining that you accept the significant risks of futures trading.

Account set-up will take a few days, as the broker checks out your identity and creditworthiness. It sometimes appears to unsophisticated investors and to futures salesmen that buying gold futures saves you the cost of financing a gold purchase, because you only have to fund the margin - not the whole purchase. This is not true. It is vital you understand the mechanics of futures price calculations, because if you don't it will forever be a mystery for you where your money goes.

The spot gold price is the gold price for immediate settlement. It is the reference price for gold all over the world. A gold futures contract will almost always be priced at a different level to spot gold. The differential closely tracks the cost of financing the equivalent purchase in the spot market. Because both gold and cash can be lent and borrowed the relationship between the futures and the spot price is a simple arithmetical one which can be understood as follows:.

If I didn't pay this extra the seller would just sell his gold for dollars now, and deposit the dollars himself, keeping an extra 0. You will notice that so long as dollar interest rates are higher than gold lease rates then - because of this arithmetic - the futures price will be above the spot price.

There's a special word for this which is that the futures are in 'contango'. What it means is that a futures trade is always in a steady uphill struggle to profit. For you to profit the underlying gold commodity must rise at a rate faster than the contango falls to zero - which will be at the expiry of the future. If dollar interest rates drop below the gold lease rates the futures price will be below the spot price. Then the market is said to be in 'backwardation'. Many futures broking firms offer investors a stop loss facility.

It might come in a guaranteed form or on a 'best endeavours' basis without the guarantee. The idea is to attempt to limit the damage of a trading position which is going bad. The theory of a stop loss seems reasonable, but the practice can be painful. The problem is that just as trading in this way can prevent a big loss it can also make the investor susceptible to large numbers of smaller and unnecessary losses which are even more damaging in the long term.

On a quiet day market professionals will start to move their prices just to create a little action. The trader marks his price rapidly lower, for no good reason. If there are any stop losses out there this forces a broker to react to the moving price by closing off his investor's position under a stop loss agreement. In other words the trader's markdown can force out a seller. The opportunist trader therefore picks up stop loss stock for a cheap price and immediately marks the price up to try and 'touch off' another stop loss on the buy side as well.

If it works well he can simulate volatility on an otherwise dull day, and panic the stop losses out of the market on both sides, netting a tidy profit for himself. It should be noted that the broker gets commission too, and what's more the broker benefits by being able to control his risk better if he can shut down customers' problem positions unilaterally.

Brokers in general would prefer to stop loss than to be open on risk for a margin call for 24 hours. Only the investor loses, and by the time he knows about his 'stopped loss' the market - as often as not - is back to the safe middle ground and his money is gone. News View All News. Open Markets Visit Open Markets. Gold futures are hedging tools for commercial producers and users of gold. They also provide global gold price discovery and opportunities for portfolio diversification.

CME Group is the world's leading and most diverse derivatives marketplace. Toll Free US Only: Trading All Products Home. We do not discriminate traders based on their trading volume or account size. Traders are treated as equals at our firm. Dorman Trading is our exclusive futures commission merchant FCM. Dorman Trading clears all futures and options on futures trades. The funds in your account with Dorman Trading are held as "Customer Segregated" funds. Yes, Trade Futures 4 Less offers server co-location for traders who want faster, low latency access to Rithmic's exchange matching gateway:.

Dorman Trading clears hundreds of "local" Chicago floor traders, the most demanding professional day traders in the world.

Dorman Trading brings this same level of service to all their clients. CME Group provides the widest range of benchmark futures and options products available on any exchange, covering all major asset classes. ICE Exchange is the leading network of regulated exchanges and clearing houses for financial and commodity markets.

ICE delivers transparent, reliable and accessible data, technology and risk management services to markets around the world through its portfolio of exchanges, including the New York Stock Exchange, ICE Futures and Liffe.