Gold and silver futures contracts can offer a hedge against 澳洲幸运5开奖号码历史查询:inflation, a 澳洲幸运5开奖号码历史查询:speculative play, an alternat🌱ive investment class, or a commercial he🃏dge for investors seeking opportunities outside of traditional equity and fixed-income securities.

In this article, we’ll cover the basics of gold and silver futures contracts and how they are traded, but be forewarned: Trading in this market involves substantial risk, which could be a larger factor than their upside return profiles.

What Are Precious Metals Futures Contracts?

A 澳洲幸运5开奖号码历史查询:precious metals futures contract is a legallౠy binding agreement for delivery of gold or silver at an agreed-upon price in the future.🔯 A futures exchange standardizes the contracts as to the quantity, quality, time, and place of delivery. Only the price is variable.

Hedgers use these contracts as a way to manage 澳洲幸运5开奖号码历史查询:price risk on an expected purchase or sale of the physical metal. Futures also provide speculators with an opportuniꦕty to participate in the markets without any physical backing.

Two different positions can be taken: A 澳洲幸运5开奖号码历史查询:long (buy) position is an obligation to accept delivery of the physical metal, while a 澳洲幸运5开奖号码历史查询:short (sell) position is the obligation to make delivery. The great majority of futures contracts are offset before the delivery date. For example, this occurs when an investor with a long position initiates a short position in the same contract, effectively eliminating the originaᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚl long position.

Advantages of Futures Contracts

Trading futures contracts offers more financial leverage, flexibility, and financial integrity than trading the 澳洲幸运5开奖号码历史查询:commodities themselves, because they trade at 澳洲幸运5开奖号码历史查询:centralized exchanges.

Financial leverage is the ability to trade and manage a high 澳洲幸运5开奖号码历史查询:market value product with a fraction of the total value. Trading futures contracts is done with a performance margin, which requires c💙onsiderably less capital than the physical market. The leverage provides speculators with a higher risk/higher return investment profile.

For example, one futures contract for gold controls 100 澳洲幸运5开奖号码历史查询:troy ounces, or one brick of gold. The dollar value of this contract is 100 times the 澳洲幸运5开奖号码历史查询:market price for one ounce of gold. If the marke🌳t is trading at $600 per ounce, then the value of the c🌳ontract is $60,000 ($600 × 100 ounces). Based on exchange margin rules, the margin required to control one contract is only $4,050. So for $4,050, one can control $60,000 worth of gold. As an investor, this gives you the ability to leverage $1 to control roughly $15.

In the futures markets, it is just as easy to initiate a short position as a long position, giving participants a great amount of flexibility. This flexibility provides hedgers with an ability to pro🅺tect their physical positions and speculators with an ability to take positions based on market expectations.

Gold and silver futures exchanges offer no 澳洲幸运5开奖号码历史查询:counterparty risks to participants; this is ensured by the exchanges’ clearing services. The exchange acts as a buyer to every seller and vice versa, decreasing the risk should either party default on its responsibilities.

Futures Contract Specifications

One gold future available in the United States is COMEX. This is a 100-troy-ounce contract. NYSE Liffe offers a mini-contract (33.2 troy ounces).

Silver also has contracts trading at COMEX and NYSE Liffe. The contracts are for 5,000 ounces, and they are traded at both exchanges. COMEX also has an e-mini silver futures contract for 2,500 ounces.

Gold Futures

Gold is traded in dollars and cents per ounce. For example, when gold is trading at $600 per ounce, the contract has a value of $60,000 ($600 × 100 ounces). A trader who is long at $600 and sells at $610 will make $1,000 ($610 - $600 = $10 profit; $10 × 100 ounces = $1,000). Conversely, a trader who is long at $600 and sells at $590 will lose $1,000ꦓ.

The minimum price movement, or tick size, is 10 cents. The market may have a wide range, but it must move in increments of at least 10 cents.

COMEX delivery is to New York-area vaults. These vaults are subject to change by the exchange. The 澳洲幸运5开奖号码历史查询:most active months trade꧒𓂃d (according to volume and open interest) are February, April, June, August, October, and December.

To maintain an 澳洲幸运5开奖号码历史查询:orderly market, the exchanges will set position limits. A 澳洲幸运5开奖号码历史查询:position limit is the maximum number of contracts that a single particౠipant can hold. There are different position limits for hedgers and speculators.

Silver Futures

Silver is traded in𝐆 dollars and cents per ounce like gold. For example, if silver is trading at $10 per ounce, then the “big” contract has a value of $50,000 (5,000 ounces × $10 per ounce), while the mini would be $10,000 (1,000 ounces × $10 per ounce).

The 澳洲幸运5开奖号码历史查询:tick size is $0.001 per ounce, which equates to $5 per big contract and $1 for the mini contract. The market maꦫy not trade in a smaller increment, but it can trad🐽e larger multiples, like pennies.

Like gold, the delivery requirements specifღy vaults in the New York area. The most active months for delivery (according to volume and open interests) are March, May, July, September, and December. Silver, too, has position limits set by the exchanges.

Hedgers and Speculators in the Futures Market

The primary function of any 澳洲幸运5开奖号码历史查询:futures market is to provide a centralized marketplace for those who have an interest in buying or selling physical commodities sometime in the future. The metal futures market helps hedgers reduce the risk associated with adverse price movements in the 澳洲幸运5开奖号码历史查询:cash market. Examples ꦜof hedgers include bank vaults, mines, manufacturers, and jewelers.

Hedgers take a position in the market that is the opposite of their physical position. Due to the price correlation between futures and the 澳洲幸运5开奖号码历史查询:spot market, a gain in one market can offset losses in the other. For example, a jeweler who is fearful that they will pay higher prices for gold or silver would then buy a contract ✨to lock in a guaranteed price. If the market price for gold or silver goes up, they will have to pay higher prices for gold/silver.

However, because the jeweler took a long position in the futures markets, they could have made money on the futures contract, which would offset the increase in the cost of purchasing the gold/silver. If the 澳洲幸运5开奖号码历史查询:cash price for gold or silver and the fu😼tures prices each went down, the hedger would lose on the futures positions but would pay less when buying gol💫d or silver in the cash market.

Unlike hedgers, speculators have no interest in taking delivery, but instead try to profit by assuming 澳洲幸运5开奖号码历史查询:market risk. Speculators include individual investors, 澳洲幸运5开奖号码历史查询:hedge funds, or 澳洲幸运5开奖号码历史查询:commodity trading advisors (CTAs).

Speculators come in all shapes and sizes and can be in the market for different periods of time. Those who are 澳洲幸运5开奖号码历史查询:in and out of the market frequently in a session are called scalpers. A 澳洲幸运5开奖号码历史查询:day trader holds a position for longer than a scalper does, but usually not overnight. A 澳洲幸运5开奖号码历史查询:position trader holds for multiple sessions. Speculators need to be aware that the🌃ir position can result in losses if a market mo𝔉ves in the opposite direction.

The Bottom Line

Whether you are a hedger or a speculator,ꦆ it’s crucial to remember that trading involves substantial risk and is not suitable for everyone. Although there can be significant profits for those who get involved in trading futures on gold and silver, keep in mind that futures trading is best left to♈ traders who have the expertise needed to succeed in these markets.