Gold is the universal asset.
Coveted for its beauty and value, it is the ultimate investment.
The easiest and most accessible way to invest in the great world of gold is via gold stocks.
Futures and Options trading is a surefire way to invest large with small money.
This page will introduce you the advantages and alternatives of investing in gold.
Gold Futures Trading
A “future” is essentially a deal set some time in the future but with the terms decided now. It is a contract that stipulates the delivery of a particular product -- in our case, gold -- at a given time in the future at a predetermined set price. The delivery or settlement day is usually three months ahead and traders use this delay to speculate the rise and fall in Gold prices.
Risky, you'd think? Not so much. You can manage this risk by trading before the settlement day. Using this method you deal only in gains on losses.
With gold futures trading you essentially get more for your money. This is done through gearing or leverage. If you have say €5,000 to invest, you could go and buy €5,000 worth of gold, which isn’t very much, but trading in gold futures gives you the option to buy up €100,000 of gold futures. This is assuming your margin is about 5%. So if the price of gold rises but say 5% you’ve earned €5,000 with futures but only €500 with actual bullion.
How to Buy Gold Futures
Future contracts are traded the world over.
Professional traders invent their own contracts but fortunately there are standardised contracts which are traded through a financial futures exchange.
The exchange will decide the settlement date, amount and delivery conditions.
Standardised contracts have numerous advantages to you as a speculator including giving you the option to sell when you choose to whomever you chose.
They also provide a central clearer, these clearers guarantee against default of both parties (buyer and seller) and also look after the margin calculations and collect and hold the margin for buyer and seller.
Gold Options Trading
Gold options are contracts where the actual asset behind the trade is a gold futures contract (see above). The gold option gives the purchaser the right, but not the obligation to buy the futures contract. Options are divided into two types or classes, Calls and Puts.
Calls are purchased when a trader is confident in a rising price in the gold markets and Puts are purchased when a fall is expected. These are not the only methods of trading. You can also sell or use a combination of strategies known as a spread.
Trading gold options is often considered a safer bet than gold futures as the gold option buyer often has a lower premium than the margin required with gold futures. Any losses are limited to the purchase price.
You can trade gold options alone or in a combination with gold futures options implementing a broad risk-reducing strategy which can often guarantee excellent returns.
How to Trade Gold Options?
Contracts are traded on both the New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).
NYEX gold options are traded at 100 troy ounces of gold while TOCOM gold options are traded for 1000 grams of gold. These are minimum purchase requirements and non-negotiable.
Gold Options Prices
Options and futures trading prices can be found at this link:
This YouTube video explains a lot of what you need to know about gold options trading and highlights how they are infinitely more profitable than purchasing gold itself. It also outlines how you can minimise your losses.
Tips for Trading Options and Futures
Constant Monitoring of The Market
Pay attention to global events. Current affairs often help predict where the price of gold will go. Historically, gold has been rising since 1979 so staying informed will help you time your trades to capitalise on steep uphill price movements.
Set a Limit
Begin by trading with a demo account. This will give you a “feel” for the market. When you do switch to real money, deal in small amounts to begin with. Set yourself loss limits and stick to them.
Don’t be Hasty
You will occasionally need to make quick decisions. Try not to be too hasty and ensure any decision you make is well informed.
They're the basis of technical analysis. Learn how to use trend lines - find a trend, confirm it and trade with it.
Hedging is sort of like an insurance to help you insure yourself against loses. This is really important to maximise profits.
1-2-3 System Strategy
This is a system based on price action that relies on reversal patterns. Most of the big moves in financial markets are composed on 3 or more up/down waves. It’s a great system for a novice trader.
Never Stop Learning
The gold market is constantly evolving and adapting to the modern world. Keep yourself on top of the trends. There is plenty of information to be found on the internet even on sites such as Wikipedia.
Learning how to trade gold futures and options is an easily accessible entrance into the exchange market.
It gives investors an opportunity to make money whether the market for gold is going up or down and offers a position in gold for substantially less capital than expected.
With gold options and futures you won’t go broke but instead use the leverage and flexibility to profit big from small investments.