If you are looking for a hedge against inflation, a speculative play, an alternative investment class or a commercial hedge, gold and silver futures contracts might fit the bill.
In this article, we'll cover the basics of gold and silver futures contracts and how they are traded. Trading in this market involves substantial risk, and investors could lose more than they originally invested. A precious metals futures contract is a legally binding agreement for delivery of gold or silver in the future at an agreed-upon price. The contracts are standardized by a futures exchange as to quantity, quality, time and place of delivery.
Only the price is variable. Hedgers use these contracts as a way to manage their price risk on an expected purchase or sale of the physical metal.
They also provide speculators with an opportunity to participate in the markets without any physical backing. There are two different positions that can be taken: The great majority of futures contracts are offset prior to 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 original long position.
Because they trade at centralized exchanges , trading futures contracts offers more financial leverage , flexibility and financial integrity than trading the commodities themselves. Financial leverage is the ability to trade and manage a high market value product with a fraction of the total value.
Online Futures Broker | Discount Futures Broker | Commodities Trading Firm
Trading futures contracts is done with performance margin. It requires considerably less capital than the physical market. For example, one futures contract for gold controls troy ounces , or one brick of gold.
The dollar value of this contract is times the market price for one ounce of gold. 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 protect their physical positions and for speculators to take positions based on market expectations. The exchange acts as a buyer to every seller and vice versa, decreasing the risk should either party default on its responsibilities. There are a few different gold contracts traded on U.
One at COMEX and two on eCBOT. There is a troy-ounce contract that is traded at both exchanges and a mini contract Silver also has two contracts trading at the eCBOT and one at the COMEX. The "big" contract is for 5, ounces, which is traded at both exchanges, while the eCBOT has a mini for 1, ounces.
Gold is traded in dollars and cents per ounce.
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. Both the eCBOT and COMEX specify delivery to New York area vaults. These vaults are subject to change by the exchange. The most active months traded according to volume and open interest are February, April, June, August, October and December. To maintain an orderly market , the exchanges will set position limits.
A position limit is the maximum number of contracts a single participant can hold. There are different position limits for hedgers and speculators. Silver is traded in dollars and cents per ounce like gold.
The market may not trade in a smaller increment, but it can trade larger multiples, like pennies. The most active months for delivery according to volume and open interests are March, May, July, September and December. The primary function of any futures market is to provide a centralized marketplace for those who have an interest in buying or selling physical commodities at some time in the future.
The metal futures market helps hedgers reduce the risk associated with adverse price movements in the cash market. Examples of 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 spot market , a gain in one market can offset the losses in the other. For example, a jeweler who is fearful that she will pay higher prices for gold or silver would then buy a contract to lock in a guaranteed price. Unlike hedgers, speculators have no interest in taking delivery, but instead try to profit by assuming market risk.
Speculators include individual investors, hedge funds or commodity trading advisors. Speculators come in all shapes and sizes and can be in the market for different periods of time. Those who are in and out of the market frequently in a session are called scalpers.
A day trader holds a position for longer than a scalper does, but usually not overnight. A position trader holds for multiple sessions. All speculators need to be aware that if a market moves in the opposite direction, the position can result in losses.
Trading Silver Futures: What You Need To Know - Oriental Pacific Futures - Futures Broker Malaysia
Whether you are a hedger or a speculator, 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, remember that futures trading is best left to traders who have the expertise needed to succeed in these markets. Dictionary Term Of The Day.
A measure of what it costs an investment company to operate a mutual fund.
Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin? This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education.
Trading Gold and Silver Futures Contracts By Hank King Updated February 13, — 6: What Are Precious Metals Futures Contracts? Advantages of Futures Contracts Because they trade at centralized exchanges , trading futures contracts offers more financial leverage , flexibility and financial integrity than trading the commodities themselves.
Online Silver Futures (SI) Trading at optionsXpress
Futures Contract Specifications There are a few different gold contracts traded on U. Gold Futures Gold is traded in dollars and cents per ounce. Silver Futures Silver is traded in dollars and cents per ounce like gold.
How to trade Silver Futures contracts and the risks?
Like gold, the delivery requirements for both exchanges specify vaults in the New York area. Silver, like gold, also has position limits set by the exchanges. Hedgers and Speculators in the Futures Market The primary function of any futures market is to provide a centralized marketplace for those who have an interest in buying or selling physical commodities at some time in the future.
The Bottom Line Whether you are a hedger or a speculator, remember that trading involves substantial risk and is not suitable for everyone. The energy market influences every aspect of our lives, and these four options are its driving force.
Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price. Silver Futures are becoming popular trading instruments.
Here is a primer on how to trade them. This method may seem arcane, but many well-established strategies rely on it. The forex market is not the only way for investors and traders to participate in foreign exchange. Gold and silver prices are seeing a big performance divergence in Futures contracts are one of the most common derivatives used to hedge risk.
A futures contract is as an arrangement between Learn what items futures may be purchased for, what a futures contract is and discover how the futures markets have greatly An option gives the buyer the right, but not the obligation to buy or sell a certain asset at a specific price at any time Fundamentally, forward and futures contracts have the same function: Learn how the notional value of a futures contract is calculated, and how futures are different from stock since they have An expense ratio is determined through an annual A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.
A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over No thanks, I prefer not making money.