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Gold Futures and Options
A futures contract is a contract that is legally binding and that requires the investor to buy or sell an allotted amount of a described commodity at a certain and specific time in the future and at a price that has been agreed upon when the contract is agreed to. As you may have already noticed, a good deal of gambling is involved in futures contracts both for the buyer and the seller.
Gold futures contracts were at first set up as a way of protecting bigger industrial users or hedgers from harmful fluctuations in the price of gold as it provided them with guarantee them with a steady supply of gold at a set and established price.
Industrial users, more commonly known as hedgers are companies that are engaged in the production, processing and or marketing of gold such as mines, fabricators and smelters, who use gold future contracts as a convenient instrument for being able to plan and manage their finances. Just like with futures contracts for any commodity, a gold futures contract acts like a promise that is given by the purchaser to buy or sell a specific amount and grade of gold on a future date for a certain fixed price that cannot be changed.
In reality futures contract buyers need to be able to speculate, and need to be members of the public that are involved mostly in the fluctuation of prices and possible profits to be made, and should buy futures when they are sure the prices of gold will go up, and learn to sell futures when they know the price is going to go down.
In the course of the skilled use of leverage, the difference in amount between the margin, signifying the amount of capital a speculator needs to deposit in the futures account (which is a ten to twenty percent) and the value of the assets controlled by contract on the date of operation, give it the potential for a very good amount of profit, however the risk involved is also high.
There are a few American commodity exchanges such as the COMEX in New York and the Chicago Board of Trade that deal in gold futures and usually do contracts for 100 ounces, with recognized customers that are required to deposit margins of around ten percent and new customers are required to deposit margins of around twenty percent until they become known a little bit better.
There is a difference between futures contracts and a simple option because it is not a promise to buy or sell but it gives the option holder the right to buy and sell gold at an established or fixed price on some future date if the option holder desires to do so.
There is a higher risk for those that are not fully involved in the details of options and futures contracts. If you are one of the people that are interested in possible investment of gold futures and contracts and options you should talk about it with a well known and experienced broker before getting engaged in this very speculative type of involvement in the gold market.