Gold trading has the ability to provide investors a less volatile market. Most traders find that the gold market allows them to diversify their portfolio and add to their long or short term investment goals. It also provides the ability to trade with different qualities and various prices. The futures market using the gold commodity has become quite popular due to the it being a leveraged product.
Many investors will partake in trading gold futures contracts; these represent a secure contract with the idea to buy or sell, give or take delivery of a precise quantity of gold or bouillon in addition to the actual quality of the gold or bouillon, on a specific arranged date, as well as at a fixed arranged price. Traders can easily choose to receive the actual underlying asset (in this case gold), or give it, on the maturity date of the contract. This is very unlikely however when trading with futures contacts, and instead is geared at the underlying asset market prices and speculating on what the market will do in the future. This speculation makes gold future market trading very volatile.
Gold as well as bullion future contracts allow the investor to take a long or short position. An investor may wish to make use of a standard future contract as it also offers them liquidity and prices which are ‘real-time’. Another benefit for many traders is that gold futures contracts are traded on margin and leverage. This means that the investor needs a small percentage of capital up-front to open the contract. With the ability to trade with leverage the risk involved is greater. This can cause the trader to lose over and above their initial outlay.
A very important rule for the investor to realize and fully understand is that gold future contracts are in fact a zero-sum product. What this means is that for each long position there will be a short position which offsets it. So, in the event that there are commercial companies (hedgers) whom are taking on short positions, and they are thriving and the market is moving in their favor, then the long positions (speculators) will be sustaining losses.
Hedgers as well as speculators in recent times however have been producing a thriving market area in the gold commodity. The overall success of any futures contract, which includes that of the gold futures market will inevitably rely upon the market movements of gold or bouillon during the actual contractual time.