Be an Expert in Gold Trading Futures

Have you ever come across a word and wondered what in the world is that. Well, this article is to educate you on financial futures, so that in the future you can be able to have an educated chat with a financial analyst.

Gold trading futures are just like other financial assets’ futures. Both in nature and calculation. This will call for a deeper understanding of what futures are, and what influences them. In apprehension to futures, it is good to know the spots, options and forwards transactions.

 Spot Market

The common type of foreign exchange transaction is for immediate exchange. This market is referred to as the spot market and the rate at which the currency is traded is referred to as the spot rate. This is what we call “buying on the spot”

Characteristics of the spot market.

• Involves immediate purchase and sale of foreign exchange with the settlement made within two working days.
• Spot market liquidity-The more buyers and sellers there are the more liquid the market is.
• The spot rate will be influenced by the demand and supply of gold.

Forward Market

This involves contracting today for the future purchase or sale of foreign exchange. This locks in an exchange rate with which an organization can buy or sell gold in the future.

The contract specifies:

•  The currencies to be exchanged.
•  The exchange rate.
•  The date at which the transaction will occur.

Futures Market

Futures contracts are similar to forwarding contracts but are sold on an exchange instead of over the counter.

Options Market

Options contracts

Options contracts can be classified as calls or puts which gives a holder a right but not an obligation to buy or sell a certain asset on or before the specified time.

Key features of an option

•  Right but not an obligation.
•  Has two parties i.e. holder (investor) and writer (Seller)
•  The underlying asset (gold), the value of an option is underpinned on an asset(gold.
•  Price in an option (Exercise or strike price)
•  Specified date i.e. Expiration or maturity date
• Options are not free. The price of an option is known as a premium.

Gold Options Contracts

A gold call option provides the right to buy gold at a specific price called a strike or exercise price within a specific period.

A gold put option provides the right to sell gold at a specific price within a specific

period. It is used to hedge future receivables.

Gold swaps 

A swap transaction involves a spot transaction along with a corresponding forward contract that will ultimately reverse the spot transaction. The two contracts are done simultaneously.

Gold futures are influenced by dollar prices, inflation, and political crisis. This means it is a game of speculation of the price. This calls for a diversification of your portfolio to minimize your risks.