How to Trade Gold Futures: Costs and Different Brokers
You can trade futures by opening a trading account with a trusted broker who handles futures trading. CME Globex, CME Clear Port, AmeriTrade and Etrade are some well known online platforms for trading futures.
Most brokerages will charge the National Futures Association fees, which is roughly around $0.02 per side, along with a commission (which can range from $0.025 to $3 and more, per contract per side). You will also have to pay an exchange fee, which will vary depending on the exchange and the specific contract you are trading. Be sure to look at the fine print and add up all the fees into your cost.
Gold Futures Contracts
Several exchanges around the world offer gold futures, and the major gold futures exchange is the Comex division of the New York Mercantile Exchange (NYMEX). NYMEX first started trading gold futures in 1974, under the symbol “GC.” Gold Futures contracts are traded both physically and electronically. A typical contract is of 100 troy ounces of gold, quoted in U.S. dollars and cents per troy ounce. The minimum fluctuation is $0.10 per troy ounce. The contract is settled with physical delivery.
As per NYMEX documents, Gold futures are available in the current calendar month and the next two calendar months, along with any February, April, August, and October during a 23-month period; and any June and December during a 72-month period from the current month.
Some traders can experience losses due to erratic price movements in the gold futures market, but there are large profits to be made if futures traders employ smart strategies and carefully hedge the risks mentioned below.
Gold prices fluctuate due to inflation expectations since its acts as an inflation hedge. Gold often reflects investor sentiments, and moves quickly based on inflation expectations, economic health indicators, and the strength of fiat currencies.
Any time there is global panic due to stock market crashes or terror attacks, gold is seen as a safe haven and its prices can move up drastically.
Stronger investment demand in an economy can cause gold prices to spike. Gold futures prices also have an inverse relationship with U.S. dollar.
It is also worth remembering that Central banks and governments are major buyers of gold, which means that their actions can greatly affect the gold markets.
Gold futures trading is accompanied by several risks affecting the underlying physical supply of gold as a commodity as well. Whenever new discoveries are made, prices of gold can drop quickly. But the IMF and Washington Agreement on Gold (WAG) have put very strict requirements on gold sales, and on the backing of currency by gold, which can also change the direction of price swings in the gold futures market.
Furthermore, traders should note that the current production of gold is 2,500 metric tons, whereas consumption is 3,500 metric tons. This creates a shortfall in gold that will increasingly impact the futures market, going forward.
There are also the risks typical to financial trading. Gold futures have a lot of leverage, which allows traders to control a large amount of commodities for a small amount of investment. However, it also means that even a small, unfavorable change in the prices of gold can drastically impact a traders’ entire equity.
Despite these risks, gold futures are highly in demand since they are liquid, and witness high daily volumes.
Traders can consult data from the National Mining Association and the World Gold Council to understand supply and demand dynamics and use this information to inform their trades.
Traders that can minimize their risks, stand to make huge profits in this crucial and popular futures market.