Introduction to the trading of Gold Futures.

Gold is a precious and malleable metal in nature. Historically, it has been a very precious metal because of its precious nature and is used as a medium of exchange or as a currency. Gold is commonly used in jewelry production. Furthermore, gold is also very useful in industrial applications. Because it is a good conductor, very malleable and very ductile, it is used in electronics, generally as wiring.

Most of the electronic devices we use contain gold elements in their components, including cell phones, televisions, GPS systems, calculators and computers. Other noteworthy uses include glass making, medical treatments and dentistry. It is important to know that gold is considered a safe investment in the face of the slowdown in world economies and the recession. Other precious metals, in particular silver, platinum and palladium, provide alternatives to gold, given the high price of gold. These other metals can provide some of the physical properties of gold at a lower price.

A future is simply an agreement to negotiate gold in terms (i.e., amounts and prices) decided now, but with a liquidation day in the future. This means that you do not have to pay yet (at least not in full) and the seller does not need to give you any gold. It's so easy. The settlement day is the day on which the actual exchange takes place, when the buyer pays and the seller delivers the gold. Usually, up to 3 months in advance.

Most futures traders use the delay to allow them to speculate: either way. Their intention is to sell everything they bought or buy anything they sold before reaching the date of the agreement. So they will only have to liquidate their profits and losses. In this way, they can trade in much larger amounts and take greater risks for larger premiums than they could if they had to liquidate their operations as soon as they were traded.

Futures and gold margin

Delaying the agreement creates the need for margin, which is one of the most important aspects of buying (or selling) a gold future.

A margin is necessary because delaying the transaction makes the seller nervous that if the price of gold falls, the buyer moves away from the agreement reached, while at the same time the buyer is nervous that if the price of gold also rises seller will leave.

The margin is the initial payment usually housed in an independent central point that protects the other party from its temptation to move away. Therefore, if you manage gold futures, you will be asked to pay a margin and, depending on the current market conditions, it could be any value between 2% and 20% of the total value of what you have distributed.

Gold futures 'in return'

The big professional traders invent the contractual conditions of their futures trading on an ad-hoc basis and trade directly with each other. This is known as 'Over the Counter' trading (or OTC for short).Fortunately, it would save the pain (and math) of the detailed negotiations, since it will almost certainly negotiate a standardized futures contract on a stock exchange for financial futures.

In a standardized contract, the stock exchange decides the settlement date, the contract amount, the delivery terms, etc. You can compensate for the size of your total investment by purchasing several of these standard contracts.

Things to take

 When dealing with gold, it is necessary to know what is used for the main producing and exporting countries, as well as for large consumers and importers.

 It is essential to know the use of these precious metals not only for industrial use, but also for hedging purposes against factors such as inflation and currency strength.

 Scrap trading is a vital factor to consider in the gold and silver market.