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Summary: Investing in gold futures is done by purchasing a contract for gold at a later date but paying for it now. Understand more about gold futures and the difference between a spot price and futures price with tips from a futures and options floor trader in this free video on investing.
Mark Griffith has graduated in economics and philosophy at Clare College, Cambridge. He has been a futures and options floor trader at LIFFE (London International Financial Futures...read more
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"Hello, my name is Mark Griffith. This is going to be a very brief introduction to how you can invest in gold futures. You'll probably be trading in an exchange like Comex in New York. But you don't need to worry too much about where it is, you need your broker to handle your account. The important thing is to understand what a future is. A future is a contract to buy something at a date in the future. But you pay now. That means that there are two prices for example, the price to obtain gold right away and the price to obtain gold delivered next Christmas, and the two prices will be different. If people think the price is going up, the price might be higher for next Christmas. If people think it's going down, it might be lower for next Christmas but it will be different. Now this means that the price of both things is moving up and down each day. The price for obtaining gold now is called the spot price. And the price for obtaining gold at a future date of course is the future, and the two are generally linked, so if one goes up the other will go up. And this means that although you're buying a future, you are almost at as much risk as if you're buying the spot. So you will need to put up for your broker margin, what is called margin. A margin is a chunk of the final price, that's to say you could buy on deposit, you don't need to pay the whole price. Because the assumption is that maybe you'll hold the future for a week and then sell it back into the market, and either take a profit or take a loss. But, if the prices moves around more and more wildly, your margin will go up. So your broker will make an agreement with you in your account which means that the broker can draw a margin from you, and this can go up or it can go down unexpectedly so you need to be aware of that. You also need to be aware that the price moves fast and you need to be careful about understanding why you're buying gold and what price you think it's going to go to and where you plan to leave the market. In any case, once again, good luck."
eHow Article: Investing in Gold Futures
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