Saving-Ideas.com

Icon

Personal Finance Blog India –

Gold Futures:Best Tool For Short Term Investors


There won’t be any investor not interested in Gold or at least don’t want to know about gold.One can have long term as well short term approach.We can generalise it as investment and trading view.

There are number of ways to invest in gold like physical way,ETFs,NSEL Gold e-series or gold mutual funds etc.We can call them as longer term instruments..There is something more better for  short approch like one week to one month.Its Gold Futures.

What are Gold Futures:

Multi-commodity exchange (MCX) is leading future market for gold .In future market we speculate about short term movement in Gold and take positions.Initiated positions can be buy or sell and squared of by opposite position..

Its a margin trading and traders needs to keep the margin prescribed by exchange in his account,not full amount.If we take a view of margins requirements,lot systems at mcx,we can list the things as follows:

Name Gold Contract ending CMP Lot Margin required.
Gold 05 Oct 2011 27600 1 Kg 1,67,000
Goldmini 05 Oct 2011 27600 100 gram 15,000/-
Goldguine 05 Sept 2011 22162* 8gram Rs.800
Goldpetal 30 sept 2011 2288 1 Gram Rs.150/-

* prices of 8 gram.

Margin depends upon market price and current volatility.

Real Case study:

Ramesh opened a trading account with us and deposited Rs. 2 lakh in his account.

He was bullish about gold for shorter term due to uncertainties in global financial markets.So He bought 2 goldmini lots in his account at the price of Rs.24000. 1 Lot of Goldmini is equivalent to 100 gram.  It means that he have purchsed total  200 grams in his account.there is a margin requirement of nearly 32000 for 2 lots of goldmini..He needs to have this amount  in his account anytime  to hold them.He still have Rs. 200000 – 32000 = Rs. 168000 to defend downfall if any. Now current price is 26000 i.e. he has profit of Rs.2000/- per 10 gram and total profit is Rs.40,000.

Advantages of Gold Futures:

  1. Only margin is required to buy not a complete amount.
  2. Small investors can buy goldguine or gold petals.If they want to buy 8 gram of gold for short term,they can do it buying gold guine keeping margin of only Rs.1000/-.i.e.suppose if anyone have Rs.10,000/- and wish to buy gold for a very short period he can buy 8 grams and multiples easily in future market.
  3. There is complete transparency of price and investor is investing directly in pure gold of 99.99%.
  4. One can buy-sell gold just on one click and its the most easiest way.
  5. One can also take delivery but it is something cumbersome process and should be avoided.

Disadvantages:

  1. As it is margin trading,sometimes traders take positions beyond their financial capacity.In above case study,if Ramesh have been bought 5-6 lots instead of 2,it would have been went wrong.
  2. Not useful for longer term investor.We needs to sell gold before expiry and roll over to next contract.
Future market is more about short term trading/speculation.If anyone really want to earn money in it needs to have good understandings of factors influencing gold market and economics across the globe in details. if traded with patience and sense, it is the best tool for short term investing.

 


Category: Commodities

Tagged: , ,

5 Responses

  1. Arumugam says:

    Above write up about Gold Futures is very clear and educative.

    i want to know which one is better for investment among ETF Gold and E-Gold?

    • admin says:

      If you are active share trader then Gold ETfs are better. If anyone do not have a demat account and want to open same for gold trading then better to open NSEL account.
      One can invest in Silver also at NSEL.

  2. Sheila says:

    I am interested in trading of gold.
    What is mean by contract ending month?
    Which one is better Spot exchange or MCx?
    Shiela.

    • admin says:

      Contract end month- before this contract end date investor needs to square off position or take delivery.
      Spot market or MCX: for short term view MCX is better while for long term investment NSEL is better.

Leave a Reply

Advertisement:

Categories

Categories

Blog Archives

See How Much Interest Your Saving Have Generated!!!Final Value will be Original Principal + Interest generated

Blog Author

Blog Author

Who's Online

25 visitors online now
4 guests, 21 bots

Disclaimer

Information provided on this blog is for general purpose only & not investment advice.Please take advice of SEBI Registered Investment Advisors before taking any investment decision.
25 visitors online now
4 guests, 21 bots, 0 members
Max visitors today: 28 at 02:46 pm UTC
This month: 32 at 09-12-2017 03:14 pm UTC
This year: 56 at 02-27-2017 10:53 am UTC
All time: 363 at 09-23-2016 05:45 am UTC
Thank You For Visiting This Blog!!!