When the gold is sold or purchased on a particular date, but the settlement of the amount or delivery of the gold is fixed for a future date, the deal is known as gold future trading. Both the seller and the buyer need not make deliveries or payment immediately, but a partial amount is necessary on the part of the buyer. The settlement date fixed at a few, usually three, months later is the actual date of exchange.
This delay in the payment of the amount and the delivery of the gold is done so that both parties are able to speculate about the future price. It can benefit either one of the parties. On the settlement day, only the amount of profit or loss is settled. This makes it possible for both the parties to trade in large amounts without paying the whole amount at the time. They also stand to gain bigger profits than if they made the settlement on that very day.
The future gold trade depends on the margin that is being paid by the buyer. This is a form of protection for both the buyer and the seller. This is essential, so that both parties do not go back on the deal in case the price of gold falls or rises on the settlement date. A fall will benefit the buyer and a rise will benefit the seller, but they might not make the settlement if there is no margin binding them.
The buyer has to make this down payment to the seller on a common platform and it helps both of them to keep their part of the deal on the settlement date. This margin amount is not much and is to the tune of 2% to 20% of the entire amount of the gold trade.
The gold future trading allows the trader to deal with larger amounts of gold and money, as they don\’t have to pay up the entire amount at any time. If he has $10,000 for investment, he can actually trade for an amount of even $100,000 as he has to pay only a down amount of 2%, which is $2000. On the other hand, in a normal investment, he would have to pay the entire amount. Hence, gold future trading offers greater opportunities.
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