TRADE IN GOLD
The question of how to trade in the futures market of gold, keeps revolving in the minds of many small investors. Because everyone likes investing in gold. Other options are easier to understand than trading in gold futures market, so people do not enter the futures market. The complexity of trading in the futures market.
Because of this, investors hesitate to trade in gold futures. Through this report, we will try to explain the nuances of trading in gold futures in a very light way.
How to start trading in commodity futures?
First of all, you have to open a trading account. For this, you can open an account for commodity trading by going to any SEBI recognized brokers. Once the trading account is started, you can start trading in commodity futures both online and offline.
Where to see gold futures price?
Gold is traded on MCX i.e. Multi Commodity Exchange, BSE i.e. Bombay Stock Exchange and NSE i.e. National Stock Exchange. You can see the live price of gold futures by visiting the site of the exchange. Apart from this, you can also see the current price of gold by visiting your brokers site and financial news website.
How to Invest in Gold / Trade In Gold
1.Physical Gold: This is the oldest method of investing gold. You can buy gold jewelery, gold coins or sono bricks in it. Keep in mind that gold bars ie bricks and coins are more profitable investments than jewelery. Actually, in buying jewelery, you have to pay a making charge which is not available when you return the gold later. This is why coins or bricks without making charge give higher returns.
2.Gold ETF: Gold ETF means gold exchange-traded fund. This is for investing in physical gold. Gold ETFs are similar to stocks because they are traded on borrowers and demat accounts and trading accounts are all that are required for gold ETFs. Gold ETFs invest 99.5% in pure gold. About 90% of the money invested is invested in physical gold and the rest goes to debt instruments.
3.Gold Funds: Gold funds invest in shares of companies dealing in gold and allied services. Gold funds are managed by fund managers on the lines of mutual funds. Gold mutual funds are ideal for risky investors as they work on the principle of diversification.
4.Gold Fund of Funds: Gold Fund of Funds or Gold Saving Funds are mutual funds that invest in Gold ETFs. These are ideal for investors who do not want to consider individual gold ETFs. These are according to the investor. Demat accounts are not required for investment in these financial instruments and there is no need to continuously monitor the investment portfolio.
5.Gold mining shares: Investing in gold mining shares is another attractive option for those who are ready to invest in gold. Gold investors can buy shares of gold mining companies directly from secondary equity markets. These prices work just like any other company’s shares and increase at par with global gold prices.
6.Sovereign Gold Bonds: Sovereign gold bonds are issued by the Reserve Bank of India from time to time. A window for fresh sale of SGB is opened every 2-3 months and is open for about a week each time. These bonds have a tenure of eight years, with an exit option in the fifth, sixth and seventh years.
History of Trading In Gold
Gold has always been a very important thing in the world. Gold has maintained its importance over the years against paper currency, coins and other assets. People consider gold as a heritage and pass it on from one generation to another.
Under the Bretton-Woods Agreement of 1944, gold is considered a protected asset class. The US Federal Reserve was required to hold 40% of the US dollar as gold, under which the US accumulated about 75% of the world’s gold. For this reason, most of the developed countries agreed to float their currencies against the US dollar. This is the reason that the dollar is the global currency of the world.
According to the International Monetary Fund as of August 2020, the United States is still the largest gold reserve holder in the world. At the same time, the World Gold Council highlighted the fact that central banks around the world are increasing their gold reserves.
Need to take delivery of gold in futures trading?
If you cut your position before taking delivery of the contract, delivery will not be required. But if you do not cut the position, delivery will be given at your expiry. Gold futures expire on the 5th of the month. There is a tender period between the 1st to the 5th, when you have to cut the position or else delivery will be taken.
Contract size for gold futures
The base futures contract is 1 kg. Gold Mini’s lot size is 100 grams and Gold Guinea’s lot size is 8 grams. The lot size of Gold Petal is 1 gram. The base contract for gold and the trading unit of mini gold is 10 grams. While the trading unit of Gold Guinea and Petal is 1 gram.
How do gold futures have advantages and disadvantages?
For new and less knowledgeable traders, the futures market can prove to be quite risky. Therefore, after thorough research, enter the futures market. With every rupee fall or rise in gold prices, you gain or loss according to lot size. Suppose you have taken a contract of 1 kg, whose lot size is 100.That is, if you have maintained a long position in gold, then you will have a loss of 100 rupees for every rupee fall in gold. On the rise of every rupee, you will gain 100 rupees. That is, you will gain or loss according to lot size.(TRADE IN GOLD)
What is the margin in a futures contract?
Generally, trading in commodity futures requires a margin of 5–10 per cent of the entire contract value. Margin may have to be paid more if commodity volatility is high. Margins may be more or less depending on the exchange and commodity. Apart from this, daily margins may also have to be paid according to the profits and losses of the deal.
Margin may have to be paid if the deal is in loss, while margin will be credited if it is in profit. Daily margin filling is also called mark-to-market ie MTM.
Lot Size in Commodity Trading
Trading in futures trading is not in one unit, but in the whole lot. In this case, the trading lot of each commodity is decided in advance. That is, there will be profit or loss according to lot size on price fluctuations.
What affects the trading price of gold
1.Geopolitical Events: During global economic difficulties, the value of gold usually rises, because in such situations investors often seek the safest asset to accumulate their capital for long or short time due to market uncertainty. . Gold is considered a “safe haven” asset during economic, financial or political crises. This is evident from the current global COVID-19 crisis and past economic and financial crises.
2.Rate of interest: Most investors and traders in financial markets are looking for ways to “get their capital working”. As interest rates rise, investing in gold loses its attractiveness as investors can gain more from rising interest rates on other assets such as currencies and bonds.
3.Global Economic Data: As gold is considered a safe haven asset, any significant change in global economic data can affect gold demand. For example, if the global economy does not grow as fast as investors would like, there may be a fear of a market downturn that allows investors to close their risky investments and choose safe haven assets like gold. Will inspire
4.US Dollar Speed: US Dollar exchange rate fluctuations can have a significant impact on the price of gold. reason? Gold is denominated in US dollars. If the value of the US dollar falls, the price of gold rises and vice versa.