Gold Futures Trading Issues And Risks Essay

Gold Futures Trading Issues And Risks Essay

To begin with, it should be noted that it is quite perspective and potentially profitable to participate in the gold futures trading. However, gold futures trading risks are rather serious, and there appear some issues while participating in this kind of market activities. Obviously, apart from the risk of prices going the wrong way while trading, there exists one key issue in gold futures trading, which is the risk of financial default during the time period from trade to some future settlement date. Undoubtedly, such situation can possibly leave someone entitled to a profit but unable to collect it. Such issue negatively influenced the value of my contracts.

A close look on the data illustrates that this problem is usually mitigated by “margin”. Margin is money, which futures investors deposit in order to prevent the risk of default. It is usually calculated by comparing the current market value of what was traded to the original deal. This process is called marking-to-market, and at the end of the operation it results in a margin call to those person who has speculated badly. From the other side, a margin surplus grows at the account of the successful trader. As the result, margin is collected and managed on behalf of the exchange. The results of the practical activity shows that usually the trader has to deposit about two percent of the full value of gold he wants to buy, and his broker will retain the special right to close him out without instruction if the global market moves viciously against his contract. Meanwhile on a regular basis investors must quickly change margin if the market has moved against them.

Thus, the main issue of the gold futures market is its ability to change fast, bringing a big risk of the default. Despite the fact that it is not particularly complicated to cope with this problem, especially with the possibilities given by brokers, but there are some points which actually deserve attention.

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