Gold as a Safe Investment

 Investment in precious metals has been attracting traders in the past. The most famous investment among these is gold. For diversifying risk, primarily through the use of derivatives and futures contracts; traders buy gold. Like other markets, the gold market is subjected to volatility and speculation too. It is comparatively more effective and safer than investment in different precious metals and is traded across the world. 

Investors looking for gold investment have three choices: 

1) They can buy stocks of the mutual or exchange-traded fund (ETF) that clone the rate of gold. 

2) They can trade in the commodity market by buying or selling futures and options. 

3) Last but not least, they can buy a physical asset. 

For example, moderate investors purchase gold coins, while advanced investors try to implement strategies by using the options on gold futures. 

 Buying gold bullion

As compared to other commodities, gold is readily available to moderate traders. An individual can buy gold bullion (the yellow metal in the form of a bar or coin) quickly from a metal dealer or brokerage firm and bank. 

Bullion bars come in different sizes ranging from a quarter-ounce slice to a 400-ounce block, but the choice of coins typically depends on the new trader. One should not get confused with the vintage numismatic coins; these are issued based on their gold content, plus a premium range between 1% and 5%. 

The most widely circulated gold coins include the American eagle, the Canadian maple leaf, and South African Krugerrand. People prefer these gold coins because they carry maximum liquidity with them. 

Gold is often blended with other precious metals and gems to increase the overall appearance and value of making jewelry. Gold jewelry is passed down to the succeeding generation as a family heritage. It adds sentimental value to it, which is beyond its price. But, when purchasing it as the investment medium, it is the wrong choice because its retail price in the future generally exceeds the meltdown price. The change in the two prices is because of retail mark-up and quality. 

An investor needs to check the purity of gold before purchasing jewelry, to ensure that you are paying for and getting the correct karats of gold (18 karats or 14 karat pieces). 

The only advantage associated with gold jewelry is its insurance policies for the homeowner, which he gets if it is lost or stolen.

Whatever might be the option you choose, make sure that you buy from a trustworthy and renowned dealer either through the internet or in person. Along with this, the safety of gold coins is also essential. For this, you can prefer home or bank but don't forget to check them frequently. 

Other Investment vehicles

Some of the investment vehicles for gold are: 

1) Investment vehicles

2) Bars and billions. 

3) Coins

4) Gold rounds

5) Exchange-traded products

6) Certificates

7) Accounts

8) Derivatives, CFDs, and spread betting

9) Mining companies

Hedge against financial stress

Like other precious metals, gold works as a hedging instrument against a deflation of currency devaluation and inflation. However, some questions have been raised on its efficiency as such. Historically it has not proven its reliability as a hedging device.

One of the attractive features of gold is that it has no default risk. Whereas, one can see the condition of currencies used across the world. They are under critical pressure because of substantial government deficits.  

Factors influencing gold investment

Like other commodities and shares, gold prices are driven by demand (also including speculative demand). However, unlike other products and stocks disposal and saving play more significant roles in influencing, its cost than its consumption. 

The quantity of gold ever mined still exists in forms such as mass-produce- jewelry and bullion, with a small value over its fine weight. So, it can come back to the gold market anytime as it is almost as liquid as bullion. 

As per the estimated data of 2006, the total gold ever mined was 158,000 tonnes (174,000 short tons; 156,000 long tons). Warren Buffett, a famous investor, has said that the total amount of gold available across the globe could fit into a cube with sides 66 ft. or 20 meters. The approximate volume it can hold is 158,000 tonnes as the density of gold is 19.3 tonnes per cubic meter at room temperature. However, these estimates vary significantly in today's gold market. 

 It is predicted that the quantity of gold stored above ground is far more significant in comparison to its annual production. Its prices are mainly affected by changes in sentiments; it influences the market demand and supply, rather than yearly production. As per the World Gold Council, the annual production of gold is nearly 2,500 tonnes since the past few years. About 500 tonnes goes to exchange-traded gold funds and retail investors and the rest 2,000 goes into dental production, jewelry, and industry. 

Bottom line

Commonly, gold stocks increase and slide quicker than the price of gold itself. So, one should be aware of these changes. The best way to start investing in gold is by selecting the best broker who can guide you throughout the trade by providing real-time analytics and price graphs. 

You can go with HFTrading. They are market pilots in the field of online trading and have advanced platforms (Meta trader 4) for making your business easy-going. They provide three main accounts for trading in precious metals: platinum account, gold account, and silver account. 

Futures and options trading

 What are futures and options?

Futures and options are principal types of financial stock derivatives and are used while trading in the share market. They are like a future contract or agreement signed between two parties for buying and purchasing an asset at a predefined price but on a later date. 

These agreements try to eliminate the risk involved in stock market trading by deciding the value beforehand. 

They acquire their value from the underlying asset in the stock market. This asset can be share market indices, shares, ETFs, commodities, and many more. In the stock market, one can set a predetermined price to avoid future risk; but still, it isn't easy to predict price movement, and this can cause substantial losses and profits if the prediction goes wrong. 

Thus, individuals who are experienced and well versed in the stock market operation typically participate in these kinds of stock trades. 

Investors practice futures and options trading on leverages. It is a stipulated percentage of the aggregate contract value provided by the trader. With this traders can enter any trade without paying the huge amount assigned with the share or stock. For this, one needs to keep a minimum amount or mark to market value in his account before starting. It helps in increasing the profit margin of traders substantially. 

More about futures: 

There are three fixed periods in futures trading:

1) Current Month contract

2) Near month contract

3) Far month contract

All future agreements expire on the last Thursday of the month. Here month refers to the expiry month of the contract.

Difference between Futures and Options

The point wise difference between futures and options are as follows: 

1. Definition- 

• Futures: Future is a contract in which both buyer and seller agree to buy or sales on a predefined date at a fixed price. 

• Options: It is an agreement in which the trader gets the right to sell or purchase the financial token at a fixed price with no time boundation.

So the significant difference is that Future contracts are binding, once signed by an individual, he cannot deny paying on the expiry date. Whereas, if one thinks that deal is not profitable, he can refuse to buy shares on the expiry date in case of options. 

2) The obligation of buyer- In the futures, there is an obligation to execute the contract whereas in options no such requirement applies. 

3) Risk factor- Futures are riskier than the options for the seller as well as the buyer of futures. In the case of options, this risk is limited to the premium amount paid. 

4) Advance payments- In futures, one has to pay only the breakage amount apart from this amount no advance payment needed whereas, in options, one needs to pay a small premium amount before activation of the contract.

5) Degree of profit and loss- There are no limits on profit and loss in futures, but in options, there is limited loss with unlimited gain. 

6) Usage- Both futures and options are widely used for speculation and hedging on the market such as a commodity, stocks, currency, stock indices, etc. 

7) Closing the contract- One can close the deal or agreement by paying or delivering the price differential or by gaining an offsetting position, in both futures and options. 

8) Obligation to performance- It is for both individuals in the case of futures, and in the case of options, it is just for option writers. 

9) Settlement- Traders make daily settlements in the futures. In options, writers of contracts gather premium on the next day of the trading day. 

10) Derivative- Future shows linear payoff, whereas in options price is always positive. 

Types of Futures and Options: 

The rules for buyers and sellers of the futures contract are the same. For options, these rules are different for both parties. 

One has to sign a put option contract if he wants to enter a trade to sell a particular commodity or asset at a pre-asserted price in future time. Similarly, if one wants to purchase a specific product or asset in future, he has to sign a call option contract to lock the exchange price in future. 

Final words

Futures and options trading seems simple, but they are equally risky. Prediction of the correct price movement is essential. Go through various fundamentals like underlying assets, issuing organization, stock market, etc., before entering derivative trading. 

Once the foundation is ready, you can avail the unlimited profit advantage of futures and options. 

If you are a novice and searching for the best broker for trading in futures, then ETFinance is the best option. They provide a trading service with zero commission fees. They also have advanced tools which display real-time stock information.