Friday, January 14, 2011

Gold Trading and Contract Specifications

Average Day Range for Gold = $13.

little tutorial on Gold Futures:
Product Symbol: GC
Venue: CME Globex, CME ClearPort, Open Outcry (New York)

Contract Size = 100 troy ounces
Min Tick Size = 0.10 per troy ounce
Contract / Tick = $10
1 full point correspondent to = $100

Example: Short Gold Futures Profit
Gold Price @ 1,400 USD, Short
When Gold is trading at 1,399.90 USD = +$10.00
When Gold is trading at 1,399.00 USD = +$100.00

Example: Short Gold Futures Trade
You decide to go short one near-month Comex Gold Futures contract at the price of USD 1400.00/oz. Since each Gold futures contract represents 100 troy ounces of gold, the value of the contract is USD 140,000. To enter the short futures position, you have to put up an initial margin of USD 7,000.

A week later (or in our case, a day later), the price of gold falls and correspondingly, the price of Comex Gold futures drops to USD 1380.00 per troy ounce. Each contract is now worth only USD 138,000. So by closing out your futures position now, you can exit your short position in Gold Futures with a profit of USD 2,000.

Sell 100 troy ounce of Gold @ 1,400 per troy ounce = USD 140,000
Buy 100 troy ounce of Gold @ 1,380 per troy ounce = USD 138,000
Investment (Initial Margin*) = USD 7,000
* Initial margin requirement, we are taking GC at 5% now, my preferred broker offer 3%
Profit = USD 2,000
ROI = 28%

In our case, if we convert this trade to our trading P/L log... Sell $1415 - Buy $1382 = +$33
Risk : Reward ratio = 1 : 4
$3,300 / $ 7,000 = 47% ROI

*1 troy ounce = 31.1034768 grams.
1 troy ounce = 120 carats

Disclaimer: Margin trading involves Risk, only take calculated risk and do not let greed overtake you.

Related Post:
Gold Futures and Silver Futures
Gold Futures explained (Video)
The Options Guide
Gold on 5th Jan

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