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Buy Gold Now - How and why to buy gold

Buy Gold Now: Why should you buy gold? How do you buy gold? Investment expert Shayne McGuire explains how to profit from this precious metal and how buying gold can protect you from financial risk. Read more about Buy Gold Now >

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Profit from the Price of Precious Metals with Futures

Futures allow an investor to speculate on the future price of a particular asset. You do not actually purchase the underlying asset but do have exposure to the market price of the underlying asset. You can speculate on the future price of a wide variety of commodities and financial instruments, including gold, silver, platinum, precious metal stocks and ETFs. One distinct advantage of futures is that you can also speculate that the price of a particular asset will fall as well as rise, allowing you to create "short" positions in your portfolio. These may be used to hedge long positions or simply to make directional bets.

Futures for Private Investors

The most convenient way for private investors to utilise futures is through spread betting companies. Much like futures contracts, spread betting allows you to speculate on the price of assets without actually owning them.

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How Does Spread Betting Work?

Spread betting firms offer you a quote, which consists of a bid (selling) price and - slightly higher - offer (buying) price. Take the following example.

You decide that the price of Gold is set to fall and want to create a position to profit from your view. Using your preferred spread betting provider you note that price for December Gold is 654.7/655.4, which includes the spread of 0.7 (the difference between the two prices). You choose to ‘sell’ $100/point at 654.7 and, at the same time, want to limit your losses to $2,000. You therefore put your stop 20 points above your opening level (20 points x $100 per point), i.e. at 674.7.

Following your bet the market falls and you decide to close the bet. The new price for December Gold is now 646.4/647.1, so your closing price will be 647.4.

Opening level 654.7
Closing level 647.4
Difference 7.3

Profit on a $100/point Controlled Risk ‘sell’: 7.3 x $100 = $730

Of course, if the market moved against you and had risen you would have lost money. If it moved up the full 20 points to hit your stop level then you would have lost the whole $2,000.

What Are the Advantages of Spread Betting?

One reason is the tax break. Under current UK law, there are no taxes on your betting profits, either stamp duty or on capital gains. Another is that it can be an easy and cost effective way to trade. When you buy shares through a broker, you have to pay a fee. With spread betting you don’t because the spread betting provider makes its money from the difference between the bid and offer prices.

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