What Are Gold Derivatives?

There are many ways of investing in gold: some people choose to buy bars or coins, others purchase mining or trading stocks, while yet others go for certificates and such. These are all methods that don’t involve a great quantity of risk, but are also pretty slow where profit is concerned. If you want to invest in gold yourself, but would like to receive revenue a little sooner, consider investing in derivatives. We have many more Precious Metals Investing Articles Now Available.

Financially speaking, derivatives are financial instruments whose values are based on the expected price trends of the assets to which they are linked (like gold). In reality, this is a generic term that defines a large class of specific products, out of which the most popular are futures and options.

A gold futures contract is a firm commitment to buy or sell a specified quantity of gold on a particular date and at a set price. Such contracts are traded on exchanges throughout the world and are considered to be a very good investment, because they can bring quite a lot of profit on a short while. Still, they’re also pretty risky, because their success or failure depends on the price of bullion, which makes them particularly volatile.

As for options, they provide the owner with the right to sell or buy gold at a set price at a specified future date. Still, you ought to know that this is only a possibility; the owner is not in any way forced to make the transaction (as opposed to futures). The cost of a gold option depends on the price of gold (both current and anticipated), the pre-agreed price of the contract, the time left until its due date and the official interest rates. Being traded on margin, only a fraction of the contract’s value needs to be paid up front, so they are pretty affordable.

Finally, whatever way you choose when investing, the most important thing is that you consider all the available alternatives. Make sure you pay attention to the quantity of risk they involve, as well as their profit rate. This way, you will be able to make an informed decision that will certainly be of help in the future. We have many more Precious Metals Investing Articles Now Available.