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What are gold futures and how do you trade them?
Gold futures are contracts to buy or sell gold at a predetermined price by a specified future date. Find out how to trade gold futures and learn more about the potential benefits and risks.
Start trading today. For account opening enquiries call 1800 601 799 between 9am and 6pm (AEDT) weekdays or email newaccounts.au@ig.com.
What are gold futures?
Gold futures are financial contracts in which two parties – one buyer and one seller – agree to trade a specific quantity of an asset (in this instance, gold) at a fixed price by a set future date (known as the expiry or expiration date).
In addition to the quantity of the asset to be traded and the date of expiry, a futures contract will also stipulate the method of settlement. Gold futures give the buyer the obligation to buy, and the seller the obligation to sell, the underlying gold asset at or before the contract’s expiry. The person buying the gold is said to be ‘long’ on the future, while the seller is ‘short’.
The price at which an asset is currently trading (ie the current market price) is also the price at which the transaction stipulated in the futures contract will take place. For example, if gold is trading at $2000 per ounce, this is the level at which it’ll be bought or sold when the contract expires (or settles) – irrespective of the commodity’s market price at the time of the transaction.
How do I trade gold futures?
- Understand the basics of futures contracts
- Open a live trading account
- Research the gold market
- Choose the specific gold futures contract you want to trade
- Decide on a trading strategy
- Monitor your positions and manage your trades
- Stay informed about market news and developments
Understand the basics of futures contracts
Futures contracts are standardised agreements to buy or sell a specific amount of an asset at a predetermined price by a certain date in the future. These contracts are legally binding and traded on exchanges. If you are trading gold futures via CFDs, it is crucial to understand how these contracts work, including concepts like margin requirements, contract specifications and settlement procedures.
Open a live trading account
With IG, you can trade futures using contracts for difference (CFDs). To start trading futures with CFDs on our award-winning trading platforms,1 you can create a live CFD account with us.
Research the gold market
Thorough market research is essential. Study historical gold price trends and analyse factors that may influence prices. These include:
- Geopolitical events: wars, political instability or international tensions can – given gold’s reputation as a safe-haven asset – drive the commodity’s prices up
- Supply and demand: mining output, central bank purchases and industrial demand affect gold prices
- Economic data: inflation rates, interest rates, gross domestic product (GDP) growth and currency fluctuations can impact gold prices
- Market sentiment: trader and investor confidence and risk appetite influence gold’s overall appeal and, in turn, its market price
Choose the specific gold futures contract you want to trade
There are a number of gold futures available – the most common being the standard COMEX contract, which represents 100 troy ounces of gold. With us, you can take your position using CFDs, which enable you to speculate on the price movements of gold futures without owning the underlying contract.
Decide on a trading strategy
Your trading strategy should align with your financial goals, risk tolerance and available time. Some trading strategies include:
- Trend following: you would aim to identify and follow market trends by analysing historical data to forecast potential future price movements
- Mean reversion: this strategy is based on the concept that asset prices tend to gravitate towards a long-term average. You would look for instances where an asset’s price deviates significantly from its historical average with the expectation that it will likely return to that average over time
- Spread trading and arbitrage: these strategies aim to profit from price discrepancies by simultaneously buying and selling related assets or contracts. In the case of calendar spreads, for example, you would buy and sell contracts with the same asset but different expiration dates
- Momentum trading: this involves buying futures that are experiencing a strong upward price movement and selling those with downward momentum
- Breakout trading: a strategy that involves entering a position when an asset's price moves outside a defined support or resistance level, accompanied by increased trading volume
Monitor your positions and manage your trades
Active management of your trades is crucial. You can use risk management tools like stop-loss orders, which automatically close your position if the price moves against you by a specified amount. You can also use limit orders, which lock in possible profits by closing your position when it reaches a predetermined profit level.
You should regularly review and adjust these orders based on market conditions and your risk tolerance.
Stay informed about market news and developments
Gold prices can be highly sensitive to news and economic data, such as:
- Economic indicators: inflation rates, employment data and GDP figures
- Central bank policies: interest rate decisions and quantitative easing programmes
- Geopolitical events: elections, conflicts and trade agreements
- Industry news: mining output and technological developments in gold extraction.
Always use reliable news sources and economic calendars to stay informed and adjust your trading decisions accordingly.
How do I choose a futures trading platform?
When selecting a trading platform on which to buy and sell gold futures, consider the following factors:
- Trading tools: does the platform offer powerful tools like comprehensive charts, technical indicators and real-time market data?
- Reliability: is the platform robust and stable, even in periods of heightened market volatility?
- Fees: are the fees and charges that you’ll pay made clear to you on the platform?
- User experience: is the interface intuitive and user-friendly? Is it suitable for both beginners and advanced traders?
- Research and education: do you have access to market analysis, research reports and educational resources on or via the platform?
What are the benefits and risks of trading gold future CFDs?
Some of the benefits of trading gold future CFDs include:
- Smaller initial outlay controlling larger positions and amplified profits through leverage
- Potential for tighter spreads and better trade execution due to high liquidity of the gold market
- Protection against inflation and currency fluctuations by locking in the price at which the commodity will be traded
- Potential diversification within existing portfolios
Some of the risks of trading gold future CFDs include:
- Rapid swings in gold prices due to various factors, leading to quick gains or losses
- Exposure to magnified losses that can sometimes even exceed initial deposits through leverage
- Potential difficulties in entering or exiting positions at desired prices, especially in extreme market conditions
- Possibility of counterparties defaulting on their contract obligations
- Indirect effects on the prices of gold and futures contracts from interest rate changes
FAQs
Is it a good idea to trade gold futures?
Whether or not it’s a good idea to trade gold futures is completely up to you – based on your research, risk appetite and a variety of other factors related to your trading choices. As with all trading, gold futures carry risk that should be managed carefully and continuously.
How much money do you need to trade gold futures?
The amount of money needed to trade gold futures varies, but typically a margin deposit of several thousand dollars is required. Always make sure you're not risking more money than you're willing to lose.
Do gold futures expire?
Yes, gold futures contracts have fixed expiration dates, at which point they must be settled or rolled over. Remember, though, that it’s not necessary to hold these contracts until they expire.
Learn how futures contracts work and see how you can trade them with us.
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Disclaimers
- CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You do not own or have any interest in the underlying asset. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Please consider the Margin Trading Product Disclosure Statement (PDS), Risk Disclosure Notice and Target Market Determination before entering into any CFD transaction with us.
- The value of shares, ETFs and ETCs bought through an IG share trading account can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.
- Please ensure you fully understand the risks and take care to manage your exposure.
- The information on this website is prepared without considering your objectives, financial situation or needs. Consequently, you should consider the information in light of your objectives, financial situation and needs.
- This website is operated by IG Australia Pty Ltd. IG Australia Pty Ltd is located on Level 32, Queen & Collins, 376-390 Collins Street, Melbourne, VIC 3000. ABN 93 096 585 410, Australian Financial Services Licence No. 515106. Derivatives Issuer Licence in New Zealand FSP No. 684191, NZBN 9429047618251.