Who Invests In and Trades Gold Futures?
Gold futures allow traders to take advantage of price opportunities in the gold market. Gold futures let them enjoy financial leverage and flexibility to trade the commodity.
Gold futures offer market participants a way to hedge their price risk in case of unexpected changes in prices of a metal that they sell or buy. Producers and Marketers of gold, like mining companies, can minimize the risk of price fluctuations in the gold market by using a short hedge, which locks in a fixed selling price for the gold that they produce. Thus futures allow them to get the specified amount in the contract, even if prices fall in the future. Consumers of gold, like jewelers or banks, can use a long hedge to set a fixed purchase price for a specified quantity of gold as per their need.
Gold futures are also traded by speculators. Speculators have no vested interest in the underlying asset, that is, they will neither deliver gold nor take delivery for gold. They trade in and out of gold futures only based on speculations about the price fluctuations of gold over the trading period. They take on the price risk that hedgers are trying to avoid, because they hope to profit from the price movements.
Speculators can be in the market for any period of time and can employ any amount of money. Day traders usually don’t hold positions over night, whereas scalpers can go in and out of the market frequently during one session itself.