Zincman this is for you. Because you know where the metal is headed! <VBG>
The Allure of Trading Gold
Jack Bouroudjian
Brewer Investment Group
October 4, 2006
Call Brewer Investment Group at 800-971-2365 or 312-896-8281 for your Free Gold Futures Trading Information Kit! Or click here to register and we will send the Gold Kit to you in the mail.
My name is Jack Bouroudjian and many of you may recognize my name from the live television commentary which I provide daily on Bloomberg and various times per week on CNBC from the floor of the Chicago Mercantile Exchange. Throughout the years, I have traded and watched the nuances of the futures markets and have seen many changes in the markets.
With the dramatic increase in the price of metals and the cost of commodities in general, gold has become a staple investment for many investors. Based upon recent volume, and for many reasons, both economic and geopolitical, gold is actively being traded in the futures markets. Futures trading offers some of the best opportunities to capitalize on this historic volatility. The question I am often asked is "Why trade futures?" Because futures trading is one of the purest ways to trade gold with some of the best leverage available.
"What is leverage?" Leverage is one of the main reasons why many speculators and professional traders utilize gold futures in their portfolios. The reason that many professional traders use gold futures is that it allows the ability to manage a product with high market value at a fraction of the total value. A person can hold $60,000.00 worth of gold (100 ounces, with the price of gold at 600.00 per ounce) for approximately $4,000.00 margin. The best any other vehicle offers is a 2 to 1 or 50% margin. Gold stocks are subject to corporate governance and regulatory issues, which is why a trader could be right about the gold and wrong about the company.
"What is margin?" When a futures position is established, money must be deposited with the broker by both buyers and sellers of futures contracts. This money represents a performance guarantee against the terms of futures contracts. These margins are considered "performance bonds" and are set by the financial exchanges. An example of margin is in the paragraph above.
"Why do margins fluctuate?" Margins are set for futures products based upon volatility and can fluctuate during times of heavy trading and geopolitical uncertainty. Price is not necessarily indicative of the margin amount, since there could be high gold prices with low volatility and low gold prices with high volatility. To help you understand how margin works, think of it as a performance bond. Before the most recent rally, gold was trading at 560.0 an ounce and the margin for one contract was approximately $2,000. Then, gold rallied to 730.0 an ounce. After coming back down to 560.0 per ounce, the margin was approximately $3000 per contract. So although the price of gold was at 560.0 again, the margin was $1000 more per contract. The reason for the change in margin was due to the recent volatility and the speed at which the market moved. (This is an extreme example in regard to gold margins). The reverse scenario can also happen. When volatility lessens, in many instances, the exchanges will lower the margin required to trade futures contracts. In times of high volatility, an investor/trader may want to consider trading "mini" contracts of gold. The Chicago Board of Trade (ECBOT) offers an electronic mini contract of gold that is 1/3 the size of its 100-ounce contract, which allows customers to trade gold and capitalize on the opportunities, without extreme dollar fluctuations and with a lower margin requirement.
"What if I already own gold?" Owning physical gold has carrying costs and involves paying a premium. Even if you own physical gold, futures can create a great mix of diversification, while getting exposure to the leverage discussed above.
"With all of the global uncertainty, it can be difficult to manage my trading. How can I avoid a margin call?" An account will go "on call" if the value drops below maintenance margin. Initial margin is what is required to initiate the position and maintenance margin is what is required to keep the position. Maintenance margin is usually about 75% of the initial margin. There are many strategies that can help a trader to avoid margin call such as trailing stops, options and learning/simple knowledge. Having a disciplined game plan is an important facet of trading. Strategies and discipline should be discussed with your Market Strategist before and after your trades are executed. At Brewer Futures Group, we have experience Market Strategists that can help you with your game plan and also assist you in keeping watch over your account. For self-directed traders, we have access to some of the best trading platforms in the industry.
"Is it difficult to open a futures trading account?" It is very simple to open a futures account with Brewer Futures Group. You can open an individual or joint account electronically in a matter of minutes just by going to our website, which is www.BrewerFuturesGroup.com and clicking on the Open an Account tab. Other options are to download forms from our site or we can also mail you the account forms needed to establish your account. Please make sure to read and understand the risk disclosures and contractual agreement required to open an account.
Call us to receive your FREE Gold Futures Information Kit at 800-971-2365 or 312-896-8281. Or click here to register and we will send the Gold Kit to you in the mail.
If you have any more questions, please feel free to contact me at JackB@BrewerFuturesGroup.com and also come back to our site for my daily market commentary every weekday at www.BrewerFuturesGroup.com.
October 2006
Jack Bouroudjian
email: JackB@BrewerFuturesGroup.com
website: www.BrewerFuturesGroup.com
zm this is your own starter kit. You can short all the way down to 405 from here. Then your cost basis will be like 225 when you reverse and go long!
POG up this AM. Let's see if it can hold. I can see your dismay. I feel it myself. But do you want to buy tech, the homies, JPM which hit a new high yesterday, buy the lenders or what?
Me I have totally drank the KOOLAID and will hold my stocks with good assets in the ground.
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Tom |
