Trading Gold Futures

[somala]

Hi

I have just been to Hua Seng Heng Futures in China Town BKK.

I was hoping to get some understanding of how futures work and how to buy a contract. The place was crazy people handing over millions of baht in exchange for tickets. As I saw they guess a price, I am assuming this is a sales price? When the gold reaches that amount it is sold and you can cash in your ticket and you get the gain on the leveraged amount. If it falls by the same amount your ticket is cancelled and you lose everything.

Is that how it works? I really want to learn to understand this stuff but its complicated. I know there are huge gains to be made in leveraged gold investments and while there is a very good chance of losing your money the odds are still good.

How can i leverage a gold investment. Ive got about $10,000 to gamble and im prepared to lose it. I live in Thai so obviously its all got to be do-able from here.

Hua Seng Heng is a strange company. When you go to their street gold shops they seem all to be chinese and very un-friendly. But in their commodities and futures department they are Thai, and friendly and helpful but they were not able to explain to me how it all works as their english was not good i did not understand the terminology. I have met the owner before Mr Fiat when buying 2 kilos of bullion, he does speak perfect english and highly educated but I feel im too small a player to call him up for a meeting and I dont think anyone else there can really help me.

[jobsworth]

What you describe sounds like a call option.

You purchase the right to buy gold at say $2000 for a period of say 30 days.

If gold rises to say $3000 you can exercise the option to buy at $2000 and sell at $3000.

So you make a profit of $1000 less the cost of the option say $100.

If at the end of your 30 days you have not exercised the option it expires.

So if gold has fallen to $1800 you lose only the cost of the option $100.

A call option is a gamble that the price will rise by more than the cost of the option.

I don't know if the chinese have it but there is also a put option which works the other way.

You think that the price will fall so you buy for say $100 the right to sell gold at $2000 for say 30 days.

If the price falls to $1500 you can exercise your option and sell at $2000 and buy at $1500.

You make a profit of $500 less the cost of the option $100.

That is a simple explanation but then there are house rules

and I don't know how the chinese do it.

It is a sort of legal gambling.

Edited October 3, 2011 by jobsworth