What’s interesting about buying or selling futures contracts is that you only pay for a percentage of the price of a contract.
This is called “Buying on Margin” or “Leveraging” and supposed to bind traditional stocks on margin.
When buying stocks on margin you’re essentially taking out a loan from your stock broker and using the purchase stock is collateral.
You also have to pay interest to your broker for the loan.
The difference with futures is that you’re not buying any actual stock, so the initial margin payment is more of a good faith deposit to cover possible losses.
In addition, because you don’t own a piece of the company, you’re not entitled to dividends or voting rights.
If the market goes against the traders position, he may lose some or possibly more than the margin he’s put up.
But if the market goes with the traders position, he makes a profit and he gets his margin back.
Unlike the stock market, futures positions are settled on a daily basis, which means that gains and losses from a day’s trading or deducted or credited to a person’s account each day.
In the stock market, the capital gains or losses from movements in price aren’t realized until the investor decides to sell the stock or cover the short position.
Gold used to diversify Portfolios
Gold has become more readily accessible due to the development of a range of products which investors and advisers can include in their portfolio.
The diversity of gold backed and gold related products means that gold can be used to enhance a wider variety of individual investment strategies and risk tolerances.
Investors also make use of golds lack of correlation with other assets to diversify their portfolio and hedge against currency risk.