Gold and Silver
Gold Trading Beginner Silver Trading Beginner
Have you been watching gold and silver? Both of these precious metals (see charts at right) have captured the attention of many investors, including
those who have never before traded commodities. Whether you believe that gold and silver prices
will continue to rise, or will decline to more
historically typical levels, commodity futures and options provide a way to speculate in these markets.
Unfortunately,
the increased volatility accompanying the higher price levels of gold and silver has made buying and selling a traditional futures contract
too expensive for many investors. For example, to buy
or sell one gold contract* requires $5,403 in margin while a silver
contract* requires $6,075 in margin. (Source: CME Group. Values are as of Dec 23, 2009. Values may change.) Higher implied volatilies have, in turn, inflated
option premiums as well, making considerable the cost of a simple put or call option purchase.
How then can the beginner who wishes to limit risk or the average investor with only modest risk capital participate in the precious metal markets?
Low-Risk Gold & Silver Investment Strategies
Gold Trading Beginner Silver Trading Beginner
Investors who desire to trade gold and silver but who want to reduce the risk and cost of traditional futures have two basic strategies:
Trade E-mini contracts. CME Group lists E-mini futures
contracts in gold and silver that are significantly less risky and, correspondingly, less expensive than their regular-sized
counterparts.* Investors can trade direction by simply buying or selling futures contracts. For information on these contracts,
please see the box at right.
Trading futures, even mini futures, must be done responsibly. This means having a solid trading plan and following that plan.
Developing a trading plan that fits best with your personal preferences is a process that begins with a foundational plan that is then
systematically modified or extended until the desired results are obtained. Our futures trading course provides
an excellent foundational plan that was designed especially for the beginner.
Trade option spreads. When the price of a call or put option is considered to be too expensive, an investor can instead buy
an option spread. The two types of option spreads of interest are the Bull Call Spread, bought when prices are expected
to rally, and the Bear Put Spread, bought when prices are expected to fall. Each of these spreads is
constructed by simultaneously buying one option and selling another. The option sold helps to offset the cost
of the option purchased, thus making the trade more affordable - even when implied volatilities are high. In return, though, maximum gain is limited.
Even so, these option spreads can generate impressive percentage returns while at the same time limiting the downside risk to a known
and fixed amount.
Bull Call and Bear Put Spreads are extremely versatile: By varying the strike prices, an investor can construct a spread that has the cost and pay-out structure
most beneficial given their price expectations. For more information, please see, "Gold & Silver Option Spread Strategies" at right.
You may also want to visit our specialty web site on buying commodity options where you'll find, among
other topics, detailed information on:
Constructing "Double-or-Nothing" Trades
Gold Trading Beginner Silver Trading Beginner
Option spreads enable the investor to construct trade scenarios that resemble the typical double-or-nothing bet.
In many cases, an option spread - whether bull call or bear put - can be purchased for a total cost of say, $500
that has a maximum payout of say, $1,000 or double the cost/investment. Consult the examples provided above
for more information.
Buyer Beware
Gold Trading Beginner Silver Trading Beginner
The phenomenal rise in gold and silver - many investors may have forgotten that gold languished beneath the $300 level in 2001 while silver was under
$5 per ounce -
has been fueled in no small part by investor perceptions and expectations. (See "What's Driving Gold and Silver Prices" at right.)
Perceptions and expectations can change quickly - especially among speculators - leading
to rapid selling. Consequently, gold prices can collapse suddenly and without warning. For this reason, the low-risk strategies
described above, especially the option spread trades, are a good idea not just for the beginner but even for the more
experienced trader.
The silver market provides a good example of the type of price collapse that can happen when perceptions and expectations change.
On Dec 15, 2006, silver closed down almost $1 relative to the previous day, representing a dollar value change of about $5,000 per
contract - arguably a 5-fold increase in what historically had been regarded as a big move in silver. This is the main reason why margin values
for silver quoted above are so much higher than for gold - and another reason why an investor should focus on low-risk strategies when
trading this market.
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Your next step...
Gold Trading Beginner Silver Trading Beginner
After reading the information in this Gold and Silver, your next step should be to request a
free Gold & Silver
Investor's Pack. Loaded with brochures written by industry professionals, this Investor's Pack will move from the basic to the more advanced
option strategies, including the Bull Call Spread and the Bear Put Spread discussed above.
You may also want to request free access to the Learning Curve where you will find more coverage on
various futures and options-related topics. And don't forget to take a look at the recommended books below.
Before you consider trading gold and silver or indeed, any of the commodities, you must have a plan. Our Course called, Commodity Trading as a
Second IncomeTM will explain the basics of the commodity markets and teach you a
trading plan, complete with case studies and actual trade examples, that is ideal for the beginner or anyone looking to trade
commodities as a second income.
Ready to take the next step? Then speak to a commodities professional. They'll help you decide if trading gold and silver is right for you and
discuss some of the opportunities provided by these exciting precious metal markets. Go ahead and Talk to a Commodities Professional in the box above.
Recommended Reading...
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© 2010. World Link Futures, Inc. All rights reserved.
COMMODITY TRADING AS A SECOND INCOME is a trademark of World Link Futures, Inc.
* The gold and silver contracts refer to the regular-sized or full-sized contracts that originated on COMEX, a division of NYMEX, all of which is now
part of the exhange, CME Group. CME Group also lists miNY gold and miNY silver futures contracts that have a contract size, risk and
margin requirement that lie between those of the E-mini contracts and the regular-sized contracts.
Futures, options and forex trading involves substantial risk and is not for everyone. Only risk capital should be used.
Keywords: gold futures trading, silver futures trading, gold trading beginner, silver trading beginner, gold options beginner,
silver options beginner, gold futures beginner, silver futures beginner, precious metals trading beginner, gold and silver futures trading,
gold and silver trading beginner, learn gold trading, learn silver trading, learn precious metals trading
Abstract: Information on precious metals trading, specifically, gold futures trading and gold option strategies for the beginner, and
silver futures trading along with silver option strategies for the beginner.
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