Copper and gold futures explained

When it comes to the share market, there is no dearth of investment instruments. Investors can purchase shares, mutual funds, government bonds, and several other types of money market instruments. As your knowledge and investment appetite increases, you can consider expanding your investment horizons and begin trading in commodities. Commodity trades involve the trade of commodities and generally revolve around futures and options trading. Copper and gold futures are two types of commodities, among several others, traded in this market. But before we can understand the trade of the above mentioned commodities, let’s learn what future and options trading entails.

Futures and options explained

Futures and options are simply financial contracts that investors use to profit from their investments. Buyers and sellers enter into futures and/or options contracts to hedge or safeguard their investment. Those who invest in options have the right, but not obligation to buy/sell commodities at a predetermined price at any given time, as per the terms mentioned in the options contracts. On the other hand, those who invest in futures are obligated to buy/sell the commodity on a specific future date, at a price, predetermined in the future’s contract. The purchase/sale has to be honoured before the expiration date.

Investing in copper futures in India

Now that you know what futures trades entail, let’s understand how copper futures investing can prove to be beneficial.

Copper is one of the most popularly traded commodities in the commodity market. The demand for copper has been increasing steadily in the last two decades, making it a worthwhile and profitable commodity to invest in. In India, all kinds of metals, including gold and copper, are traded on the Multi-Commodity Exchange or MCX.

Leverage is the greatest benefit a copper futures trader can get. Since copper trade margins are significantly low, investors can easily take crucial positions by investing in this metal. Significant trading positions automatically translate into better opportunities for investors to earn a profit. That said, trading in this metal, like every other market trade, is not without its risks. If you take a large position and if the market prices move in an unfavourable direction, you stand to incur considerable losses.

Copper futures allow hedgers and speculators to hedge/ speculate against volatile market prices and take advantage of the changing prices to turn a profit.

Investing in Gold futures in India

As Indians, we love gold and consider it as a great investment option. Gold investments are done in the form of gold jewellery, biscuits, bonds and also futures. Of these the latter are basically hedging tools for users of gold as well as commercial gold producers. Gold is indeed regarded as one of the best instruments that can help diversify your investments.

Gold futures make for an excellent hedging tool since the prices of gold move in a different (mostly upward) direction as compared to most other commodities. Gold is best traded in futures because it eliminates the risks associated with holding physical gold. Physical gold is also not very convenient since you have to first bear making charges and also determine how to store it securely. Moreover, there is the risk that the physical gold purchased may not be as pure as the claim made by the commercial seller.

Final word: Whether it is gold or copper futures, investors, can hold both futures until maturity. You also have the option to take delivery of either metal if required. However, if you decide to sell the futures of either metal before the contract expiry date, you can trade the metals without taking possession.

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