How To Tap Into The Gold Market Using Futures | Micro Gold Futures

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. This article is the opinion of Optimus Futures.

For thousands of years, civilizations across the globe have used gold as a store of value.

Today, investors hold gold for a variety of reasons including:

• Hedges against inflation
• Storage of value not tied to any government
• Speculation and directional trades

One of the most direct ways to gain exposure to the price of gold is through the futures market.

However, the leverage of a standard gold contract is often more than most retail traders prefer.

That’s why the exchanges introduced micro gold futures.

Controlling 1/10th of the assets of a standard gold contract, micro gold futures provide capital efficiency in bite-sized pieces.

In this article, we’ll cover what micro gold futures contracts are, what influences gold prices, why trade micro gold futures and how to get started trading micro gold futures.

What Are Micro Gold Futures (MGC)

Traders employ leverage when they want to control more of an asset than they could buying or selling it outright. We employ these when we purchase a home with a down payment using the bank to finance the mortgage.

Futures work in much the same way, allowing traders to put down a fraction of the total value of the assets controlled by the contract.

Micro contracts are a smaller version of this same concept.

For example, one micro gold contract will require about $228.75 to day trade and $915 to hold overnight. That contract controls 10 troy ounces of gold, which is roughly the spot price of gold.

That means for under $230, you can control 10 x $1,800 = $18,000 worth of gold. (CME margins may change periodically. Please inquire with your broker for day trading and overnight margins). 

Each $0.01 movement (tick) in the price of micro gold futures is worth $1 for each contract you trade compared to $10 for each tick with a standard contract.

What Impacts Gold Prices

As we noted earlier, gold prices are often used as a hedge against inflation.

Here’s an example to help you understand how this works.

Assume one ounce of gold can buy 1,800 turkeys. You can also buy 1,800 turkeys for $1,800.

If inflation hits and those turkeys now cost $2,000, that doesn’t change the relationship between gold and turkeys. What it means is that one ounce of gold is now worth $2,000 because you could trade gold for turkeys and turkeys for cash.

That’s why changes in inflation and interest rate policy impact the price of gold.

When central banks raise interest rates, they want to make money more expensive to borrow. That puts less money in the economy and increases the value of the dollar relative to gold.

So, if interest rates go up or we experience deflation, the price of gold should go down, all things being equal.

However, if we expect inflation to climb, or lower interest rates, then our turkey example comes into play.

So, if interest rates go down or we experience inflation, the price of gold should go up, all things being equal.

Why Trade Micro Gold Futures

Micro gold futures carry all the benefits of standard futures contracts, just in smaller portions.

That means traders can continuously access the gold futures market from Sunday at 7:00 p.m. EST until Friday at 5:00 p.m. EST with breaks from 5:00 p.m. EST - 6:00 p.m. EST weekdays.

And like all futures products, there are no pattern day trading requirements.

Plus, futures products are extremely liquid and allow traders to make bullish and bearish bets with relative ease.

But here’s something else you can do with micro gold futures. If you collect ten micro gold futures contracts, which is the equivalent of one standard gold futures contract, you can settle at expiration by taking delivery of the physical gold.

You see, while many futures products like Nasdaq 100 and S&P 500 futures settle in cash, commodity and metal standard futures contracts can settle with physical delivery.

So, if you’re looking for a way to own physical gold, you can accumulate 10 micro gold contracts to take delivery.

We also want to note a risk with gold ETFs that most traders aren’t aware of.

Most gold and precious metal ETFs structured as trusts hold the physical assets in a warehouse to back the ETF.

However, many of these places do not have the full amount of gold or other precious metals necessary to cover all the outstanding shares should they need to liquidate.

The likelihood of such an event is extremely rare. However, it’s worth being aware of.

How to get Started Trading Micro Gold Futures

Gold is a fascinating market that can and often does trade independently of stocks and bonds, making it a unique place to diversify your investments.

And micro gold futures are a great way to gain exposure using the capital efficiency of leveraged products.

Traders can open a futures account with Optimus Futures for as little as $100 and gain access to its flagship Optimus Flow platform and automated trading journal.

Plus, it offers a variety of choices when it comes to customizing your trading experience and optimizing your margin requirements.

Explore all the futures contracts available including a wide array of micro- and regular-sized products in everything from currencies to commodities.

Click here to learn more.

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This matter should be viewed as a solicitation to trade. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. CME Micro contracts generally have a value and margin requirement that is one-tenth (10%) of the corresponding regular contract. The cost of trading Micro contracts is higher than regular contracts, when measured as a percentage. Commission rates are not always one-tenth of the rate for regular contracts. Exchange and NFA fees are not proportionately reduced. Frequent trading of Micro contracts further compounds the cost disparity. Futures transactions are leveraged, and a relatively small market movement will have a proportionately larger impact on deposited funds. This may result in frequent and substantial margin calls or account deficits that the owner is required to cover by depositing additional funds. If you fail to meet any margin requirement, your position may be liquidated, and you will be responsible for any resulting loss.

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