Gold futures are agreements to buy or sell gold in the future at specified terms, including price, quantity, quality and date. Gold futures are standardised contracts, which are traded on regulated exchanges and give investors the flexibility to go either long or short on gold. They are typically used by corporate customers for risk management purposes or by institutional customers for speculative purposes.
The market for gold futures is usually highly liquid and efficient, due to the large numbers of contracts traded by professional market participants. The trades are settled through a central clearing house, at which deposit margins are required. This provides increased security for investors, reducing counterparty risk and allowing them to trade without performing their own due diligence checks. Fees or commission charged for trading futures are comparatively low.
Gold options are contracts that give the investor has the right to either purchase or sell gold in the future, at specific terms such as price. Unlike futures, the investor is not obliged to exercise the option. Options can be traded on exchanges or OTC.
Gold forwards are similar to gold futures with the main exception that they are not traded on an exchange and are therefore not standardised. They are bilateral agreements on the purchase and sale of gold at a future date. They trade at a premium to futures as they are customised to the specific needs of the investor.