Confused!?!?

Okay, when I buy 'spot gold' am I buying actual gold, or a futures contract, or an option?

All depends on who you're buying "spot gold" from...

Well, I'm not actually buying it. I placed a spread-bet on IG's PureDeal.

The answer to your original question then is "none of the above"...

I guess so, but I still don't know what the term means exactly. I'm new you see!

Wizard Trader said:

Okay, when I buy 'spot gold' am I buying actual gold, or a futures contract, or an option?

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Hi WT,
Martinghoul is quite correct although not quite as comprehensive in his answer as perhaps he might have been! All your trades, regardless of the underlying instrument being traded - spot gold in this case - are with IG Index. The same applies to all spread betting companies. If you use the search facility - or just trawl through the SB forum, you'll find mountains of info' about SB companies and how they make their money, so I won't go into detail here. Suffice it to say, regardless of whether you trade indices, commodities, forex or equities etc., all your trades are with your broker. So, for example, if you decide to trade Google one day (GOOG), and you go long at £x per point, you're not actually buying anything as such (shares in this example) from another trader /investor who is selling them. In effect, the person(s) on the other side of your trades is always IG Index. This is the contentious bit, because lots of folk will tell you that because of this, the SB companies only make money if you lose it. Of course the SB companies all deny this emphatically, saying that they hedge their net positions in the underlying market and make most / all of their money from the (large) spread.
Tim.

Hi Tim and thanks for the detailed reply. I was aware spread betting is pure gambling and does not involve ownership of the underlying asset. I was not aware, however, that SB companies are alleged to make money when their clients lose it. Interesting.

My original question was more about, what exactly is 'spot' gold, or 'spot' anything for that matter? I know what a futures contract is (eight weeks ago I had no idea!). I also know what an option; bond; share and currency is. What I'm not clear about is how the commodities market works. When people trade gold, on the COMEX for example, are they trading contracts for future delivery, or actual gold which can be delivered at any time the buyer wishes; gold which is held (allegedly) in a vault somewhere? I'm confused by the whole thing. I want to begin my trading career in the forthcoming commodities bull market, not FOREX or something like that. Start as you mean to go on, etc.

Cheers,
WT

trade FX

takes the sharp angles out of "ownership" regardless of who you deal through

theSheik said:

trade FX

takes the sharp angles out of "ownership" regardless of who you deal through

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That was the original plan, but then I heard you can trade other markets on a spread + with all the money-printing that's been going on, is any currency a safe investment?

Wizard Trader said:

My original question was more about, what exactly is 'spot' gold, or 'spot' anything for that matter? I know what a futures contract is (eight weeks ago I had no idea!). I also know what an option; bond; share and currency is. What I'm not clear about is how the commodities market works. When people trade gold, on the COMEX for example, are they trading contracts for future delivery, or actual gold which can be delivered at any time the buyer wishes; gold which is held (allegedly) in a vault somewhere? I'm confused by the whole thing. I want to begin my trading career in the forthcoming commodities bull market, not FOREX or something like that. Start as you mean to go on, etc.

Cheers,
WT

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Spot things differ, so what I will say will apply to 'spot gold' rather than 'spot anything'...

Spot gold is a calculated index, designed to closely track the mkt price of the underlying asset, i.e. gold. It's not the exchange-traded future. It's not an option or a bond or a currency.

Martinghoul said:

Spot gold is a calculated index, designed to closely track the mkt price of the underlying asset, i.e. gold.

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So how do people trade the underlying asset?

Wizard Trader said:

So how do people trade the underlying asset?

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What do you mean? I can think of a whole number of ways. You can call your neighborhood bullion broker, for example. Otherwise, I hear that there's vending machines in German supermarkets selling gold bars. Furthermore, you can buy gold at Harrods these days, I understand. In terms of selling, I think you can send your gold to various dodgy dealers by post.

Otherwise, you can also trade the GLD ETF, but there are technical considerations to be aware of...

Wizard Trader said:

So how do people trade the underlying asset?

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Hi WT,
Essentially, the 'spot' price of an instrument is the cash price as opposed to the futures price. Some things you can't trade the cash market and have to trade the futures - or a variation of it. Indices for example. The FTSE 100 is a index of the top 100 UK companies, so you can't trade it directly, you have to trade an instrument based on it or connected to it. If you wanted to buy shares in one of the companies that comprise the index, then you can do that or you can trade an instrument that's 'derived' from the shares, a derivative product like options for example. In very broad brushstroke terms, if you want to trade (as opposed to invest) in the real thing, you need a direct market access (DMA) broker. (IG Index isn't one of these.) So, in the GOOG example in my last post, you would actually take ownership of real shares in the company. Where as, with IG Index, you you don't own anything. You simply have an agreement to pay them £X amount if the price goes against you or for them to pay you £X amount if it goes in your favour.
Clear as mud!
Tim.

Wizard Trader said:

That was the original plan, but then I heard you can trade other markets on a spread + with all the money-printing that's been going on, is any currency a safe investment?

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OK

1. FX is speculative, not investing.

2. Spreadbetting (SB) is the same as (1). It's a bet or "trade" directly with the SB company - no direct market access (DMA) involved.

3. the FX market is mainly interbank and institution driven with a large component of retail traders chucked in (the likes of those on this 'ere site). No "paper" money actually gets traded and there is no single exchange on which to trade on. If a currency is devalued (i.e. by QE or by inflation/interest change), you can still trade that against a currency pair. Also, major benefit of FX is high liquidity (major pairs).

Well, gentlemen, I placed my first ever trades/bets today and once both positions closed I'd made a profit. Awesome! :clap:

@ Martinghoul: I'm assuming you can trade GLD ETF using a DMA broker?

@ timsk: That's what I was essentially asking. So spot= direct 'cash' trading, as a pose to trading in derivatives; contracts.

Hi theSheik. The problem is that all governments are presently debasing their currencies at an alarming rate. I mean, you're essentially swapping between several sinking ships, right?

Wizard Trader said:

@ Martinghoul: I'm assuming you can trade GLD ETF using a DMA broker?

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If you want to invest in the GLD ETF (aka SPDR Gold Trust) you can buy shares in it through a regular broker. If you're an official investor, in a liquidation scenario you have a call on the fund's assets (in this case physical bullion), which are ring-fenced.

If you wanna speculate by expressing a view on the direction of the ETF, you can do it through a variety of channels, including S/B through IG.

Thanks for clearing that up Martinghoul. SPDR Gold Trust is indeed available to speculate on through IG. Though I don't understand why the point-value is delineated in 5 digits and not 4, as is the case with spot gold.

Wizard Trader said:

Thanks for clearing that up Martinghoul. SPDR Gold Trust is indeed available to speculate on through IG. Though I don't understand why the point-value is delineated in 5 digits and not 4, as is the case with spot gold.

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That's just the way the cookie crumbles, amico...

Firstly, the current mkt px of GLD is 110.84, while spot gold is at 1127.90. Secondly, IG decides what factors to apply to what mkt prices. I have no idea what their logic might be. Occasionally they seem to follow neither rhyme nor reason.

All I'm saying is that, if you want to bid on a 10th Dec SPDR Gold Trust contract, through IG, you have to do so on the basis of it being 11191, and any fluctuation from that price represents (a minimum of) £1/pip. Whereas a 10th Dec Spot Gold contract is 1129.15. I don't understand that at all. How can the SPDR GT price be apprx 10 times more expensive than a Spot Gold price?

From what you said earlier...

If you want to invest in the GLD ETF (aka SPDR Gold Trust)

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... It sounded like the GLD ETF was the underlier for spot gold, which is traded by the ounce. Therefore, why is the SPDR Gold Trust contract apprx 10 times bigger than the Spot Gold price?

BTW, thanks for your help thusfar. As a newb I'm more than grateful.

Wizard Trader said:

All I'm saying is that, if you want to bid on a 10th Dec SPDR Gold Trust contract, through IG, you have to do so on the basis of it being 11191, and any fluctuation from that price represents (a minimum of) £1/pip. Whereas a 10th Dec Spot Gold contract is 1129.15. I don't understand that at all. How can the SPDR GT price be apprx 10 times more expensive than a Spot Gold price?

From what you said earlier...

... It sounded like the GLD ETF was the underlier for spot gold, which is traded by the ounce. Therefore, why is the SPDR Gold Trust contract apprx 10 times bigger than the Spot Gold price?

BTW, thanks for your help thusfar. As a newb I'm more than grateful.

Click to expand...

Amico, firstly, as I mentioned before, what you see as prices in IG are not necessarily mkt prices. Specifically, in the case of GLD, it actually trades in the mkt at 111.91 per share, rather than 11191. Secondly, the GLD ETF is NOT the underlying index for spot gold. It's just one of the instruments that allows you to invest in gold. Just like the IG spot gold contract, GLD is designed to track as closely as possible the spot price of gold (for the ETF the target index is 3PM gold price fixing calculated by the Ldn Bullion Mkt Assoc, if I am not mistaken). The key distinguishing feature of the ETF has to do with its technical aspects.