3 exchange risks of gold ttrading
DESCRIPTION
The risks that gold investors face at exchanges, such as at the COMEX.These risks are 1. margin requirement change, 2. liquidation only, and 3. trading halt ...TRANSCRIPT
3 Exchange
Risks ofGold
Trading
EXCLUSIVE
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1. Exchange risks refer to the exchanges where gold and futures are traded, and not to currency risks
2. The two major gold futures exchanges are the New York Mercantile Exchange (NYMEX) and the Tokyo Commodity Exchange (TOCOM)
3 EXCHANGE RISKS OF GOLD TRADING
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1. Trading at these and all other exchanges is subject to their rules and regulations
2. The exchanges can on purpose or accidentally foster market outcomes by changing their trading rules.
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What events can happen at an exchange?
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1. 1. Margin Requirement Change2. A margin requirement states how
much money needs to be available in the futures account to be able to speculate on future contracts
3. The higher the margin requirement, the more money is needed to control the same amount of the underlying asset
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1. If the margin in the margin account is below the margin requirement, then the investor either has to increase the margin, or sell securities
2. Thus, rising the margin will in average result in more selling and as a consequence in price droppings
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1. In December 2009, COMEX raised the margin requirements for gold (and silver) contracts
2. It was speculated that this increase would result in a bearish future gold market for three to six months
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1. 2. Liquidation only2. Here, the exchange temporarily
restricts buying, thus driving the prices down
3. COMEX restricted silver buying in 1980, when it reached an all-time high of US$ 50.
4. Will the exchange also declare a “liquidation-only” policy on gold, which also trades for a record price?
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1. 3. Halt trading: 2. This event is the most extreme
measure3. Here, an exchange temporarily
halts the trading of a particular future contract
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