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Spot Vs Futures

Spot gold refers to immediate purchase and delivery of gold, with the price determined at the time of trade. Futures gold means agreeing to purchase gold to be delivered on a future date, at a pre-determined price. Generally, futures gold rates are higher than spot rates due to additional storage and delivery costs factored into futures prices. The example shows a customer purchasing 10g each of spot and futures gold, receiving immediate delivery at Rs. 5,500/g for spot, and agreeing to pay Rs. 5,700/g for futures delivery in 4 months, earning a profit if gold prices rise.

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66 views

Spot Vs Futures

Spot gold refers to immediate purchase and delivery of gold, with the price determined at the time of trade. Futures gold means agreeing to purchase gold to be delivered on a future date, at a pre-determined price. Generally, futures gold rates are higher than spot rates due to additional storage and delivery costs factored into futures prices. The example shows a customer purchasing 10g each of spot and futures gold, receiving immediate delivery at Rs. 5,500/g for spot, and agreeing to pay Rs. 5,700/g for futures delivery in 4 months, earning a profit if gold prices rise.

Uploaded by

atishsingh1971
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Difference Between Spot and Futures Gold Rates

Knowing the terms

For an average person, the world of trade and markets can seem daunting, with unknown terms thrown around on a regular basis. The first step for any keen investor, be it an
amateur or a professional is to know what they are getting into, to test the waters before they take a swim (in a way). Gold is no easy commodity to own, with prices digging
deep into your wallet, but the returns are often worth the investment. Two commonly used terms when it comes to gold are spot gold and futures gold. So what does one imply
when they use these terms? A simple definition can help you understand the finer nuances of trading in gold.

Spot Gold – As the term implies, spot gold refers to trade in which gold is purchased immediately, i.e. on the spot. The price is determined immediately and both the product
and cash are interchanged almost instantly.

Futures Gold – Futures Gold refers to trade in which a transaction is executed on a particular date but the product delivery will take place only in the future, at an agreed
upon day. Typically it means that you pay for the gold now, but will be able to take delivery only in the future.

Spot Gold and Futures Gold Rates


Gold has been at the forefront of trade for centuries, with countries and armies waging wars in the past to find and own this metal. Today, gold continues to enamour the world,
forming an integral part of our investment portfolios, regardless of its cost. A number of factors go into determining gold rates, with demand and supply, international trends,
currency changes, etc. being some of them.

The value of spot gold changes on a daily basis, according to the market. Typically, spot gold rates are cheaper than gold futures rates since there is no extrapolation involved
when one purchases spot gold. What they see is what they get, with no market predictions. Rates for gold futures, on the other hand are costlier on account of storage charges
till the delivery date and any additional expenses a supplier can incur.
Example: Mr. Krishna has a keen interest in gold and decides to purchase 10 grams each from the Spot market and futures market. The price for 1 gram gold at present is Rs
5,500 and he pays Rs 55,000 for 10 grams in spot trade and takes delivery for it. He also agrees to pay Rs 5,700 per gram for gold futures, the delivery for which will be taken
after four months. He signs a contract a week later, paying Rs 57,000 for these 10 grams. After 4 months the cost of gold is Rs 6,000 per gram, thereby providing a profit of Rs
3,000 on his futures purchase.

Differences between Spot and Futures Gold

Parameter Spot Gold Futures Gold

Delivery Immediate delivery Delivery after 2-3 months (at an agreed upon date)

Prices are adjusted to account for storage and delivery, making it more
Prices Current prices
expensive

Price Immediate settlement at point


Settlement can be done in a day or two, after signing a contract
Settlement of trade

Liquidity High liquidity Limited liquidity on account of delayed delivery of gold

Low risk – what you see is Moderate risk – the price of gold when it is delivered could rise or fall,
Risk
what you get leading to profit or loss scenarios

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