Prices of futures contracts are reported daily at the financial section in the newspapers as well as stocks and bond quotes. Intriday prices of commodities and financial futures contracts can be got through logging with futures exchanges websites.

Gold is negotiated in Comex, a division of the New York Mercantile Exchange, and the unit to negotiate in each gold futures contract is of 100 troy ounces. The price quotes ar in dollars per troy ounce. The settle price is the closing price per day. The lifetime high and low prices indicate the price range for each contract. Open interest is the number of contracts outstanding.

A great number of open contracts indicate a greater liquidity and activity. A small number of delivery contracts is not unusual for contracts whose expiration date are near. This because many positions are closed before delivery. Less than 2% of the total of futures positions are delivered. That is why, during the contract?s lifetime the open interest increases after the contract comes into existence and later declines when delivery date is near.

The following example, illustrates how futures trading work. Let?s pretend that you decide to buy a December gold contract (delivery in three months) at a current price of $448. because you think that gold price will raise in the future. If in the lapse of three months the price of gold raises and the contract is now being negotiated at $478.80, you can either sell the contract at $478.80 per ounce or you can wait till expiration to receive the delivery of 100 troy ounces paying $448 per ounce. Then you could sell immediately the 100 troy ounces of gold at spot price and benefit. Pretend that the cash price is $478.60 per ounce

Trade the Futures Contract

Buy the gold futures contract at $448.00

Sell the futures contract at $478.80

Profit per ounce $30.80

Profit per contract = 30.80 x 100 ounces = $3,080.00

Buy Futures Contract and their delivery

Buying the gold contract at $448.00 and accepting delivery of 100 ounces

Selling the 100 ounces of gold at a cash price of $478.00

Total cost $44,800

Proceeds 47,860

Profits $ 3,060 or $30.60 per ounce

If gold prices decline after you buy the contract, prices of your future contracts will decline. If you sell the contract when the price decline to $430 you will have lost $18 per ounce or $1800 per contract ($18 x 100 troy ounces).

The buy of future contracts is referred to as taking a long position A long position is set when futures contracts are bought because the buyer is expecting a raise in prices. When selling futures contracts the seller expects prices to decline so as to take a short position. A short position is set when contracts are sold expecting the future price to decline in the commodity / financial security.

The following example illustrates a short position.

Example: Sell futures contract short

If you wait for prices to decline in the future. you could sell short gold futures contract. Suppose you sell short on December delivery gold futures contract at $44,800 ($448 x 100).

If the price of gold declines in dollars per ounce, you could buy a December contract to close out your position, and your profit would be $500 per contract. Clearly, if price of gold raises to $5, you would lose $500 per contract.