Aks trade company llc18 comments
How to trading bitcoin strategy
All About the Gold and Silver Futures Market Although this page usually refers specifically to silver, the same applies to gold with a few minor differences e. Silver futures are just an agreement between two parties, where one agrees to buy a specific amount of silver from the other at a set time in the future. What is a Short Sale? A short sale is when someone agrees to sell silver in the future which they usually do not have. This is perfectly legal, and necessary for the futures market to work.
Without someone agreeing to sell in the future the short , nobody could agree to buy in the future the long. There must be one short seller for every long. The short seller is hoping that the price of silver will go down, and that when the contract expires, they will simply be paid the difference in the price of silver if it has gone down. There is a chance that they may need to deliver the physical silver regardless of how the price moves , in which case they would need to buy it.
Let's say it is January 1, You decide that you want to buy some silver. This means that you agree to buy 5, ounces of silver the amount per contract in June, although if you do not want to take delivery, you can sell the contract before June, The vast majority of futures contracts end up being settled in cash, where no silver changes hands. But, if you want the physical silver, you can get it -- after all, that is the whole point of the futures market.
When your contract is about to expire, here are the possible outcomes: You wait called 'standing for delivery' , and by the end of June, the short will have given the Clearing House a Notice of Intention to Deliver. The Clearing House will then send an Assignment Notification to the seller and to you, which lets you know who the seller is, and a list of the serial numbers of the bars you will receive. You will also receive an invoice.
The short will deliver to a COMEX warehouse the 5, ounces of silver or turn in a warehouse receipt, if they have one -- it appears that they can buy them from bullion banks that have silver in the Registered category. You are then given the warehouse receipt or your dealer can hold it for you , at which point you own the silver.
You decide that you want to take delivery. The same as situation 1 happens, except you then immediately request delivery and turn in your warehouse receipt. You get your silver. You decide that you do not want the silver, you want to take the profit or loss. In this case, you sell your contract at the current price before the beginning of June, -- or else you may have to take delivery. You decide that you do not want the silver, but you want to keep a futures position. In this case, you roll over the contract, by selling your current contract and buying one for a future month.
What is in the Warehouses? COMEX has several warehouses for metals see the lists for silver and gold. They contain lots of silver. This is split into two categories: Often this is silver that has been purchased by a long paid in full, not part of a COMEX contract at some point in the past that they are currently paying storage fees for.
The silver is eligible for delivery at any point that the owner wants. It has been assigned to the owner, who has the serial numbers of their bars. Eventually, it will either be delivered to the owner, or become registered silver. Registered silver is silver that is sitting in the COMEX warehouse, and can be used to settle a contract. The warehouse has issued a depository receipt warrant. Warrants are issued in the name of an Exchange Clearing Member corporations that handle trades, typically for their customers , not individual traders.
When a short needs to settle their contract, the silver they provide the long must be registered. The short can buy it from a bullion bank, convert eligible silver they have, or use silver they they had previously stopped from a long contract. As of 17 Jan , there were The limit is 1, contracts in the current spot month for silver 3, contracts for gold , with 6, silver or gold contracts in all months combined.
For silver, the 1, contracts controls 7,, ounces of silver, worth about million. For gold, the 3, contracts controls , ounces of gold, worth about million. Costs There are various costs involved in purchasing silver or gold through the futures markets.
Here are the ones we are aware of: A commission, paid to your broker, that includes exchange fees. This is to buy the original contract and receive delivery on it. The actual cost of the silver. If the seller pre-paid storage costs, you will be responsible for up to 30 days worth per 7A06 F , but you would have paid that to the warehouse anyways if the seller had not prepaid.
The seller has to pay the storage costs up to and including the day of delivery. If the seller paid for 'in and out labor', you are required to pay half of it, but you would have paid that anyways if the seller had not paid the fee.
In other words, the seller paid to have the silver put into the warehouse and taken out of the warehouse -- so you are responsible for the cost to get it out of the warehouse. You can pick it up yourself which is not recommended!
Monthly storage fee, if you have the silver or gold stored in a warehouse. This is not necessary if you just hold on to the warehouse receipt. Margins When you buy a long position or sell a short position, it is done on margin.
If the price of silver goes up, the money is deposited into your account. If the price of silver goes down, money is removed from your account, and when it gets below a certain amount, you are required to immediately come up with the more money or else your position is sold. This leverage can obviously be very lucrative, or very dangerous if you are not careful. Offsetting You may have noticed that buyers are required to take delivery of metal, and sellers are required to make delivery of the metal -- unless they offset their positions.
So how does that work? Let's say that there are currently no June, contracts. You are the first to buy one, and you go long 1 contract. For that to happen, someone else goes short 1 contract promising to deliver the silver in June, The short is required to either deliver, or buy an offsetting position in this case, 1 long contract.
Since there is only 1 long contract they can buy yours , if they buy it, they would have to deliver to themselves -- so the exchange doesn't require them to deliver. If you were not willing to sell your long contract, the short would have to provide you with the metal but there are market makers that help ensure that the short can buy an offsetting long contract.
Or, let's say that you "Long A" buy 1 long contract for June, Someone "Short A" sells short 1 contract, in order for you to buy. Then, someone else "Long B" goes long 1 contract which requires another person "Short B" to go short 1 contract.
At this point, there are 2 people with a long position, and 2 people with a short position. If Short A does not want to deliver, he can buy the long contract from Long B. Now there is 1 person with a long position you, Long A and one person with a short position Short B.
When it comes time to deliver, Short B will provide the silver to you. Short A is now also Long B, so as before, the exchange doesn't require him to deliver to himself. That's how offsetting works. Essentially, if you have both long and short positions, any extras get cancelled out. So if you have 1, long positions and short positions, you end up with long positions.
Or, if you have 1, short positions and long positions, you end up with short positions. Delivery Notices A short seller is required to either close out his position by buying an offsetting long position, or deliver the silver. This is done by issuing a delivery notice "Notice of Intention to Deliver". COMEX then decides which long will be assigned the delivery whoever bought their long position first , and sends an Assignment Notification to the long and short , and the long must then accept and pay for a warehouse receipt which they can pay to keep stored at the warehouse, or pay to have physical delivery.
COMEX has reports on how many delivery notices were generated each day , month , and year. The reports show which firms had clients issue the notices shorts delivering the silver , and which stopped the notices had clients receiving the silver. Is a Long Guaranteed to Receive Silver? Some people are confused about this, as COMEX doesn't make it clear to people who aren't active in futures.
Someone active in futures knows that a futures contract is exactly that -- a contract. It is a contract to buy or sell a specific amount of metal at a specific month in the future at a specific price. The confusion arises because the short gets to decide when they deliver the silver -- either at the beginning of the month, the middle, or the end. A long cannot initiate the process.
However, the short must initiate the process at some point during the month -- they are required to do so by their contract. Another point that confuses novices is when they read that when a short gives a Delivery Notice, COMEX will assign it to the long that got their position earliest.
This makes it sound like some longs won't be assigned delivery. But, for every long there is a short, so it just means that earlier purchasers of long positions will get delivery earlier in the month; those that got their positions more recently may have to wait closer to the end of the month. But all longs will be assigned a delivery, unless they buy an offsetting short position. The final piece of the puzzle is what happens if the short does not deliver the silver?
In this case, the Clearing Member the firm that the short's contract went through is required to deliver the silver per 7B However, we are not aware of instances that this has happened, and the person to receive the silver was not fairly compensated.