How can futures be used as investment instruments?
Futures contracts are widely used as highly leveraged investment instruments by individuals and institutions. Let us assume that an investor thinks the gold price can stage a rally soon, and he wants to take advantage of such an anticipated price movement. He can then buy gold futures contracts instead of buying and storing physical gold. The attractive point here is that only a small amount of capital is required to buy a large amount of gold in terms of futures contracts. When you buy gold futures contracts for investment purposes, you will not have to take delivery of gold in normal cases. Instead you are entering into an account transaction of buying a standard amount of gold. In this way you are omitted from the unnecessary burder of buying and storing physical gold. Now suppose the price of gold did in fact rise in a month’s time and the value of the gold futures will also increase. The futures contracts can then be sold to make a profit in the investment account. It is worth men
