Gold trading can be done in many different ways. For years, spot gold and futures gold come out as the two most talked-about. What sets them apart?

Gold is a precious metal that almost everyone in the world wants, both as jewelry and as an investment. Even though the price of gold is high, many people still want to buy it. People won't care about buying gold at an expensive price because they think it will keep going up and they will make money if they invest in the precious metal.

Even though many people still buy and store physical gold as an investment, many investors are now starting to pay attention to digital gold investment too. If investors buy digital gold, they don't have to buy physical gold and bring it home to store in a safe place.

Gold is a commodity on the financial market, so there are two popular ways to buy this precious metal. Spot gold is the first way, and futures gold is the second. If you want to invest in gold, you need to know the differences between the two:

Spot Gold vs Futures Gold


Spot Gold

When an investor wants to buy spot gold, the transaction system is right there on the spot, so the prices are real-time. In other words, investors must pay directly based on the price of gold at the time.

After that, investors will get gold assets based on how much they paid for them. The spot gold rate is the name for this kind of gold trading.

For instance, an investor might buy 10 grams of gold on the spot trade market, where the price of gold per gram is currently $70. The investor then has to pay $700 to get the 10 grams of gold as an asset.

If the price of gold goes up three months later, they can sell it and make money from the difference between what they paid versus what it's worth now.

It's common for spot gold traders to wait until the price goes up to liquidate their transaction. When the price goes down, they tend to wait until the price corrects itself.

See also: Gold Price Today


Futures Gold

When an investor decides to use the futures gold system, they can make transactions or payments at a certain agreed-upon date or time.

Investors can pay later, at least one to two days after placing an order, and the agreement says it can be three months or longer.

Typically, futures price is higher because there are extra payments for the risk of theft, storage,  inflation, as well as shipping costs.

Let's say an investor buys 10 grams of gold and wants to get it in three months. If the gold futures is $80 per gram, they'll have to pay $800 on a certain date three months later when they get the gold. But if the price of gold goes up to $85 per gram by that date, they will make $5 per gram. Otherwise, they'll lose $5 per gram if the price was down to  $75 per gram.


Differences Between Spot Gold and Futures Gold

  • The price of spot gold is the price of gold on the market when it was bought. As for futures gold, there are many things besides the price of gold on the market that affects it. For example, the gold futures rate is based on the spot gold price, the time after which the delivery is planned, the risk of theft or damage from storage, and inflation.
  • Spot gold is not very risky because you can buy it for a small amount of money. Futures gold, on the other hand, is riskier because no one knows for sure what the price of gold will be when it is delivered, whether it goes up or down.
  • Spot gold can either be owned directly by the buyer or sent directly by the seller after the investor has paid. For futures gold, delivery is done according to the plan at least one or two days after the agreement.
  • There is also a difference in the liquidity quotient. Spot trades typically have a very high liquidity quotient, while futures gold isn't quite so since the buyer's money is locked up for a certain amount of time and the delivery is set at a certain date in the future.

Now that you understand the differences between spot gold and futures gold and how they work, it should be easy for you to figure out the pros and cons and choose which one suits you best.

Other than spot and futures, there are also gold derivatives that offer leveraged trading and make the precious market even more accessible for many traders around the world. To get familiar with the concept, go to 5 Reasons Why You Should Trade Gold in CFD Brokers.