By Ian Parks
Gold stock trading takes two major forms these days: They come in the form of ETFs and futures contracts.
ETFs, or Exchange Traded Funds, are one inexpensive way for investors to get into stock trading centered around this precious metal. An ETF tracks an underlying bundle of stocks from which the fund derives its value. They are like an index fund but they get traded just like an individual stock. You can sell them short, buy it on the margin, and even buy just one share. You usually command only the value of just a fraction of an ounce per share. This makes it a lot more affordable for the average person to get in on the action, instead of having to invest directly at its full spot price. You can get in on one of these funds if you have only a few hundred dollars of investment capital.
Gold stock trading with ETFs means you can get in on the action of buying and selling gold without having to take physical delivery of any bullion, since what you actually own and trade is the derived value of the reserves that the particular find has ownership of. These ETFs were first introduced in 2004.
On the other hand, In August 2008 the SPDR Trust fund was the number one traded ETF of this nature, and at that time it had accumulated reserves of the metal equaling 659 tons, according to the website ExchangeTradedGold.com. In comparison to the world's total gold reserves of 120,000 to 140,000 tons, that's precious little; but, the SPDR Trust is widely regarded as the most liquid of all ETFs of this kind.
There are some other flaws with doing stock trading with this metal using ETFs. For one thing, they can be taxed as collectibles, even though there is no investment in coins or for numismatic or jewelry value. There is no ownership of the actual solid item by the shareholder, either. But this is what the IRS said in 2008--how surprising, huh? For another thing, there is risk to you the shareholder which has to do with company risks rather than the actual price of gold on the open market. And, there are a lot of fees in these funds--you may like your gold ETF is being nickeled and dimed to death.
So, you can look to doing this kind of stock trading with futures specifically for this metal. Futures have low expenses--you pay an up-front premium to buy a type of contract which will, for a temporary period of time, enable you to either buy or sell on demand (but you don't have to take physical delivery; your monetary results simply show up in your margin trading account). The contract is for command of a certain amount of underlying gold; the premium you pay is non-refundable, but the amount you can temporarily control is far, far more than what paying that same premium in the form of an ETF investment would buy you, meaning you have far greater upside profit potential for the same money. The downside of these futures is that you can possibly lose money if you don't know what you're doing.
This kind of stock trading is big these days as the Dollar is being devalued. It could be for you!
Check out my site if you want to learn more about how to buy gold and silver and take a look at the best gold stocks
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