What are metals futures?

Metals futures are contracts that allow traders to buy or sell specific metals, such as gold, silver, or copper. These contracts are based on the value of the underlying physical metal. Investors use metals futures to speculate on the future direction of the metals markets or to hedge against price fluctuations in these commodities.

These futures contracts are standardized and traded on exchanges like the Chicago Mercantile Exchange (CME). Like other futures, metals futures have standardized terms, including expiration dates and contract sizes. When trading metals futures, you're not actually purchasing the physical commodity but speculating on whether prices will rise or fall.

When their forecasts for direction are accurate, traders can profit from both upward and downward price movements by going long or short the contract. On the other hand, they risk losing money if their expectations are incorrect. Say, for instance, a trader expects gold prices to move higher and goes long futures, they’d likely lose money if prices defied their bullish expectations and moved lower instead.

Metals futures are also popular among businesses and investors looking to hedge against price volatility in the metals sector. For example, a manufacturer could buy copper futures to lock in prices and protect against rising material costs. However, factors such as market timing, position sizing, and costs are important considerations for those using metals futures as part of a hedging strategy.

Metals futures are also often used as a hedge against broader market movements and currency risk. Precious metals like gold and silver are considered safe-haven assets, meaning investors often turn to them during times of economic uncertainty or stock market volatility. By holding or trading metals futures, investors can attempt to protect their portfolios from potential losses in other asset classes. Additionally, since metals are traded globally and priced in U.S. dollars, they can also act as a hedge against currency risk. For example, if the U.S. dollar weakens, the value of metals like gold typically increases, helping to offset losses in currency value or other dollar-denominated assets.

Example

Among the various types of metals futures contracts, Gold futures (/GC) are some of the most actively traded, recognized for their standardization, global acceptance, and liquidity. Each /GC contract represents 100 troy ounces of gold. For example, if gold is trading at $1,800 per ounce, the value of one /GC contract would be $180,000.

To buy or sell a /GC contract, traders must put down a percentage of the total contract value, known as the margin requirement. Margin requirements can vary depending on market conditions but typically represent a fraction of the contract’s total value (e.g., $7,000). The futures trade in $0.10 increments, so the smallest price movement (or tick size) equals $10 (100 troy ounces x $0.10). Trading occurs from Sunday to Friday, 5pm to 4pm CT, with a one-hour break starting at 4pm daily.

Metals futures can be used for both hedging and speculation. Businesses and investors use them to hedge against price fluctuations in metals markets, while traders often use these contracts to speculate on price movements in commodities like gold, silver, or copper.

• Speculating: Traders speculate on the future direction of metals prices by buying futures if they expect prices to rise and selling futures if they anticipate a decline. This allows them to profit from market swings in metals, which are often influenced by global demand, economic conditions, and geopolitical events.
• Hedging: Commercial businesses, such as manufacturers, use metals futures to mitigate the risk of price fluctuations in raw materials. For example, an electronics manufacturer may buy copper futures to lock in stable prices, protecting against rising costs. On the other hand, metals producers sell futures to secure a fixed price for their products, shielding themselves from potential price drops.

Additionally, metals like gold and silver are commonly used as a hedge against broader market volatility and currency risk. During times of economic uncertainty, investors turn to these metals as safe-haven assets, providing protection against stock market declines or a weakening currency. This dual role makes metals futures a valuable tool for both risk management and investment diversification.

The CME Group offers standard metals futures on key commodities like gold, silver, and copper. These contracts are highly liquid, making it easier for traders to enter and exit positions. Like other futures, standard metals contracts provide leverage, allowing traders to control large positions with relatively little capital. However, this leverage can magnify both potential gains and losses.

The CME Group also offers micro metals futures, which are smaller versions of the standard contracts, typically 1/10th the size. These micro contracts are more accessible for traders with lower risk tolerance or those looking to trade smaller positions. Micro metals futures allow for more precise risk management, enabling traders to fine-tune their exposure, and provide a lower-risk way for new traders to gain experience in metals futures without committing large amounts of capital.

Gold futures (/GC) track the price of gold, a key benchmark in the global precious metals market. Gold is one of the most actively traded metals, widely used as a hedge against inflation, currency fluctuations, and market instability. Gold futures are popular among traders and investors looking to speculate on price movements or hedge against potential risks in the broader financial markets.

Gold futures are sized at 100 troy ounces of gold. For example, if gold is priced at $1,800 per ounce, the value of 1 /GC futures contract would be $180,000 (100 x $1,800). The minimum price fluctuation, or tick size, for Gold futures is $0.10 per ounce, which equates to $10 per contract (100 x $0.10). Like other commodity futures, /GC trades nearly 24 hours a day, Sunday through Friday, allowing traders to respond to market developments in real-time.

Micro Gold futures (/MGC) are a smaller version of the standard /GC contracts, offering greater accessibility for individual investors and smaller traders. /MGC futures are sized at 10 troy ounces of gold, making them 1/10th the size of the standard contract. For example, if gold is priced at $1,800 per ounce, the value of 1 /MGCcontract would be $18,000 (10 x $1,800). The minimum price fluctuation, or tick size, is also $0.10 per ounce, which equates to $1 per contract (10 x $0.10). Like the standard /GC contract, /MGC trades nearly 24 hours a day, Sunday through Friday.

Silver futures (/SI) track the price of silver, one of the most widely traded precious metals globally, used in industries ranging from electronics to jewelry. Silver futures are commonly used by traders and investors to speculate on price movements or hedge against market volatility and inflation risks. These futures provide significant liquidity and are a key tool in both industrial and financial markets.

Silver futures are sized at 5,000 troy ounces of silver. For example, if silver is priced at $25 per ounce, the value of 1 /SI futures contract would be $125,000 (5,000 x $25). The minimum price fluctuation, or tick size, for /SI is $0.005 per ounce, which equates to $25 per contract (5,000 x $0.005). Like other commodity futures, /SI trades nearly 24 hours a day, Sunday through Friday, giving traders flexibility to respond to market shifts in real time.

Micro Silver futures (/SIL) are a smaller version of the standard /SI futures contract, designed to make silver trading more accessible to individual investors and smaller traders. Micro Silver futures are sized at 1,000 troy ounces of silver, making them 1/5th the size of the standard contract. For example, if silver is priced at $25 per ounce, the value of 1 /SIL contract would be $25,000 (1,000 x $25). The minimum price fluctuation, or tick size, is also $0.005 per ounce, which equates to $5 per contract (1,000 x $0.005). Like the standard /SI contract, /SIL futures trade nearly 24 hours a day, Sunday through Friday.

Copper futures (/HG) track the price of copper, a critical industrial metal used extensively in construction, electronics, and manufacturing. These futures contracts are popular among traders and companies looking to hedge against price volatility or speculate on price movements in the copper market, which is closely tied to global economic growth and industrial demand.

Copper futures are sized at 25,000 pounds of copper. For example, if copper is priced at $4.00 per pound, the value of 1 /HG futures contract would be $100,000 (25,000 x $4.00). The minimum price fluctuation, or tick size, for Copper futures is $0.0005 per pound, which equates to $12.50 per contract (25,000 x $0.0005). These contracts trade nearly 24 hours a day, Sunday through Friday, allowing traders to respond to market changes and global demand for copper.

Micro Copper futures (/MHG) are a smaller version of the standard /HG futures contract, offering greater accessibility for individual investors and smaller traders. Micro Copper futures are sized at 2,500 pounds of copper, making them 1/10th the size of the standard contract. For example, if copper is priced at $4.00 per pound, the value of 1 /MHG contract would be $10,000 (2,500 x $4.00). The minimum price fluctuation, or tick size, is also $0.0005 per pound, which equates to $1.25 per contract (2,500 x $0.0005). Like the standard contract, Micro Copper futures trade nearly 24 hours a day, Sunday through Friday.

Metals futures, including gold, silver, and copper, are vital tools for managing risk and speculating in global markets. These standardized contracts allow participants to lock in prices for the future, providing stability for businesses and offering investors opportunities to profit from price fluctuations. Metals like gold and silver are also considered safe-haven assets, making metals futures popular for hedging against inflation, currency risks, and market volatility. By ensuring liquidity and transparency, metals futures attract a diverse range of participants, from industrial producers to financial institutions and individual traders.