Gold Futures Beginner's Guide | How to Choose Between Futures and CFDs

Why Has Gold Price Volatility Become More Intense?

In the past year, gold prices have experienced sharp fluctuations, driven by several key factors: the trend of the US dollar exchange rate, expectations regarding Federal Reserve interest rate decisions, and uncertainties in the global geopolitical landscape. Due to this characteristic of “rapid ups and downs,” more and more beginners are becoming interested in gold futures and gold CFDs—after all, participating in gold price movements with small capital in the short term is very attractive.

But then the questions arise: How exactly do you buy gold futures? What is the difference between gold futures and gold CFDs? Where should beginners start?

What Are Gold Futures?

Futures are standardized contracts traded on futures exchanges, where both parties agree to buy or sell a specific quantity of the underlying asset at a certain price at a future date. Investors do not need to physically hold gold; they analyze charts and buy or sell contracts to profit from price differences.

Gold futures are based on the international spot gold (XAUUSD). The largest gold futures market globally is the New York Mercantile Exchange (COMEX), with an average daily trading volume equivalent to 27 million ounces of gold, roughly USD 100-200 billion. This enormous trading volume means high liquidity, minimal order rejections, and relatively low slippage risk.

How does the margin mechanism work?

Gold futures operate on a margin trading system. Investors do not need to pay the full contract value; they only need to deposit a portion (usually 10%-20%) as margin. For example, if gold is priced at USD 4,300 per ounce, a standard contract representing 100 ounces has a total value of USD 430,000. With a 10% margin, a trader only needs to pay USD 43,000 to control this contract.

Why Do Gold Futures Attract Investors?

Bidirectional Trading

Gold prices can rise or fall, and futures trading allows both long and short positions. This flexibility enables investors to profit from rising gold prices and hedge against stock market declines through short positions.

Low Cost and Good Liquidity

Compared to physical gold, futures trading does not require storage fees, and the bid-ask spread is relatively small. The futures market operates on a T+0 system (Taiwan stocks are T+2), meaning funds can be used immediately for the next trade, with the ability to enter and exit anytime during trading hours, making trading very convenient.

High Leverage

This is the most attractive feature of futures—one standard contract controls 100 ounces of gold, requiring only 5-10% margin (around a few ten-thousand TWD). If gold prices increase by 5%, your profit could be amplified to 50%. Compared to buying gold bars or ETFs, this is much more stimulating.

Outlook for the Gold Market in 2025

Since 2025, gold prices have risen over 60%, marking the largest annual increase since 1979. Many institutions forecast that in 2026, gold prices will fluctuate between USD 4,500 and USD 5,000 on average, possibly even higher. This optimistic outlook is based on the continuation of the global rate-cutting cycle, central banks increasing their gold holdings, strong buying in gold ETFs, and economic uncertainties.

However, it’s important to note that optimism does not mean risk-free. For beginners new to gold derivatives, I do not recommend starting directly with futures.

How to Buy Gold Futures?

Step 1: Open an account with a futures broker

Gold futures must be traded through a futures broker, usually a subsidiary of a securities company. After completing the account opening process, signing the futures agreement, and depositing funds, you can start trading.

Step 2: Choose contract month and place an order

When placing an order on the trading platform, you need to select the contract month. Main delivery months are typically February, April, June, August, October, and December. Closing the position before expiration can avoid the hassle of physical delivery.

Trading lifecycle

The complete process of gold futures trading can be summarized in four stages:

• Open Position: Establishing a long or short position for the first time
• Hold Position: Maintaining the position
• Close Position: Selling the position early before expiration
• Settlement: If held until expiration, cash settlement is required

Important reminder: General investors cannot take physical delivery of gold. The exchange will force cash settlement at expiration.

Comparison of Major Global Gold Futures Exchanges

Risks and Disadvantages of Gold Futures

Leverage amplifies losses, high risk of liquidation

With only 5-10% margin controlling large contracts, a small 5% drop in gold price could wipe out your entire capital, even triggering margin calls. Especially now, with gold at high levels, daily volatility of 2-3% is common. Many beginners underestimate this risk and get liquidated after a quick correction.

Sharp price fluctuations make short-term prediction difficult

Gold prices fluctuate greatly within a day; chasing high can easily trap you. Historically, gold has experienced corrections of 20-30%, and sudden geopolitical events or data releases can trigger rapid reversals.

Expiry and rollover costs are troublesome, hidden costs are high

Futures contracts have expiration dates. For example, COMEX contracts settle every two months. Most traders are forced to rollover to the next month before expiration, a process called “rollover.” Longer-dated contracts are usually more expensive than nearby ones, and rollover can cost several dollars to dozens of dollars per contract, gradually eating into profits.

Low liquidity in Taiwan’s futures market

The trading volume of gold futures on Taiwan Futures Exchange is very low; in 2021, the daily average was only 158 contracts. This means poor liquidity, wide spreads, and severe slippage, making hidden costs much higher than they appear.

Gold Futures vs. Gold CFD: Which Is Better for Beginners?

What is a gold CFD?

A gold CFD is not a real futures contract but a derivative tracking gold price movements. Traders profit from price differences by buying and selling CFDs, similar to futures but much simpler to operate. CFDs have no expiration date, more flexible leverage, and starting from as low as USD 1.

Key differences comparison

Practical comparison: Entry barriers for futures vs. CFD

Choosing gold futures: requires opening an account with a futures broker, which has higher thresholds, often requiring larger initial capital. A standard COMEX contract (100 oz) margin is about USD 20,000-40,000, a significant amount for beginners.

Choosing gold CFD: most forex brokers offer CFD trading, with simple and quick account opening. Trading volume can start from 0.01 lot (about 1 oz), with just a few tens of USD. Many platforms offer demo accounts for free practice, allowing beginners to familiarize themselves with candlesticks, moving averages, RSI, and other technical indicators.

How to Choose Based on Capital and Experience

Limited funds, little experience

If your capital is within 10,000-30,000 TWD, start practicing with CFDs. Leverage is adjustable, no expiry date, flexible trading hours, and you can trade as little as 0.01 lot. This environment allows you to learn gold trading logic with controlled risk.

Ample funds, experienced in futures

If you have experience with other futures products and sufficient capital, consider directly entering the COMEX gold futures market. It offers the best liquidity, smallest spreads, and huge trading volume. But be prepared: trading hours are mainly during US market hours (night in Taiwan), and you need to manage rollover regularly with strict regulatory requirements.

Long-term hedging needs

If your goal is long-term hedging, futures are not the best choice. Frequent rollover can erode profits over time, making costs less economical. Gold ETFs or gold savings accounts are more cost-effective and easier to operate for long-term holding.

Details of Gold Futures Trading Costs

Commission

Typically charged per contract, e.g., NT$2.01 (including exchange and broker fees). The exact fee depends on your broker and contract type.

Spread

The difference between buy and sell prices. COMEX has high liquidity and small spreads (usually USD 0.1-0.3), but spreads can widen significantly during extreme market volatility.

Rollover costs

Before expiration, you need to rollover to the next month’s contract. Longer-dated contracts are usually more expensive than nearby ones, and rollover can cost several dollars to dozens of dollars per contract, gradually adding up over time.

Other fees

Some platforms charge margin interest; Taiwan imposes taxes on futures trading (tax rate 0.00002%).

Cost comparison conclusion: Short-term day trading costs are relatively low, but holding positions long-term will see rollover costs gradually eat into profits.

Starting Capital for Beginners in Gold Futures

It’s not recommended for absolute beginners to invest directly in gold futures because of the extremely high leverage, volatile prices, and high risk of liquidation.

A standard COMEX contract (100 oz) is worth about USD 430,000, requiring a margin of USD 20,000-40,000 (tens of thousands of TWD). For beginners, this is a huge amount of capital. Losses can be substantial and frightening.

More reasonable approach:

Start practicing with CFD platforms, with initial capital of 10,000-30,000 TWD. Leverage is adjustable, contracts are tiny, and losses are manageable. Once your trading skills and psychological resilience reach a certain level, consider transitioning to futures.

Can Long-term Holding of Gold Futures Hedge Risks?

Answer: Not very suitable.

Futures have expiration dates, so long-term investing requires continuous rollover, and the costs of longer-dated contracts can significantly erode hedging effectiveness. Over the long run, holding gold ETFs, gold savings accounts, or gold CFDs may be more efficient.

If you truly want long-term gold hedging, gold ETFs are a better choice—no expiration date, very low costs, and simple operation. Futures are more suitable for capturing medium-term trends over 3-6 months.

Quick Summary

When choosing gold investment tools, be clear about your capital size, risk tolerance, and trading experience:

• Physical gold: suitable for conservative investors and older investors, requires large capital, ideal for long-term holding
• Gold futures: suitable for experienced large-capital investors, need for arbitrage or risk hedging
• Gold CFDs: suitable for general investors, small capital, flexible operation, low practice cost

Gold is indeed a high-quality hedging asset, but choosing the right tool is the key to making money.