Studies show the vast majority of individuals who trade in and out of precious metals futures contracts lose money. Regulatory data from trading platforms reveal 3 of every 4 retail accounts suffer losses in futures, and academic studies have put the failure rate even higher, above 90 percent. As in gambling, it’s the house that almost always wins.
So, it should come as no surprise that the Chicago Mercantile Group, which owns the COMEX futures market in New York, where gold futures and options contracts are traded, is introducing 24/7 trading in gold futures. The move comes after cryptocurrency exchange Binance—which pled guilty to violating anti-money laundering laws, operating an unlicensed money-transmitting business, and breaching international financial sanctions—began offering gold and silver “perpetual futures contracts” (called “perps”) that are settled in cryptocurrency.
The new trading vehicles contribute to a casino-like environment designed to appeal to individuals who think they can strike it rich by actively buying and selling derivatives based on precious metals. Some have been encouraged by posts on online message boards and social media platforms that promote active trading, which can increase market volatility.
The U.S. Commodity Futures Trading Commission warns against actively trading gold and silver contracts: “Those who came late, held on too long, or didn’t fully understand what they were doing, may have lost big. For every post about ‘taking it to the moon,’ there are many more posts about individuals losing some or all of their money.”
“Speculative short-term trading is always risky, but mixing it with unfamiliar products and markets, leverage, and advice from anonymous individuals is a recipe for disaster,” the federal regulator adds.
When it comes to precious metals, the smart way to protect your wealth and see it grow is to buy physical gold and silver for the long term. This requires the intelligence to hold your valuable assets through bouts of market volatility and focus on their gradual increase in value over time.
