If you are bullish on platinum, you can profit from a rise in platinum price by taking up a long position in the platinum futures market. You can do so by buying (going long) one or more platinum futures contracts at a futures exchange.
You decide to go long one near-month NYMEX Platinum Futures contract at the price of USD 964.00 per troy ounce. Since each NYMEX Platinum Futures contract represents 50 troy ounces of platinum, the value of the futures contract is USD 48,200. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 8,100 to open the long futures position.
Assuming that a week later, the price of platinum rises and correspondingly, the price of platinum futures jumps to USD 1,060 per troy ounce. Each contract is now worth USD 53,020. So by selling your futures contract now, you can exit your long position in platinum futures with a profit of USD 4,820.
|Long Platinum Futures Strategy: Buy LOW, Sell HIGH|
|BUY 50 troy ounces of platinum at USD 964.00/oz||USD 48,200|
|SELL 50 troy ounces of platinum at USD 1,060/oz||USD 53,020|
|Investment (Initial Margin)||USD 8,100|
|Return on Investment||60%|
In the examples shown above, although platinum prices have moved by only 10%, the ROI generated is 60%. This leverage is made possible by the relatively low margin (approximately 17%) required to control a large amount of platinum represented by each contract.
Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.
To buy or sell futures, you need a broker that can handle futures trades.
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