CME Introduce E-Micro Gold Futures


If you've been following the story about the new CFTC regulations regarding retail forex in the United States you may well have come to the conclusion that for some reason the CFTC thinks "on-exchange" trading is better than "off-exchange" (OTC) trading. Last year the Chicago Mercantile Exchange (CME for short) introduced smaller currency futures contracts designed to provide an exchange traded product that might appeal to the retail forex trader.

Recently the CME have taken a couple of extra steps to try and attract retail traders onto their exchange. First of all they have just announced that once the CFTC approves the small print they will be introducing a new e-micro gold futures contract.  Like the e-micro currency futures, the new gold contract will be one tenth the size of the standard CME gold contract. That means it is based on the price of 10 troy ounces of real solid precious gold. Unlike spot forex (and as their name implies) futures contracts expire at some specified date in the future. If you went long one standard CME gold futures contract and held it until expiry you would receive a piece of paper proving you were now the proud owner of one serial numbered 100 oz bar of gold. This process is referred to as "physical delivery", although in this case your bar of gold doesn't arrive on your doorstep accompanied by an armed guard!  Once you've bought it you then have to pay a depository to look after it for you in their vaults. Physical delivery of 10 oz of gold is even more complicated. If you were to hold an e-micro gold contract to expiry you would receive a different piece of paper, known as an Accumulated Certificate of Exchange (ACE for short). Once you have ten of those you can then swap them for a different piece of paper. As CME put it:

Ten ACEs can be converted into an official COMEX licensed gold warrant, representing an actual serial-numbered bar of gold.

Alternatively you could do what most people do, and make sure you close your long position before expiry, hopefully at a profit. By now you may be wondering what happens if you inadvertently forget to close a short e-micro gold futures position before it expires. In that case you have to find a way of delivering one tenth of a bar of gold to whoever bought it from you!

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