One day I was having dinner with my friend, a leading commodity broker in my area. Despite earning almost 1000 lakhs in brokerage every year, he has never ventured into trading himself. He is a good trade advisor though. He told me," on an average 80% of the intra day/short term trades where you don't have money to carry forward your trade or to fund additional margin calls, you loose money." It is only those 20% of the times, you trade favorably. That too since you don't have money to loose, you restrict your earnings to a bare minimum; in some cases, a little over the brokerage you have to compulsorily pay.Every day, new players join the band wagon to loose their hard earned money to big players. People start with 1 Kg contract on gold and end up with gold petal contract before vanishing into oblivion.
Gold has traditionally been linked to currency of a country and been used as a hedge against inflation. India's trade deficit is almost matching the GDP growth,hence it has to be necessarily financed with devalued rupee. So it will be reasonable to assume at least an appreciation to a sum of GDP growth and inflation on an yearly basis. In Indian context, additional appreciation may also be expected for world inflation and drop in growth of US economy I mean to say, if you have a holding capacity and nerve to the tune of funding the additional margin( in worst case never more than 8%) that may be called , should there be drop in a future contract you have entered at some wrong time and you carry the trade for a longer period, chances of your loosing the money are remote as far as trade in gold is concerned.
I have been advising my friends accordingly:-
- If you have investable( you are ready to loose also) surplus of 4 lakhs, then you can start with a Gold Kilo contract. Rs 1.25 lakhs as initial margin(4%) and remaining Rs 2.75 as additional margin and brokerage charges. One needs never come out of trade unless and until there are compelling geopolitical or other financial reasons. When an expiry of a present contract is two weeks away, rollover to next future contract may be thought upon. For a year of holding one Kilo contract, on an average, you can expect to double up your money to 8 Lakhs. It may be prudent for a little more watchful investor to book profit if prices jump 4% in a week or 6% in a month(four weeks) and then wait for prices to come down 4% on weekly chart or 2% on monthly chart to reenter the trade.
Always maintain a trailing stop loss of 4% on weekly closing and 2% on monthly closing basis except for major events like Federal Bank announcements,annual budget,major money market fluctuations due to geopolitical or economical announcements. In all these situations, I always recommend staying away from the markets and wait for the storm to weather away; positive or negative( when you are not ready for colossal loss, you are not a candidate for windfall gains also)
