For investment professionals such as Steven Zoernack, understanding and making sound decisions in futures trading is part of the job. However, for the average investor, understanding what a future refers to in finance and knowing how to select, buy, and sell it properly can be much more complicated. As Steve Zoernack knows, futures investments can be risky but can also provide a solid return if transacted with confidence.

In futures trading, the investor must be able to understand contracts and the concept of agreeing to delivery of future goods or services. The investment is made when the buyer agrees to purchase a commodity at a set price determined by today’s market. When the contract matures and the buyer takes ownership, if the market price is now higher, he has made money. If the price dropped between purchase and receipt, the buyer loses money.

Actually taking physical possession of the product is uncommon. Some of the most frequently traded futures commodities across a number of categories include gold, oil, and coffee.
Quantitative easing refers to efforts by a government’s central bank to alleviate economic distress by injecting liquidity into financial markets. In plain English, that often means printing more money and/or engaging in deficit spending.

Increasing the amount of money available causes the value of that money to decline relative to other indicators, including foreign currencies. As the value of money declines, many investors seek “safe haven” investments whose value is intrinsic and not directly tied to the value of money. 

Gold often tops the list of investments considered safe. For centuries, gold has been a standard bearer of wealth and has been valued by cultures around the world. Since the U.S. Federal Reserve began implementing quantitative easing measures in 2009, gold prices have skyrocketed, prompting many to sell old jewelry and park their money in gold. While the economy has sputtered toward recovery, gold has increased in value exponentially, heartily rewarding investors who purchased it when it was cheaper.

About Steven Zoernack

Steve Zoernack serves as Managing Director of EquityStar Capital Management, an asset management firm in Washington, D.C. In addition to other investments, he has enjoyed success through investments in gold.
As an experienced and successful portfolio manager, Steven Zoernack maintains a clear understanding of the factors affecting the trading price of securities and commodities. Mr. Zoernack is known for his expertise in the trading of precious metals and offers the following information about the factors that drive the prices of these commodities.

1. Mining production: The Earth contains a finite supply of precious metals such as gold, silver, and platinum. Prices of these limited precious metals depend largely on the efficiency with which the mining companies extract them from the ground. Production and labor costs as well as labor disputes also factor into the price.

2. Industrial and jewelry demand: Precious metals products in high demand will command a higher price.

3. Saving and disposal: Many people purchase products made from precious metals. Those metals may remain in their possession for many years; however, if a great deal of people return the metals from these products back into the market—usually by disposing the products and melting them down—it may affect supply and therefore price.

4. Central banks and gold reserves: Many central banks hold gold in reserves, and they may sell the gold as needed. This practice affects market prices.

5. Inflation and national debts: When economies based on the gold standard experience devalued currency resultant of debt, demand rises, leading to gold’s increased value.

6. Hedging: Precious metals rise in value when other investments such as real estate or securities do not provide adequate risk mitigation for investors

Steven Zoernack currently serves as Executive Director for GlobalHedge, Inc.’s African Peace Fund, Ltd. Zoernack entered the financial world more than 25 years ago when he started trading precious metals. Since then, he has served numerous well-known organizations, including Bear Stearns Companies, Inc., where he created the company’s first derivatives in heating oil, crude oil, and gasoline.

Simply put, derivatives provide investors with the opportunity to buy or sell the option on a security. Since the investor does not buy the actual asset, he or she speculates in agreement with another party on how the price of the asset will fluctuate. Derivatives traditionally come from energy products that trade on the stock exchange. These products, which include natural gas, electricity, and oil, yield derivatives as swaps, options, future contracts, or forward contracts. The value of derivatives varies according to a product’s changes in price. Exchange-traded funds, often set up for energy products, are structured like commodity pools, from which shares are issued. Derivatives serve specific purposes in portfolios, such as providing a hedge position, speculating on a product’s movement, and increasing leverage. Since investors are betting on the performance of an asset, large gains can be realized for low prices if the market changes the way an investor predicts.

The array of financial strategies available today has resulted in many complicated choices when putting together a portfolio. Derivatives serve as a way for investors to diversify a portfolio, as long as the investor fully comprehends the risks involved and the impact this type of investment can have.