Page 16 - MEX-Yearbook-2017

Experts View

Gold & Practical

Trade Management

Lakshman Pandit
(The author is associated with Mercantile Exchange Nepal Limited in the capacity
of Senior Manager in Business Development Department. He can be contacted
through bd@mexnepal.com)

Gold exceed few step more than just as a precious However, gold demand increased by 2% in the which is given below in few steps. The practical
metal, it is the best choice of all the portfolio year 2016 which states that supply recorded more trade management of gold trading may consist of
managers, hedging tools, Inflation resistant, than demand. Commodity market has pushed gold following eight steps which are explained below:
insurance, mostly traded commodity as well as to new heights in term of investment and liquidity. Locate Own Risk: Consider that commodity
the most liquid commodity for all the time. Gold Trading of this ‘Gold or safe haven’ is not safe trading is mathematics not the magic for good
demand is not getting away since the beginning; until, risk aversion is minimized or adjusted result thus use of Value at Risk (VaR) or Liquidity-
gold is traded from time to time like physical through proper calculation of the size of the risk, at-Risk (LaR) helps the traders logically for risk
gold, currency, paper gold and now bitcoin also, minimization factors as well as the cause of risk. computation. The VaR gives the risk manager or
however, this is highly traded through commodity Trade management skill is key to successful trader a reason of what he or she can expect to
exchange as derivatives contracts throughout the traders. However, there is always involvement potentially lose in a given time interval, assuming
world. While these are traded through derivatives, of risks in every trading lot. There are numerous “normal” market conditions keeping other major
this concerns to the matter of investment and trading methodology, tricks, setup available on economic news constant. It helps the trader to
return. There are approximately 186,700 metric the social media or print media but still, this is know how much loss is involved in an average
tons of gold in the world as per World Gold the approach or set up which are defined for the market situation in one defined trading time frame.
Council but the volume of total derivatives latest trading system to add up skills. Gold trading VaR is analogous to Liquidity-at-Risk (LaR) which
exceeds the total amount. This is trying to involves high fluctuation which creates high risk can be used for defining risk capacity. Trader
accomplish the comprehensive world’s demand and high return depending upon the position and defines their maximum loss capability with help of
through over the counter (OTC), Futures, Option. its size. Let’s have a defined setup for gold trading VaR and LaR and accordingly, it needs to be ready

15 | MEX NEPAL YEAR BOOK 2017