Understand economics from scratch

Chapter 33 Why You Don’t Manage Your Money—Practical Finance You Must Know (5)
The main form of physical gold in the gold spot market is gold bars and gold nuggets.There are low-purity placer gold and high-purity gold bars, and the gold bars generally weigh 400 ounces.Market participants mainly include gold producers, refiners, central banks, investors and other demanders. Among them, gold dealers buy and sell in the market, brokers make bridges to earn commissions and price differences, and banks finance them.The gold spot price spread is generally 0.5 to 1 US dollars per ounce.Ounce (0unce) is a unit of measurement, and 1 ounce is equivalent to 28.35 grams.

Gold spot investment has two drawbacks: storage and security fees have to be paid, and there is no interest income from holding gold.Therefore, the temporary transfer of ownership by buying and selling futures can avoid costs and obtain benefits.Each futures contract is 100 ounces.Central banks were generally reluctant to transfer ownership for gains, so a market for gold loans and placements arose.

2. Paper Gold

In layman's terms, paper gold is the paper transaction of gold.The investor's transaction records are only reflected in the "gold passbook account" opened by the individual in advance, and the price of gold is adjusted in real time according to the international gold price, so users do not have to worry about the bank arbitrarily manipulating the gold price.

The advantages of paper gold are obvious:

(1) High security.Since paper gold is a transaction that does not depend on physical objects, you don't have to worry about the storage and custody of gold. It is recorded in the bank's database in the form of data.Its security is much higher than bank deposits.

(2) Low cost.In paper gold trading, investors do not need to realize the transaction through physical trading and delivery, but invest in gold by bookkeeping. Since no delivery of physical gold is involved, the transaction cost can be lower.

(3) Realization speed.In terms of the degree of realization, the realization of paper gold is instant, unlike funds that take several working days to get the money.Moreover, paper gold is also more flexible than stocks. As long as you want, you can sell your paper gold 1 minute after buying, which is impossible in the stock market.

(4) Standardized transaction methods.The price of paper gold follows the international gold price, not set by the bank itself, so investors don't have to worry about the bank manipulating the price to make profits.

(5) Low handling fee.Like our investment in stocks and funds, the transaction of paper gold also requires a certain handling fee. Unlike the traditional handling fee charged according to a few percent of the transaction amount, the handling fee of paper gold is charged according to the amount of gold. The handling fee of gold is much lower than that of stocks and funds, and this ratio will decrease as the price of gold rises.

But paper gold is not without flaws. Although it can be equivalent to holding gold, the "gold" in the account generally cannot be exchanged for physical objects. If you want to withdraw physical objects, you can only exchange them after making up sufficient funds.

It should be noted here that the common disadvantage of paper gold and physical gold is that they cannot be shorted.In other words, when the price of gold falls, investors cannot invest in gold and can only wait for the next rise.If investors hold gold in their hands and fail to sell it in time, they can only bear the loss of falling gold prices.

3. Gold futures
Generally speaking, buyers and sellers of gold futures sell and buy back the same number of contracts as the previous contract before the expiration date of the contract, that is, liquidate the position, without actually delivering the actual gold.The profit or loss of each transaction is equal to the difference between the purchase and sale of two contracts in opposite directions.This way of buying and selling is what people usually call "gold speculation".Gold futures contract transactions only need a deposit of about 10% of the transaction amount as investment costs, which has a large leverage, and a small amount of funds can promote large transactions.Therefore, gold futures trading is also called "deposit trading".

The disadvantages of gold futures investment are: the investment risk is relatively high, because it requires strong professional knowledge and accurate judgment on market trends; the market has a strong speculative atmosphere, and investors are often reluctant to get out due to speculative psychology. A more complicated and tiring job.

At present, the most popular spot gold and futures gold for gold investment.

Spot gold trading is basically a spot transaction, which is delivered immediately after the transaction or within a few days.The main purpose of gold futures trading is hedging, which is a supplement to spot trading. It is not traded immediately after the transaction is completed. Instead, both parties to the transaction sign a contract, pay a deposit, and then deliver on the scheduled date.Its main advantage is that a large amount of futures can be controlled with a small amount of capital, and the price of the contract can be transferred in advance, which has a leverage effect.The starting amount for futures gold account opening should not be less than 5 yuan.

Savings: depositing money in a bank

The sages have already told us that saving is a virtue, and squandering is shameful.This ancient wisdom reflects our shared moral judgment and wise choices about what to do next.But there are always many spendthrifts in this world, and there are always many theorists, looking for excuses to rationalize their profligacy.

Classical economists had the courage to refute the fallacies of their day, arguing that a savings policy that was in the best interest of the individual was also in the best interest of the nation.They point out that rational savers who understand long-term planning are not harmful to society as a whole, but beneficial.In today's society, the age-old virtues of frugality, along with the cautionary words of classical economists, are under attack, and new arguments against frugality are being brought up by many, and the argument for spending is all the rage.

In order to make this basic question as clear as possible, let us borrow a classic example from the economist Bastiat:
Suppose two brothers each inherit a fortune of $50000 a year, but one is a big spender and the other a prudent thrift.We're ignoring income taxes here, and whether the brothers should work to earn money and give most of their money to charity, because those issues are irrelevant to what we're going to talk about.

Elder brother Alvin is a spendthrift, he not only has a spendthrift temperament, but also has a spendthrift belief.He was a great disciple of Karl Lobertus.In the mid-nineteenth century, Rodbertus declared that capitalists "must spend all the money they earn on pleasure and luxury" because if they "decided to save ... the goods would be overstocked and some of the workers would lose their jobs".Alvin often goes to nightclubs; tips are very generous; he loves to talk about ostentation and has many servants; he has two private drivers, and the car has been bought one after another; he keeps a group of racehorses; Sightseeing; he bought diamond necklaces and fur coats for his wife; expensive but useless gifts for friends.

For all this, he had to use his old capital.But he has no hesitation.If thrift is a sin, not thrift is of course a virtue; besides, by doing so, it atones for the crime committed by thrifty brother Benjamin.

Needless to say, Alvin was a favorite among waiters and waitresses, restaurateurs, furriers, jewelers, luxury stores of all kinds.He is regarded as the god of wealth for everyone.It was clear to all that he was throwing money around so people had so much work to do.

The popularity of the younger brother Benjamin pales in comparison to that of his elder brother.He rarely patronizes jewelry stores, leather goods stores and nightclubs, nor does he call the head waiter by his first name.Unlike Alvin, who eats his money every year, Benjamin is much more cautious.His annual expenses are around $1.To those short-sighted, he was offering less than half of Alvin's job offer, and the other $25000 was as useless as if it didn't exist.

wait!Let's see what exactly Benjamin did with the other $25000.He didn't keep that money in his purse, desk drawer, or safe.He puts the money in the bank, or invests it.If he deposits it in a commercial bank or savings bank, the bank will lend it to the company as working capital, or to purchase securities.In other words, Benjamin's money is invested directly or indirectly.This money is used to invest in the purchase or construction of means of production—houses, offices, factories, ships, trucks, machines.Benjamin put as much into these uses as he spent directly, keeping money in circulation and creating jobs.

In short, "saving" in the modern world is just another form of spending.The difference between the two is usually that the former hands over the money to others for expanding production.In terms of providing employment opportunities, Benjamin's "saving" and "spending" have the same effect as Alvin's simple spending, and they put as much money into circulation.The main difference is that everyone can see the job opportunities provided by Alvin's money; however, to realize the same effect of Benjamin's saved money requires further observation and thinking.

Twelve years later, Alvin was broke.He no longer hangs out at nightclubs and fashion boutiques; those who once hailed him as the God of Wealth now talk about him and laugh at him as a fool.He wrote to Benjamin to borrow money.Benjamin's spending-to-savings ratio remains the same as before, and because his investment returns are growing, not only are more jobs created through his investments, but those jobs are better paid and more productive.His capital wealth and income are higher than before.In short, he increased the productive capacity of the country, Alvin did not.

In recent years, there have been endless fallacies about saving, and they cannot all be refuted by the examples of the two brothers above. It is necessary to further explore those fallacies.Many fallacies confuse even the most basic concepts to an unbelievable degree, and there are many well-known economists who make such mistakes.For example, the term "savings" is sometimes used to refer simply to hoarding money, sometimes to investment, or even to indiscriminate use.

Futures: Trade Today Tomorrow

Some people say: If you love someone, let him be futures, because it is heaven; if you hate someone, let him be futures, because it is hell.Futures is a "double-edged sword", which can make you rich overnight or bankrupt you instantly.

According to the records of "Historical Records Huozhi Biography", Fan Li was not only a world-renowned counselor, but also a business genius.After Goujian destroyed Wu, Fan Li knew that all those who had served the monarch and made great efforts in the history would inevitably be killed after success, so he secretly packed up the jewels one night and fled with his family all night.He went boating on the five lakes, went round and round to the state of Qi, planted crops by the sea, and within a few years, became rich in the world.This attracted the attention of the king of Qi and asked him to be the prime minister.But Fan Li knew very well that he had grown from a commoner to a position below one person and above ten thousand people, and he was still a wealthy family economically. It was not a good thing for him to eat well and wear good clothes, and to be praised and flattered by others.So he resigned to the king of Qi again, distributed most of his property to the local villagers, and moved to Tao (now north of Dingtao, Shandong).This time he stopped growing crops, he started futures, and within a few years, he became a billionaire.

Fan Li has summed up a truth from his short years of futures trading: "Expensive products are like dung, cheap ones are like pearls and jade." That is to say, when the price of a commodity reaches a certain level, it is willing to throw it out like dung. ; but if it is low to a certain level, it is necessary to hoard it as quickly as a baby.This is the ancient version of the stock trading principle of "the more the fall, the more you buy, the higher the rise, the more you sell".Fan Li said: "If the price is too high, it will be cheap, and if it is cheap, it will be expensive." When the price of a commodity reaches a certain level, it will inevitably fall, and if it falls to a certain level, it will inevitably rise.This is how the market regulates prices: if something is too expensive and no one buys it, the merchant will inevitably sell it at a lower price; if the price drops to a certain level, the merchant will no longer be profitable and will no longer produce, and it will inevitably rise again.

So, what is futures that can make Fan Li a billionaire in just a few years?
The English name of futures is "futures", which is evolved from the word "future". Its meaning is: the two parties of the transaction do not need to deliver the actual goods at the initial stage of the transaction, but agree to deliver the actual goods at a certain time in the future. goods, so the Chinese call it futures.Why has to be this way?Because the seller judges that the price of the commodity in his hand will reach the highest at a certain time, so he chooses to sell at that time to obtain the maximum profit.

Futures is also a derivative product developed on the basis of forward trading. Unlike option contracts, which are arbitrary, futures are standardized contracts, which are unified and forward "goods" contracts.The commodity variety, quantity, quality, grade, delivery time, delivery location and other terms of the futures contract are all established and standardized, and the only variable is the price.The standards of futures contracts are usually designed by futures exchanges and approved by national regulatory agencies for listing.Futures contracts can fulfill or discharge contractual obligations by delivering spot goods or conducting hedging transactions.

There are two purposes for people to buy futures: hedging and futures speculation.Hedging means that traders set up a position opposite to the spot market in the futures market while buying and selling a certain original product in the spot market, thereby transferring the risk of price fluctuations in the spot market to a third party through transactions in the futures market trading behavior.Futures speculation is the act of speculators buying and selling futures contracts by predicting future price changes, and hedging and closing positions to obtain profits when there is a price change that is beneficial to them.

Futures trading is developed from the original spot forward trading.The original spot forward transaction is a transaction in which the two parties verbally promise to deliver a certain amount of commodities at a certain time.Later, with the expansion of the scope of trading, verbal commitments were gradually replaced by sales contracts, that is, futures contracts, which refer to standardized contracts formulated by futures exchanges that stipulate a certain amount of subject matter to be delivered at a specific time and place in the future.This kind of contract behavior is becoming more and more complicated, and an intermediary guarantee is needed to supervise the delivery and payment of buyers and sellers on schedule, so the world's first commodity forward contract exchange, the Royal Exchange, opened in London in 1571.In order to adapt to the continuous development of the commodity economy, in 1865 the Chicago Grain Exchange introduced a standardized agreement called a futures contract to replace the original forward contract.Using this standardized contract allows the contract to be resold, and gradually establishes a deposit payment system.As a result, a futures market specialized in buying and selling standardized contracts was formed, and futures became an investment and financial management tool for investors.

The way to make money in futures is simply to earn the difference between buying and selling.

Xiao Zhang estimated that the price of wheat would drop when the price of wheat was 2000 yuan per ton, so he signed a contract with the buyer in the futures market, agreeing that within half a year, Xiao Zhang could sell 10 tons of standard wheat to the buyer at any time at It is 2000 yuan per ton. Five months later, as expected by Xiao Zhang, the price of wheat fell to 5 yuan per ton. Xiao Zhang estimated that the price had almost fallen, so he immediately bought 1600 tons of wheat at the price of 1600 yuan, and changed hands according to the contract at 10 yuan per ton. Selling it to the buyer at a higher price, he made a profit of 2000 yuan, and the original deposit was returned, and Xiao Zhang closed his position with a profit.

Xiao Zhang actually uses selling to open a position, that is to say, Xiao Zhang does not have wheat in his hands, but because the futures can implement a short-selling mechanism, Xiao Zhang can sign a sale contract with the buyer first.And why did the buyer sign a contract with Xiao Zhang?Because he is bullish on wheat.Facts have proved that Xiao Zhang’s judgment is accurate, otherwise, if the wheat price does not fall within half a year, but instead rises to 2400 yuan, then before the contract expires, Xiao Zhang must be chased to buy 10 tons of wheat at a high price, and then sell it at the contract price Give it to the buyer, so Xiao Zhang will lose money, and the buyer will make 4000 yuan.

Futures are traded on a physical basis, but you're not really selling wheat or anything.According to China's current system, the futures purchased by individual investors cannot be delivered in kind, and can only be used for speculation, that is, a means of financial management.But the price of futures commodities does fluctuate around the market price of the real thing, so from this perspective, futures can be said to be real compared to stocks.The trading method of futures is similar to that of stocks. The futures market, like the stock market, will always be thrilling.High profits are always accompanied by high risks. If you want to do futures business, you must have a super strong heart!

Bonds: A Cheaper Investment Way Than Savings

As a certificate of debt, like other securities, bonds are also a kind of fictitious capital, not real capital. It is a certificate of real capital actually used in economic operations.

Bonds are issued to investors when governments, financial institutions, industrial and commercial enterprises and other institutions directly borrow money from the society to raise funds, and promise to pay interest at a certain rate and repay the principal according to the agreed conditions.The essence of a bond is a certificate of debt and has legal effect.There is a bond-debt relationship between the bond buyer and the issuer. The bond issuer is the debtor, and the investor (or bondholder) is the creditor.Because the interest of bonds is usually determined in advance, bonds are also called fixed-interest securities.

(End of this chapter)