Trading Method

Open Outcry

CGSE implements trading through an open outcry method which is stillin use in most of the major futures markets. Member firms or their floor traders call out bid and ask prices in cantonese in the trading hall and their calls are supplemented with hand signals. When a deal is done, the seller must complete a trading nore within 15 minutes and hand it to the buyer for confirmation. Thereafter, the trading note will be submitted to the Settlement Department of CGSE for the purpose of ytansection registration. To achieve effective risk management, CGSE will update the records of trading members' deposit and outstanding positions.

Electronic Trading

CGSE launched the "Electronic Trading Platform" on 28 March 2008.

Trading hour of the electronic trading platform start from 7:00 a.m to 5:00 a.m. (the next day)[HK Time] and the electronic trading lasts 22 hours. 100 oz / 10 oz Loco London Gold Contract, 5000 oz / 500 oz Loco London Silver, Renminbi Kilobar Gold Contract. 100Tael 999.9 Tael Gold Contract and 15 kilo Loco Silver 1 Contract are available for trading via the e-trading platform at this stage.

CGSE provide a unique "Contract Transaction Code" to every contract traded on its e-trading platform. Investor can check their transaction details from CGSE's website with the use of the "Contract Transection Code", thereby protecting the investors' interests with enhanced transparency in gold investment.


At the end of a trading session. the Exchange will carry out intermediary settlement of all transactions, and forward the settlement result to a designated settlement bank. Prices used for the purpose of settlement are determined at the following times:

Monday to Friday
10:30 (Morning session)
16:30 (Afternoon session)

Settlement prices are based on the market price at time of determination. For 99 Tael Gold, it is rounded up to the nearest five dollars. For kilobar, it is rounded up to the nearest 5 sents. Members will need to reconcile their contract prices with settlement prices, book the differences in their respective accounts, and settle any gain/loss with CGSE.

To facilitate settlement, all trading members must open an account at the same designated bank. All transactions done in the morning session are fully settled by the afternoon, and those completed in the afternoon session are settled in the evening.

Physical Delivery

Physical delivery of gold is to be arranged by members themselves and CGSE will play no part in the process. 99 Tael Gold and Kilobar traded on CGSE are subject to an accredited delivery system. Only gold bars manufactured by CGSE-accredited refineries (as stated in the name list of accredited refineries) are deliverable in the market. In addition to CGSE’s Members, Non-Members are allowed to deliver their gold bars as long as they submit evidences to prove their technologies and quality control capabilities, and comply with the requirements of Trade Descriptions Ordinance. These refineries may make application to CGSE for accreditation. Upon vetting and approval by CGSE, they shall become accredited refineries and their gold bars can be used for market delivery.

Carrying charge

CGSE is a market that combines spot and futures trading. Investors can trade spot and defer settlement by paying a carrying charge which simulates gold futures. Carrying charge is determined openly in the market at the following times:

Monday to Friday
10:30 for 999.9 Tael Gold
11:00 for 99 Tael Gold
11:15 for Kilo Gold / HKD

At such times, Members wishing to settle spot gold can register their deals on board; the carrying charge of the day is determined by reference to the supply of and demand for physical gold and Hong Kong Dollar Interest Rates of the day If the demand for spot gold outstrips the supply of it, buyers are entitled to receive carrying charge as compensation from sellers who ask to defer the delivery of gold. In other words, sellers (short position holders) pay carrying charge to buyers (long position holders). In industry jargon, this is called “high interest” or “plus carryingcharge”.

By the same token, if supply of spot gold outstrips the demand for it, it means a greater demand for cashing-out. Those buyers who ask to defer delivery of gold will pay carrying charge to sellers. It is a scenario of “low interest” or “low carrying charge”. If the amount of gold confirmed for delivery is equal to the amount of gold confirmed for receipt, and both sellers and buyers comes to an agreement, the carrying charge will be determined. In a scenario that neither the buyers nor the sellers pay carrying charge, it is called “flat interest”.

To prevent manipulation of carrying charge, CGSE has set up a five-tier mechanism to regulate the movement of carrying charge by setting the upper limit and the lower limit. When the disequilibrium persists in the delivery and receipt of spot gold, the regulatory mechanism will be triggered. Once the carrying charge touches the upper limit of the tier, it must remain there for three days (Included Saturday,
Sunday and Holiday) before moving up the next tier.

The maximum carrying charge at each tier (calculated per HK$1,000 of the settlement prices) Limits for premium at each level (calculated per $1000 of the settlement price)

Tier Daily Interest Rates Approximate Annualized Interest Rates
1 0.03% 11%
2 0.04% 15%
3 0.05% 18%
4 0.06% 22%
5 0.07% 26%

Risk Management

CGSE manages risks through two measures. The first is the implementation of margin system. At present, each Member has a margin-free credit limit of 1,500 taels or 35 kilograms. No margin is payable if the Members trade within this limit. When trading beyond this limit, Members will have to pay a margin: HK$100,000 for every 100 taels of gold and HK$140,000 for every 5 kilograms of gold.

To guard against risk, the Executive & Supervisory Committee may, in the light of price volatility, adjust the chargeable weights of gold and the margins at any time. During the bullish run in the early 1980's, margin for every 100 taels of gold surged to HK$160,000. Thanks to this mechanism, CGSE has sailed through many challenging times of the gold market over the years.

Another risk management measure is "Discount Circuit Breaker". Under our constitution, when the spread between current price of gold and settlement price at previous trading session amounts to HK$1,000 per tael for 99 Tael Gold (or HK$28 per gram for Kilobar), price discounting becomes necessary. Under prevailing margin, CGSE will invoke price discounting if the current price rises to HK$11,000 or drops to
HK$9,000 prior to the determination of settlement price, and the listed settlement price is HK$10,000. This is similar to the limit up or limit down mechanism in other markets. Subsequent to the announcement by the Executive and Supervisory Committee of the exercise of “Discount Circuit Breaker”, CGSE will declare the suspension of trading. A discounted price will be determined as an settlement price, and Members must forthwith register their deals on board to settle spot gold and fix a carrying charge. The price of all transactions will be discounted at settlement price; spot gold will be delivered and settled based upon settlement price. Once this measure is taken, trading in CGSE cannot resume until the passage of two trading sessions.