Market Loss Fees Explained

As a precious metals dealer, one of the biggest differences between us and a retailer like Amazon is that we sell a product that is constantly fluctuating in price. This adds a layer of complexity to our operations, and our company policies. The most misunderstood policy that we must enforce is our market loss policy. We’ll explain why it’s necessary here.

All major bullion dealers, including ourselves, fully hedge their precious metals inventories. We make our margins on premium spreads - not on spot price speculation. We produced an infographic years ago attempting to explain exactly how this works.

In this industry, it would simply be irresponsible to not be fully hedged at all times. If we wanted to speculate on precious metals prices, we could do that separately without needing to run a complex retail operation with thousands of SKUs and a total workforce of nearly 100. 

Once a customer places an order, that price is locked in and therefore no longer subject to spot price changes. We are trusting that the customer will pay for their order, and as a result we un-hedge the metals ordered at that time. This takes place the moment the order is placed, not the moment the order is paid for. The metals are now fully exposed to the gains and losses should the customer decide to back out of the agreement and not pay for the order.

To protect ourselves from the risk of orders being placed and then never being paid for due to market changes, we require a credit card from every customer, regardless of payment method selected, so that we have a way to recoup these losses should the customer not pay for the order.

If the price of precious metals stays the same or goes up and the customer doesn’t pay, we cancel the order without charging a fee since there are no losses to us. If the price goes down, however, we must charge the market loss fee. The market loss fee is the precise amount of money our company will have lost as a result of this unpaid order. We only charge the difference in spot price from the time of order to the time of cancellation. Unlike other dealers, we do not add additional fees or forbid cancelling outright. We simply charge the fees to cover our actual losses, which do not take into account transaction fees and labor costs, but simply the true amount of losses the unhedging has cost us.

Market Loss Fees Common Questions

It’s not fair, you don’t pay me when the price goes up, why should I pay you when it goes down?

• Customers looking to speculate on price ought to consider ETFs and not physical retailers of bullion. As you can imagine, we get very few cancellations & unpaid orders for orders where the metal value has since increased. Our cancellation requests are heavily skewed towards orders where the metals have gone down in price.

These losses are not real, you’re just trying to penalize me for cancelling.

• These losses are entirely real for the reasons listed above. We do not profit from cancelled orders with market loss fees paid, we only break even.

No one was available to cancel my order at the time that I wanted. Now the market has moved against me further. Why am I responsible for those losses?

• A precious metals purchase is a serious commitment unlike a normal retail purchase. Cancellations are not guaranteed at any time until we have confirmed that it’s cancelled and notified you of the applicable fees.

Why can’t I cancel by email?

• You can only cancel by email when there are no market fees due. We do not want to cancel an order with fees due without providing you the dollar amount first, so that you can decide whether you want to keep the order after all.

You cancelled my order even though I sent payment. Why is this?

• In some cases the mail loses a check and payment never arrives. Before we cancel we will send you emails notifying you of the problem, and we will try to work with you on arranging an alternate payment. If we’re unable to get a response from you and the payment doesn’t come through in the allotted time, the order must be cancelled and applicable fees charged.

What if your billing department cancels my order?

• If our billing department cancels the order due to being unable to properly authenticate payment, no fees will be due regardless of market movements.

What if I don’t agree to pay these fees?

• By ordering with JM Bullion you are agreeing to our terms and conditions, which outline this policy.