In the commodity market, gold has been one of the most traded precious metals. This is due to its profitability as well as its unique features. Gold is always conserved as a good hedge against inflation and deflation alike, and a good portfolio diversifier. As a gold trader, you can make good profits regardless of the gold price movements.
Research shows that in the trading world, gold has the largest market share with an estimated worth of about $7.3 trillion. It’s further noted that Gold has daily trades amount to approximately $70 billion.
Gold is indeed a good investment. You may think of what is the best way of gold trading and how to trade gold. Without further ado, this post will show you the ways of gold trading.
Here some of the major ways that you can trade gold.
1. Trading physical gold
This involves buying and selling a touchable form of gold. For instance, you can invest in jewelry. This is the most common form of physical gold asset. In physical gold, about 50% of the demand is made up of gold jewelry.
As a gold trader, knowing the exact karat value of the gold that you are buying is important as it has a great impact on its durability as well as the price. As a physical gold trader, you may want to consider the weight of the jewelry because this mostly translates into the number of karats it has and thus affecting its market price.
Trading physical gold is not a one-day business. it requires you to buy and hold the asset for a while as you watch the market movements. Knowing the right time to sell is the key to profitability.
2. Trading gold exchange-traded funds (ETFs)
This is similar to the trading of ordinary stocks. It requires you to trade gold on the stock exchange platforms. However, in ETFs, the fund portfolio does not change because it is pre-fixed. In order to make trading profitable, it requires you to buy gold, hold it in an investment portfolio and just when the time is right, you sell it off for a good profit margin.
3. Trading gold CFDs
CFD( Contract for difference) is a financial tool, which is a popular form of derivative trading. You can trade any financial markets with CFD, such as shares, commodities, crypto, forex. Gold is also not exceptional.
This type of trading involves speculating the price of gold spot. You have options to go long or go short the gold price in the changing market. The profit you earned is the difference between the buying and selling prices.
The biggest advantage of the gold CFDs is that it has no expiration date. The contract is closed when there is a reverse trade made and the trader realizes his/her profit or loss.
Next, let’s learn about how gold CFD trading works.
Margin And Leverage Trading
CFDs are traded on a margin. Every trader is required to maintain a given minimum level. The deposits made to their accounts should not fall below this minimum level, otherwise, there will be margin calls made. The trader needs to cover these costs or their positions will be liquidated.
Normally, the margin ranges from 0.5% to 30% thus enabling the trader to take advantage of the leverage by magnifying the potential profits or losses in a trade.
Therefore, CFD trading is also considered as margin or leverage trading. There are high risks but also high profits. If you are interested in gold trading on CFD, do remember that it should not be used as a hold strategy. It is feasible to use as a medium-term strategy as long as you own proper money, risk management, and use stop losses.
Gold CFDs Example
This represents a daily gold trading example. Suppose the gold market has been very active and the traders and speculators are pushing its price higher every day. According to your speculation, you believe that the price will rise further in the coming days.
Let’s take that the quote from your broker for Gold CFDs is 826.3 – 832.7. The lot size provided by your CFD broker contains 10 gold contracts, so as a trader, you decide to buy 4 lots at a price of 829.8.
In the next couple of days, you realize that the markets are moving upwards quite well and you make up your mind to close your position at gold’s price of 874.6
▲ The tick size (this is the minimum movement in the price of a commodity or a stock) for spot gold is 0.1. If the price increases by $1, it will equate to 10 ticks.
▲ The base currency is USD.
How much profit do you get from your trade?
The total profit will be calculated as:
|(Closing price – Opening price) X no. of ticks X number of lots purchased X Number of contracts per lot|
(874.6 – 829.8) 10 ticks x 4 lots X 10 contracts per lot = $17,920.
In this sample, we have not considered the daily financing costs in order to make it as simple as possible.
When we include all the costs that come with the trade, the profitability will be lower than $17,920.
Trading gold CFDs has quite a number of merits. For instance, you are exempted from stamp duty and also, you do not need to deposit the full value amount of trade, unlike the case of purchasing physical gold. Also, Gold CFDs investments can be held as long as the trader wishes because they have no expiration date. It’s the trader who decides when is the right time to close his positions based on the prevailing market rates as well as desired profit margins.
Gold CFDs offer investment stability to the traders. This is more so during the harsh and unstable economic times. Trading gold is considered as a solid investment. Gold CFDs can be leveraged and this is one of the most common ways of increasing one’s stake in a bid of gaining bigger profits. While this is advantageous, it may also smell doom in case of a loss. The trader is exposed to high risks and the risk value may be quite high as well.
In trading gold CFDs, you get to benefit from the market liquidity. Buy/sell orders takes a fraction of a second to be executed. As a day trader, it is easy to profit from the fluctuations that may occur during the day. The amount of commissions charged when trading CFDs is very small and at times there are no commissions charged.
Also, all costs that come with gold CFDs are very minimal thus contributing to high annual savings. However, the costs that come with the gold CFDs depend on the broker that you are using as well as your location. Gold CFDs can be traded from a volume of as low as 0.1 lot per CFD. The more you trade, the more likely you are to switch to a CFD broker.
Trading gold CFDs has its advantages as well as risks. Here are some of the high risks exposed to the traders.
a. The Market risk.
Gold CFDs are basically contracts that pay traders for the difference between the opening/entry price and the closing/exit price. Since they are traded on a margin, leverage increases the risks involved as much as they present potential profits.
b. The risk of premature liquidation in the market
The markets are very volatile and sometimes there may be unfavorable price movements. During this time, a trader needs to add a variation margin in order to maintain the required margin level. The gold CFD trader may be asked to deposit some more money within a very short notice. Regardless of the short notice, the trader should provide the money in time. Otherwise, the CFD provider may close the position at a loss.
c. The counterparty risk.
While this is not a common risk, the trader may also lose a position if the trader does not meet the financial obligation and/or is insolvent. The Exchange Traded CFDs have less counterparty risk.
Trading gold CFDs is one of the simplest forms of trading as it requires you to buy a contract hold it for a certain period of time and sell it when the markets are in your favor.
When trading gold CFDs, it is important that you should have a proper understanding of the gold market as well as that of CFD trading. In order to ensure that your trades are profitable, you need to watch out the strong signals that influence the prices. For instance, you ought to consider the stock market uncertainties, prevailing financial hardships that may negatively affect the trader.
Gold CFDs can also be traded as statistical data. This is done by the use of graphs that clearly shows the days’ highs and lows. Gold trades in cycles and in order to determine the profitability of a cycle, a trader needs to look and analyze the previous data. This is what gives the trader a signal on whether to enter into a contract.
Learning the gold price prediction
As an intermediate trader, trading gold CFDs is easy to comprehend. The point at which you enter into a contract is based on the analysis and prediction of the market. Here are some factors that help in gold price prediction.
☆ The market sentiments
The uncertainty and instability in the markets can contribute to the fluctuation in the gold price. In as much as investing in gold is considered a safe haven when the markets are unpredictable, the high market volatility may not work well for you because a slight movement may have a great impact on the gold price. During inflation, the gold prices move upwards and it is vice versa when there is little or no inflation.
☆ The currency movements
The US dollar has a strong influence on the price of major commodities like gold. When the dollar falls, there is an increase in the gold prices and when it increases, the vice versa happens. There is an inverse relationship between the dollar and commodity prices.
☆ The gold demand and supply
As stated earlier 50% of gold demand is usually in the form of jewelry. The law of demand and supply applies everywhere. If there is an increase in the gold demand, with a low supply, the prices are expected to go up. This often happens when the traders are holding gold thus limiting its supply. However, if the supply is high, the process will proportionally fall.
Gold CFDs trading can be traded at any regulated CFD broker. Before you start your trading journey with a given broker, it is important that you should understand the details of the broker. For instance, the fees that you may be charged. Mitrade is one of the most recommended CFD brokers.
Investing in gold CFDs at Mitrade
Trading gold CFDs at Mitrade is easy to understand and implement. As much as all types of trading involve a lot of risks, Mitrade has gone a step further to ensure that all traders have a conducive and superior environment for trading.
Why should you trade on Mitrade?
☆ Mitrade is regulated by the Australian Securities and Investment Commission. (ASIC).
☆ All your funds at your Mitrade account are safe because they are kept in a segregated trust account.
☆ Mitrade understands the risks that come with trading and therefore, they offer protection against any negative balance thus allowing you the trader to have control over any risks of trading.
☆ There are no minimum deposits that mean there are fewer risks even for starters.
It is easy to start trading gold CFDs on Mitrade as you only need to take three easy steps.
Step 1: Opening an account
Step 2: Depositing funds in your account through a variety of ways
Step 3: Start trading.
There are various commodities that can be traded on Mitrade. For instance, silver, platinum, WTI, Brent, Palladium.
100 Troy Ounce
5000 Troy Ounce
1 : 100
1 : 200
Initial Margin Ratio
Overnight Funding - Buy
Overnight Funding - Sell
Whether you intend to trade gold CFDs or other commodities, you can find each commodity’s contract information at your account on Mitrade.
Note: Margin FX and CFD trading carries a high level of risk and is not suitable for all investors. Please read the Risk Disclosure Statement before choosing to start trading.
There are numerous opportunities available on the online gold market. It is considered as a solid defense against the high market volatility. As an individual gold CFDs trader, it is important that you consider all the benefits and limits of a commodity before investing in one.
If you want to realize as many profits as possible, you ought to analyze and study the commodity market so that you can make an intelligent and informed decision. With gold CFDs, you can make good profit margins over a short period of time but if not careful, you may as well incur huge losses. The secret lies in the amount of time you invest in analyzing and studying the market movements.