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Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors.
Before trading, please ensure that you fully understand the risks involved
Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you fully understand the risks involved

A guide to gold trading

Learn how to trade gold through CFD trading with some of the best tips and techniques for gold trading.

Gold is one of the most widely traded raw materials around the world, along with crude oil trading, and certainly the most popular of the precious metals, for both its financial and cultural value.

Gold belongs to the commodities market, along with other precious metals including silver and platinum. Investing in gold is one of the most popular forms of trading and traders have put this into practice for over one thousand years. The yellow metal comes in many forms, where you can trade gold through gold bullions, gold coins and gold stocks in the share market.

The value of gold

The price of gold can fluctuate depending on political, social, and economic instability. Trading gold is sometimes referred to as a ‘safe haven’ by traders because its price is not always affected by governmental decisions or inflated by interest rates, in a dissimilar way to some shares in the stock market. On the contrary, gold can act as a form of insurance as investors might reallocate assets into the gold market at unstable times. This could increase the value of gold since its demand might rise as traders attempt to use it as a stock hedge.

So, why do some traders invest in gold? The answer to this question relates to gold hedging. Gold and other precious metals sometimes have a negative correlation with stocks and bonds, depending on the current stability of the economy. This reinforces the idea of precious metals as a safe haven for traders. When investors realize that their share positions are declining in value, some decide to take a chance on gold trading to balance out their potential losses. This is known as hedging in the gold market and it is a popular strategy amongst traders. This way, they are attempting to diversify their portfolio as they spread their bets across a range of markets, where the price of gold may increase in response to events that would typically cause the price of stocks and bonds to decrease.

Gold trading online: how can it be done?

As a gold trader, there are several options for how to trade your asset. An easy option would be to buy and sell gold at its spot price. The spot price of gold reflects the exact current price that a buyer can purchase or sell the instrument for an immediate delivery. Alternatively, it is possible to trade gold through a forward contract, which is an agreement between two parties to buy and sell an asset at a fixed price at a future date.

Gold CFDs

CFDs (contract for differences) are leveraged products that only require a trader to deposit a small percentage of the overall trade value, which is referred to as margin requirement. Unlike buying outright at the gold spot price, you do not own the underlying asset but agree to exchange the difference in value from the time difference between opening and closing the position. Please note that where there is opportunity for profit from trading gold, there is equal opportunity for losses.

Gold ETFs

An exchange traded fund (ETF) is a type of investment fund that holds a collection of underlying assets, including shares of a company, to give an investor exposure to this asset, which in this case would be the commodity. Gold ETF trading is a low-cost investment choice that can be bought and sold like any other share in the stock market.

How to trade gold

  • Research when is the best time to trade gold. Certain political and economic events per region can have an effect on the price and volatility of the commodity market. This means that the risk of gold investment can either pay off or cause serious losses. Use our news and analysis page to keep aware of any changes to the gold market that may affect your trade.
  • Monitor price movements. Keep up with the latest trends of your gold trade online using a range of our technical indicators.
  • Think about your risk management strategy. We advise our clients to consider using a stop-loss order to reduce their losses to the absolute minimum.

Trade gold through commodity indices

It is also possible to trade CFDs on baskets of commodities for all precious metals, including gold, silver, platinum, and palladium. Our commodity index gives you exposure to multiple commodities in one trade, which can be vital for diversifying your investment portfolio. You can invest in gold along with range of other precious metals within the same position.

The most significant of the precious metals group, gold and silver are weighted to make up 70% of the index. Platinum and palladium make up the remaining 30% of the commodities basket. The indices work by tracking underlying prices of the commodities: if the price of gold, for example, increases within the index, then the overall value of the index will increase. In a similar manner, if the price of gold is to decrease, then the overall value of the index will decrease.

Trading the commodity indices market can be a good way for traders to explore gold trading without placing all hopes and efforts in one single commodity. A disadvantage of trading gold is that the asset can be volatile in the short-term. By trading our Precious Metal Index, a trader does not place all of his hopes in the value of gold and instead may hope that the other commodities will bring up the overall value and price of the index.

Source: CMC Markets UK

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