What is Gold market?
In today’s markets it is possible to make profits from trading commodities, such as gold without having to physically own the metal.
Gold trading CFD is based on opening a temporary order to buy or sell an exact amount of gold. The profit or loss is determined by the change in the price of the gold metal during the contract duration.
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- Trade gold with competitive spreads
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Advantages of buying gold
Let’s first look at the benefits of gold as a stock market asset. Like most commodities, gold has the particularity of being very volatile.
It is therefore an ideal asset for trading strategies in the short or medium term, or for traders who do not have a large capital.
On the other hand, gold has long been considered a haven. This means that it tends to stay at high price levels, even when other markets are plummeting. Investment companies tend to invest heavily in gold when their other positions are risky.
The markets, which are subject to very high volatility, contribute to fueling this feeling of doubt and the economic news, as well as the publication of the various technical indicators are not to reassure investors.
It is this situation that drives investors to turn to safe havens such as gold.
Indeed, the fear of high inflation, already mentioned by some central banks, does not push traders to invest in too uncertain currencies, but to seek security elsewhere.
It is in gold that this quest is expressed since we note that despite the recovery of the EUR / USD, traders continue to buy gold. Worse still, they do not seem determined to take their profits, even as gold loses some non-negligible points.
The advantages of investing in gold on the stock market
While many investors have recently turned away from gold, following the significant fall in prices experienced by this asset a few years ago, this investment remains one of the safest and most interesting at the current time.
As the historical charts show, gold has the capacity to be marked by long and strong bullish periods and evolves in well-defined and easy-to-spot waves.
Thus, at the end of each dip, a new rise is expected, as is the case at this time. The decline in gold price seen since 2012 is therefore likely to soon give way to a new uptrend.
Taking a position today on gold on the stock market is therefore an attractive long-term investment, especially for investors who want to cover their other positions.
As the global economic crisis is not over and can even get worse in the coming years, it’s a safe bet that gold will soon regain its safe-haven status and its price will flare up again.
In addition, the price of gold is particularly volatile, which makes it also interesting to trade in the short term using a leverage effect.
Trading gold on the stock market and its operation
There are several ways to invest in gold on the stock market. For example, banks offer gold accounts that hold a certain amount of gold in order to resell it later.
You can also buy and store physical gold for the same purpose. But these two solutions have the disadvantage of presenting significant costs and low profitability.
Gold trading through CFDs is much more interesting. On the one hand, it does not present any costs and allows the investor to make profits on both the rise and the fall of the prices.
The leverage offered by online brokers is also very interesting because it multiplies by 100, 200 or 300 the amount of your investment but it also increases your risk of loss.
Why is it interesting to trade gold?
If you are a novice or inexperienced investor, gold is probably one of the most interesting assets to trade, due to several factors.
The first interest in trading gold is that this value is very volatile compared to other equity assets.
This means that the movements recorded by gold price are very often very large and therefore allow significant profits in a very short time.
This volatility is more interesting as Forex brokers who offer CFDs allow you to use a leverage effect that further increases your earnings.
Although gold is no longer really considered a haven, it remains an investment of choice for institutions such as banks, especially in times of high inflation because gold is not sensitive to this factor and continues to maintain level while the currencies lose their value.
Finally, note that gold is an asset very reactive to the phenomenon of supply and demand.
It is therefore wise to trade this value in the longer term, because we know that production is currently reaching its limits, while demand continues to increase because of its use by the industry,
Finally, note that gold is an asset very reactive to the phenomenon of supply and demand. It is therefore wise to trade this value in the longer term, because we know that production is currently reaching its limits, while demand is steadily increasing because of its use by the industry, especially the Chinese is expanding.
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The advantages to trading gold in the long run
As you may already know, gold is considered a safe haven in the investment world. This means that it tends to maintain its price or even to gain value when the other financial markets are in difficulty.
This was particularly the case at the beginning of the economic crisis in 2008 with a real surge in the price of an ounce of gold.
In this sense, investing in gold over the long term is a good way to secure investment by minimizing risk. However, it is better to buy gold at the right time if your investment horizon is more than a few years, that is to say to buy it while its price is relatively low as it is the case right now.
To sell gold over the long term, it is more convenient to buy physical gold online or from a bank or a retailer, considering, of course, the cost of storage and conservation of your gold.
It remains possible to take a long position on the gold market with CFDs, but in this case, it is better not to subscribe for leverage.
How to set up a good long-term investment strategy for gold?
Long-term gold trading is a good way to save some of your capital from financial fluctuations, but it’s possible that this investment may not be very profitable and that the profits you make will not reach your expectations.
In this sense, it is better to use this long-term investment as a hedge of shorter-term investments. Gold being a particularly volatile value, it is very profitable to trade in the short and medium term using for example CFD that allow you to make significant profits in a few days or weeks or even hours but also risk of loss.
Buy gold on the stock market with CFDs
Now let’s talk about a much more profitable method of buying gold on the stock exchange. These are the CFDs or contracts on the difference, that offer the Forex brokers. On the platforms of these brokers, many assets whose commodities such as gold are accessible to you and you can, through these CFDs, take up and down positions on them.
Choosing to trade on CFDs to speculate on the value of gold is by far the best way to take advantage of the current price hike. Indeed, most CFD brokers offer to trade a number of commodities, including gold. To know exactly how trading gold on Forex, here are some explanations and some tips.
What is gold trading on CFDs?
To trade gold on the Forex is simply to buy virtually gold at a certain price, hoping to resell it later at a higher price.
You can choose to keep your positions open until prices reach the level you expect to make a profit, or place stop and limit orders at the high and low levels you do not want to go through. These orders will then execute for you the purchase or sale of virtual gold without you having to remain attentive to the course evolution.
Your gain is then the difference between the price at which you bought the gold and the price at which you resold it.
Of course, the CFD broker Plus500 by which you will have made your transaction is remunerated by making you buy gold a little above the market price and selling it a little below the market price. The difference thus noted is called “spread” and is displayed in a completely transparent manner by online brokers. Moreover, this solution is much cheaper than going through a bank advisor or a brokerage agency.
Gold trading platforms
For some years now, there has been a strong upsurge in online trading platforms, also known as “brokers” or “online brokers”. The principle of these platforms is precisely to allow everyone, particularly as a professional, to speculate on different assets such as currencies, stock market assets and even commodities, which are particularly appreciated assets.
By registering on one of these platforms, you can indeed make a deposit of money and use this capital to bet on the rise and even the decline of gold prices in order to obtain quick and very interesting profits. . If you are a beginner and you do not know anything about trading, do not panic! These platforms have been designed to simplify all the steps of investors and have ergonomics perfectly suited to novices.
How it works?
The operation of these gold trading platforms is extremely simple. After making your first deposit, you will be able to intervene directly on the market through so-called CFDs or contracts on the difference. When you think that the price of gold will rise, you just have to bet the amount you want on this asset to purchase, and resell your position when the course has increased enough.
Conversely, if you think the price of gold will go down, you will take a position on the sale and resell your position when the price has fallen enough.
Of course, for the profits to be really interesting, the price differences must be important. But the trading platforms that allow you to trade gold online have thought of everything. Indeed, they allow you to use a leverage effect that multiplies your gains or losses by 100, 200 or even 300. Thus, even with small variations, you enjoy attractive gains.
What is leverage?
“Leverage” is the ability of some trading platforms to increase your investment capital virtually to maximize your earnings. This leverage can take different values, but most often for commodities such as gold, this leverage oscillates between 1: 50 and 1: 100.
To better understand how it works, imagine that you decide to invest 100 € on gold. Your invested capital will then be € 5,000 with leverage of 1:50, and € 10,000 with leverage of 1: 100.
The interest here is to allow you to earn more money with smaller course movements. But beware, if your earnings are multiplied by the level of this leverage, your losses are too. It is therefore necessary to use this leverage effect with the greatest caution.
How leveraging works in gold trading:
To better understand how leveraging you can use to trade gold, let’s take a concrete example here.
Imagine once again that you decide to bet $ 100 on the gold price with a leverage of 1: 100. When you take your position, the ounce of gold is worth $ 1,600.
In this case, your position is $ 10,000, a little over 6 ounces.
A few hours later, the ounce of gold rose to $ 1,650. If you decide to resell your position at this time to take your profits, they will be $ 300. This result is obtained with the following calculation:
Gain = (1650 – 1600) x 6 = 300
Without the use of this leverage, your actual position with $ 100 would have been 0.6 ounces and your gain would have been only $ 3.
Of course, as we mentioned above, if your position closes in loss, your losses are also multiplied by the level of your leverage. In our example, if the price of an ounce of gold is $ 1,550 at the time of the sale of your position, you will also lose $ 300.
How to use leverage in gold trading
Leverage is an undeniable asset for traders who want to make interesting profits without having significant investment capital. But this effect should be used with caution. Here are some tips to follow to do this:
- We advise our traders not to use leverage greater than 1: 100
- Be sure to systematically measure the risk of loss with this leverage effect
- Avoid long-term positions and prefer day trading
- Remember to place your stop and limit orders in the right places, not too close or too far from the current price of gold. But use these levels to determine the level of risk you are willing to take.
- To accurately detect the direction of trends on gold, simply follow a few key indicators such as:
- The value of the Dollar which is inversely correlated with the value of gold.
This means that as the dollar rises, gold tends to fall as it becomes less expensive for investors with other currencies. Conversely, when the Dollar falls, gold tends to appreciate.
Economic news is also closely watched because we have seen for some time that the effects of the European crisis have a negative impact on gold price. On the other hand, when good news hits the European market, investors tend to buy gold again.
Finally, global economic growth also has a positive impact on gold price because the better the industry operates, the more resources it uses such as precious metals.
We will follow here more particularly the emerging countries like the countries of Asia and especially China which is a big consumer of gold.
How to choose your best platform to trade Gold
Now that you understand how to trade gold online through a broker or broker on the internet, you will have to choose which platform you will use. This choice must be the subject of important reflection and must not be done lightly. The ideal is to compare different points like:
- The proposed leverage effects
- Tools available (analyzes, signals, graphics ..)
- The conditions of deposit and withdrawal
- The quality of the platform and its simplicity
When you trade gold through an online trading platform, the cost of your transaction is set by the broker and applied in the form of spreads. But what do these spreads really mean and how are they applied to your CFD trading?
Here are some answers that will help you to see more clearly and understand how much you actually cost your operations.
What is the spread on gold?
Whether it’s trading commodities like gold through CFDs or Forex currency pairs, the spread has the same function and the same definition. The difference between the purchase price of gold at a given time and its selling price at the same time is commonly called “spread”. For the trader, it is therefore charges directly charged by the broker used on the transaction.
To better understand, let’s take a concrete example:
When you go to your online trading platform, you can see two values associated with CFD on gold such as:
Gold: Purchase 1800.50 Sale 1800
So we calculate the spread by the difference between the purchase price and the selling price and we get a cost of 50 pips per unit. This means that if we bought an ounce of gold and resold it at the same time, we would lose 50 pips on the transaction. We must therefore take into account this spread during our operations.
Spreads on gold:
One of the advantages of this billing of transactions through spreads is that it allows us to directly see what our transaction costs us. This is what makes online trading different from buying real gold shares or other such financial products where brokerage fees are charged to you in the form of a fixed price at several times at the time of purchase, then at the time of sale.
With online trading platforms, you no longer have to worry about hidden fees or additional taxes, since everything is taken at source or directly on the amount of your transaction. Of course, brokers have an obligation to show real transparency on the spreads practiced and display them clearly on each of the values they propose to trade via CFDs.
What is usually the best time to buy gold?
When you want to take a position on the gold market, the most delicate question you quickly face is knowing when is the best time to buy gold …
How to technically check the best time to invest?
For this, just look closely at the monthly gold charts. Find the time when the average is the lowest. Once the gold price returns to this value, it will be the perfect time to take a position on the purchase.
This quick analysis allows you to take a position at the best price so you can resell a few times later at a higher price and thus make significant profits. It is therefore not necessary to wait for an uptrend to take a position on gold.
How to analyze other important indicators?
As mentioned above, the general economic climate is extremely influential on gold price. When we look at the historical data of these prices, we can see that the price of the yellow metal tends to increase as the world economic situation deteriorates.
This phenomenon is due to the fact that private or institutional investors want to secure their investments and investments in case other markets collapse. In this sense, other more psychological data can tell you that gold price are going to rise again.
Ultimately, to effectively rule the future of gold, it is enough to pay attention to economic and financial news. At most this news will be negative and made public, more investors will be afraid and will withdraw from the markets. However, these investors will therefore reinject their money in a more secure market, that of gold.
Another external indicator is preferred when you want to buy gold. This is of course the Dollar. Since gold is valued and therefore bought in Dollar, wait until the EUR / USD parity is high to take advantage of gold at the best exchange rate. In addition, a general decline in the dollar against competing currencies is often conducive to mass investment leading to appreciation of gold price.
- MT4 Symbol – GOLD
- Exchange – NYMEX
- Trading Hours – 23:00 – 21:59
- Margin: 5%
- Increment: 0.01
- Minimum Trade Size: 1 ounce
Why Trade Gold with AvaTrade
You can join AvaTrade today for as little as and start trading gold and other precious metals. We pride ourselves in being a regulated and trusted broker worldwide for the past 11 years and are here to help you along the way.
You will get access to a range of educational tools, trading advantages and benefits that are exclusive to AvaTrade clients.
Trade Gold Online – with a bonus !
Gold trading with AvaTrade is easy to understand, especially if you already have some experience of the forex market. Gold units are measured in Troy Ounces against a currency – usually the dollar – in a similar way to a Forex currency pair.
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Gold Trading Strategies
Several distinct factors come into play when analysing the movement of the Gold price:
- Supply and demand – Most of the global demand comes from jewelry production and manufacturing (50%), and investment purposes (40%). Increased demand with low supply can mean a higher price. On the other hand, an oversupply with weak demand can drive prices lower.
- Market sentiment – Political uncertainty and/or instability contributes to global growth uncertainty and does help in the rising prices of gold.
- Market volatility – Gold has often been used as a safe haven investment when markets are unpredictable.
- Currency movements – The US dollar is a strong influencer. When the dollar falls, commodity prices around the world increase. The US dollar and gold have an inverse relationship.
Overall if you are looking to an alternative investment arena or a hedge, which is a reduced risk of price movements in any asset, then gold might be the right asset for you.
Please note that trading in this market involves risk like any other.
How to Buy Gold? – 3 TIPS
- Gold is compared to the yen since both assets fall into the category of a “safe haven instrument”: they tend to move in the same direction. Often, you can check your trade set ups by comparing the two.
- Focus on the price action and keep in mind that commodities can move more than currencies.
- The most popular Gold exchange rate is the XAU to USD rate. XAU is the trading terminal’s code for gold.
Are you ready to buy gold? Start invest on the gold market with AvaTrade & enjoy trading with the best Gold regulated broker in Nigeria!