As global production increased dramatically, some countries began to use gold as a temporary national currency. Later, the gold standard was implemented, which tied money to a fixed amount of gold.
Gold’s role as the primary payment instrument has faded into the background, with paper money and cryptocurrencies taking their place. But the novel’s values remain the same. This is the reason gold trading in the Forex is becoming so popular. But you have to know how to trade gold.
Gold Is A Finest Protective Asset
Gold is now used as a protective asset for risk diversification and hedging, speculative transactions, long-term investment, and the formation of a gold reserve. Central banks, the IMF and other funds, commercial banks, exchanges, investment and ETF funds, private traders and investors, gold mining companies, and consumers are the primary participants in the gold market.
In this review, you will learn how to trade gold in Forex and invest in gold assets.
How To Trade Gold On Forex And The Stock Exchange?
Gold trading is possible on exchange and over-the-counter markets: If you like to know how to trade gold in Forex, you have to be well aware of two factors.
- The OTC market is operating on the basis of Forex and binary options. Transactions here all are made by the CFD gold — The price differences are there when bought and sold are happening without a real supply of metal. Also, over-the-counter trading of Au includes the purchase of physical metal through a bank, a bank gold deposit.
- The exchange market offers a broader range of investment options. You can buy futures and options here. Futures contracts can be commodities, with a real supply of metal or settlement, with offsetting prices at the end of the contract. On the exchange, you can also purchase shares of ETF funds that invest entirely or partially in metal. Shares in gold mining and refining companies can be purchased.
Futures Of Gold Market
There are numerous ways to profit from gold assets. Physical metal is typically used for long-term financial investment, whereas futures are used for short-term speculation. Gold futures are exchange-traded security that involves a buyer and a seller entering into an agreement. This is a contract to buy or sell gold at the current price in the future. Futures are classified into two types: Know these two factors, and your question regarding how to trade gold will be completed.
- Delivery futures. This type of involvement happens when the actual delivery of the metal is associated with a certain time.
- Settlement futures. If the precious metal has risen up by price within the time specified in the contract, then the buyer wins (when bringing it at a lower price). If the metal has fallen in price, the seller wins.
Other derivatives with gold as the underlying asset exist, but futures trading is the most common. This is the most easily understood and liquid instrument that can be sold or purchased before its expiration date.
The amount of money invested in the gold futures market is determined by the type of contracts traded, profit goals, and risk management system. On the exchange, a standard lot is 100 ounces.
A minimum trade of 0.01 lots requires approximately 2000 USD. This figure does not account for the need to have money on hand in case of a loss. You can use leverage, but unlike Forex brokers, stockbrokers are less generous — the average leverage on the exchange is 1:20.
When Is The Best Time to Buy Gold?
Gold is not tied for a single session. If the largest trading volumes and volatility for the EUR/USD are observed in the European session, and the lowest in the Asian session, hence the trading volumes for XAU/USD pairs do not depend on the session.
Old sources of the city analysis report of the economic statics are published since 1975, which shows the seasonal dependency on the quotations: the lowest gold price is observed in March, the highest in January and September. The best time to buy gold is in March, to sell — in September.
Evaluate the signals from technical analysis and know-how to trade gold.
- Crossing of moving averages with different periods. If the fast MA crosses the slow MA from the bottom up, it is a signal for the beginning of a bullish trend.
- Signals of trend indicators ADX, Alligator, etc.
- Growth of ATR volatility, determination of overbought and oversold levels by oscillators.
These are just a few examples of when it’s time to buy gold or go short. In general terms, the use of technical analysis for XAU/USD is similar to working with currency pairs — you only need to adjust the trading system to the parameters of the indicators.
Gold ETF Trading
An ETF is a stock exchange-traded index fund that engages in targeted investment; its shares are freely tradable. For example, if a fund invests in the stocks of the world’s top 50 companies, then purchasing its shares entails investing in these companies.
The situation is similar when it queries how to trade gold in Forex. There are ETF funds that invest entirely or partially in gold assets such as physical metal, futures, and so on. You are also investing in Au by purchasing their shares. While ETF stock quotes are not identical to XAU/USD or futures prices, the overall trend is similar.
The benefit of investing in ETFs is that you don’t have to diversify or balance your investment portfolio. An ETF is a portfolio in and of itself, and managers are in charge of balancing it. Disadvantages include a high entry threshold of USD 1,000 or more, the requirement to obtain “Qualified Investor” status, and taxation.
If an ETF invests in physical metal in some countries, the investor must pay a “luxury” tax. Instead of 15-20%, the tax rate can be increased to 25-30%. So you should keep an eye on it to get profits.
Do you want to start gold trading in Forex? Then these tips are the answer to queries regarding how to trade gold. Follow these tips and complete your individual gold trading.