You want to Trade Gold, but don't know how to start? Cyprus-based Forex broker Xtrade discusses the aspects each novice traders should consider before starting to trade.
17 November, Xtrade – The US election is over, and everyone is talking about gold. And there’s a reason: in times of economic or political uncertainty, traders often turn to gold as a safe haven asset. If you’re thinking about trading gold, the most important thing to know is that while gold surges during times of uncertainty, it is also a popular trading asset in a bull market—that is, when prices are rising. The gold market is highly liquid, offering opportunities to profit in all market environments.
Although many investors choose to own gold in its physical form, others choose to speculate through the options, futures, and equity markets, all of which offer high leverage. Before deciding whether gold trading is for you, take a minute to learn the unique features of the gold market and the risks involved in trading gold. Gold trading is not difficult, but it does require specific skills, some of which we will discuss below. As you read, keep in mind that novice gold traders should tread slowly and cautiously, practicing these skills until they become second nature.
Want to trade gold? Learn what moves the price
In a free market system, gold is a currency. Although the precious metal can be purchased and stored and is only rarely used in everyday payments, it is highly liquid and can be converted into hard cash. A limited number of catalysts determine the amount of cash into which gold can be converted:
- Supply & Demand
- Inflation & Deflation
- Fear & Greed
A combination of these catalysts is always in play, as a result of which a gold trader will face increased risk if he reacts to just one catalyst when, in fact, others are in play. Here’s an example: a selloff hits the markets and gold surges. Traders, assuming that fear is driving the surge in the price of gold, conclude that fear will continue to raise the price. What could in fact be happening is that fear of inflation triggered the selloff, and that sober, technical-minded traders will sell aggressively.
The takeaway: As mentioned above, a combination of catalysts is always in play.
Get to Know the Crowd
If you want to trade gold remember that it fascinates people. That is why companies will often offer clients a “Gold Account,” a “Gold Package,” and so on. The precious metal attracts investors with diverse interests. Most common are the “gold bugs”, a term frequently used in the financial sector to refer to people who are bullish when investing in gold and in using it as a measurement of wealth. As long-term players whose attachment to gold is unshakable, “gold bugs” are rarely discouraged by downtrends in the price of gold. “Gold bugs” contribute greatly to gold’s high liquidity, providing the market with continuous demand and, just as important, opportunities for a very different type of gold investor—the short seller.
The takeaway: Gold traders are heterogeneous. For valuable insight on gold trading, study the participants.
Know Your Gold Chart
Before executing your first gold trade, be sure to know your gold chart cold. Start with the metal’s long-term history and take note of persistent trends. When and why did gold prices fall, denying profits to loyal “gold bugs”? When and why did gold prices rise? A thorough grounding in the history of gold will equip you with the ability to trade it well.
The takeaway: Study a gold chart. This won’t take much time and is, perhaps, the best preparation for profitable gold trading.
Xtrade is an award-winning provider of desktop and mobile trading services, featuring CFD trading on stocks, national stock indices, commodities, and currencies. The brokerage’s financial technology includes five digital trading platforms, all of which are available in over 40 languages to traders from Europe, Asia, and the Pacific. Other prominent services include an award-winning trading education center, breaking financial news in real time, and pioneering trading tools. Xtrade’s Global Ambassador is Cristiano Ronaldo of Real Madrid. The brokerage is regulated by the EU’s Cyprus Securities and Exchange Commissions, the EU’s Markets in Financial Instruments Directive, and the Australian Securities and Investment Commission.