As we all know, gold is a significant investment. However, trading in gold offers you much more profits than merely buying gold and holding it for several years as an investment. Trading in gold allows you to make large profits from the gold price fluctuations, either highs or lows depending on your prowess and knowledge of the gold market. The best part of gold trading is that it tends to offer more profit opportunities than other currencies in forex trading.
Gold trading online markets allow traders to profit from daily price movements as well as long term trends. Let us look at the dynamics of trading gold for beginners. First of all, as a beginner in the gold market, you need to trade in something closely related to gold's value or price. Here are the options.
Gold bullion
Gold bullion refers to the physical gold bars which you can purchase, or it comes in the form of specialized coins. Gold bullions are highly valuable, but the value depends on the type of bullion and its weight. Many people consider owning gold bullions a low risk and safe investment. However, you should consider the costs involved, such as insurance, storage, and transaction fees.
Gold futures or options
Gold futures or options represent the actual gold through regulated exchanges. Gold futures are contracts that agree to a fixed gold price for a specific date in the future, after which you trade the gold futures at exchanges. That provides more leverage than dealing with gold bullions. However, the returns depend on the gold price fluctuations between the contract date to its expiry. You should note that trading in gold futures requires you to deposit at least $5,000 with a futures brokerage. The least gold futures contract is equal to about 33ounces of gold; therefore, trading will require you to attain that margin.
Gold ETFs
ETF means Exchange Traded Funds. They allow you to purchase securities and commodities without the need to buy all the individual assets. You can trade shares in an ETF that owns gold and whose price fluctuations closely mirror the actual gold price fluctuations. These are bought from a stock exchange or broker. The brokers usually require minimum deposits in thousands of US dollars, and they charge a special commission on every trade. They charge low costs, but the value of ETF is connected to the gold price.
Gold CFDs
CFDs mean Contracts For Difference. These are orders on the short term to purchase or sell a certain fixed amount of gold. Gold CFDs have an expiry, and the trade returns depend on the price fluctuations during the contract term.
Gold mining shares
You can also trade gold at gold mining shares. That way, you buy and sell shares in gold mining companies since the shares' value is usually influenced by the gold amount. The gold value is not the only factor that drives the prices of mining shares. There are other factors too. Also, note that there are also minimum deposits requirements and difficulties involving speed and costs.
Gold swaps
While gold futures and options are found in exchanges, gold swaps are traded over the counter.
Gold trading in forex
The last but not least way of trading in gold is in the forex. Gold is a currency like any other in forex, which you can trade against the US dollar in the form of the code AUX/USD. There are also other few forex brokers offering gold prices in other major currencies like the Japanese yen. That means the price of gold will be affected by the US dollar or whatever currency you are trading in. For instance, an increase in the value of the US dollar drives the price of gold down.
If you decide to trade gold in forex, you have to keep tabs with forex news to know upcoming trends and analysis. That is the most effective strategy you can use. You also have to keep track of liquidity since it plays a vital role in trading gold. Remember that the average gold trading volumes surpass all currency pairs apart from the EUR/USD, USD/JPY, and GBP/USD. Another critical thing to know is that gold trading on forex platforms run throughout the clock.
Reasons why you should trade in gold
Potential to make high profits
Gold has high liquidity, and you can only take advantage of that through gold trading. The price of gold changes with higher volatility than several other traditional pairs such as EUR/USD. In many cases, significant currencies often fall or rise by 8% in a year.
On the other hand, the value of gold has previously risen by 100% in only a few months. This considerable movement makes it more profitable. As a result, it very easy to achieve a return on investment and even higher returns.
Safety of your investment
Gold is a stable investment, and gold trading provides you with an opportunity to safeguard your investment during inflations or tough economic times. Even traditionally, gold was regarded as a haven for states and government investments.
Many savvy investors often choose to invest in gold rather than other assets to hedge against unpredictable economic situations. Although gold prices and currency prices fluctuate based on the market activities and economic events, the particular circumstances influencing the two investments differ significantly. Often, gold price usually progresses towards the opposite direction of the other financial assets like bonds or stocks. Gold can retain its purchasing power even during turbulent economic times.
For diversification
Many traders trade in gold and other forex trading types, thus enhancing their chances of getting more profits. There is a wide range of financial tools to trade with gold. Through diversification, you are well placed in studying market trends and prices, paving your way towards profitability.
An important thing to know is that there are also risks associated with gold trading. It involves substantial money risks, even though it has the potential to make significant returns. Today's price of gold does not reflect tomorrow's price or the next days, and that presents the cost of trading in gold.
The bottom line
Trading in gold is a highly rewarding activity, but you have to adopt the best strategies to be successful. Educate yourself more and keep up with forex news and trends.
