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Trading the Gold Market
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Gold Trading - Part 2: Trading the Gold Market
If you are looking to trade the gold markets then note that financial spread trading offers a quick and convenient option. Also if you start to trade then you are not restricted to gold, you are also able to access a variety of global markets.
With spread trading you can speculate on thousands of markets from the popular Gold, FTSE 100 Index and Euro / Dollar exchange rate markets, to the not so popular Sugar, Dollar / Peso and T-Bonds markets.
Also, you are not actually buying or selling any assets. You are only speculating on the future price of a market. This means you can make trades quickly, an important feature in fast moving markets.
Naturally most firms let you trade over the phone and online. Some will also offer trading applications for your mobile phone.
Reducing Your Risks
Any form of trading has its risks and spread betting is no different - you can lose more than your initial investment. Before trading, ensure that spread betting matches your investment objectives. Spread betting carries a high level of risk to your capital. Familiarise yourself with the risks involved. Seek independent advice if necessary.
Having said that, there are options to help you reduce your down side:
- There might be occasions when you want to close a spread bet early. This can work in two ways. It can help you prevent further losses on a losing trade. It can also help you guarantee your profits on a winning trade.
- Applying small stakes is a useful risk management technique. Yes, you may not win as much but your downside is reduced.
- Use a Stop Loss. If a market moves against your position you will start losing on your trade. However, when the market hits your stop loss level then your trade will be closed. In other words it will stop you losing any more money. Note that not all stop losses are guaranteed. If a market is moving quickly or gaps between prices then your trade will be closed at the next price the market is traded at.
How to Trade Gold?
If you are going to spread bet on a commodity like Gold then, looking at a spread betting website like GFT or Financial Spreads, you might see a spread betting price of $1,131.1 - $1,131.6.
Therefore, you could bet on Gold to go higher than $1,131.6 or to go lower than $1,131.1.
With spread trading, investors trade on every unit the market increases or decreases. For the Gold market a unit is $0.1 of the commodity's price movement.
For instance, you might decide to trade £3 for every $0.1 Gold goes up or down. Note that we have chosen to trade gold in Pound Sterling but you can also trade it in Dollars and Euros.
If you were to buy the Gold spread at $1,131.6 and the commodity went up then the spread could change to $1,135.6 - $1,136.1. In that case, you might decide to close your spread bet for a profit by selling at $1,135.6.
Your Profit / Loss = [Closing level of the market - opening level of the market] x your stake
Your Profit / Loss = [$1,135.6 - $1,131.6] x £3 per $0.1 stake
Your Profit / Loss = $4.0 x £3 per $0.1 stake
Your Profit / Loss = £120 profit
Markets can also fall, if the market were to drop to $1,127.9 - $1,128.4, you could choose to close your trade to restrict your losses. If so, you would sell your spread bet at $1,127.9.
So, with the same £3 per $0.1 stake:
Your Profit / Loss = [closing level of the market - opening level of the market] x your stake
Your Profit / Loss = [$1,127.9 - $1,131.6] x £3 per $0.1 stake
Your Profit / Loss = -$3.7 x £3 per $0.1 stake
Your Profit / Loss = -£111 loss
As the above example shows, you need to be careful when trading. You can win, you can also lose. Using a guaranteed stop loss on the above example would have let you make the £120 profit but it would have restricted your down side.
You can put a Stop Loss as little as 20 points away from your initial trade with some firms. Again, in this case, a point is $0.1. That would restrict your losses to:
Your Profit / Loss = £3 x 20 points x $0.1 stake
Your Profit / Loss = £3 x (20 x $0.1) x $0.1 stake
Your Profit / Loss = £3 x $2 x $0.1 stake
Your Profit / Loss = £60.
Of course, trading with a £1 per point stake will also help reduce your risk.
Also see Gold Trading – Part 1.
Spread Trading Gold - Commodities Metals Markets
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Metals spread betting markets may also be available through other companies. Notes.
With spread bets you can lose more than you initially invested. Ensure that spread betting matches your investment objectives. Spread betting does carry a high level of risk to your capital. Familiarise yourself with the risks that are involved. If necessary, seek independent advice.
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Financial Spreads - tax free* trading on over 2,500 spread betting markets. With a Financial Spreads Account you can trade commission free, 24 hours a day on stock market indices, forex, shares commodities and...read review » Financial Spreads.
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With financial spread betting you can lose more than your original stake or investment. Spread betting carries a high level of risk to your capital. Please familiarise yourself with the risks that are involved and before trading, ensure that financial spread betting matches your investment objectives. Seek independent advice where necessary.
Trading the Gold Market - edited by D. Jones, 09 April 2010.
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With spread betting you can lose more than your original stake or investment. Spread betting carries a high level of risk to your capital so please familiarise yourself with the risks that are involved and, before trading, ensure that spread betting matches your investment objectives. Seek independent advice where necessary.
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* Based on current UK tax law. Tax law may change and can differ depending on your personal circumstances.
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