Gold is an important investment asset and has been a medium for trading goods and services for centuries. Trading gold online can be profitable if you know what you are doing.
In this guide, you will get to know the fundamentals of gold trading and we will provide you with a list of the best derivatives for gold trading.
Derivatives are a type of financial contract that has its final value linked in whole or in part to the value of another asset, which can be a share, interest, currency or commodity, for example.
Thus, its price and term are set to a future date. Thus, although they work as a protection and risk management mechanism for companies, it is possible to invest in derivatives and profit from them.
Is trading gold online a good idea?
Gold is generally popular as a hedge against crisis risk and during large-scale money printing (as we have it today). That's why gold is the best investment during inflation. Here are three cases when buying and selling gold is a good idea:
Gold is a liquid asset, which means you can quickly turn it into cash. This liquidity makes gold a popular choice for trading purposes.
For example, if you think the price of gold is going to go up, you can buy gold today and sell it at a higher price in the future. This is known as speculation and it can be a profitable way to trade gold.
Safe Haven Asset
Gold is a safe-haven asset, which means that the price of gold will rise in times of crisis.
If you believe that a financial crisis is happening or will happen soon, you should buy gold. That way, if the crisis occurs, you will easily convert your physical gold into cash and take advantage of its higher price.
Reserve of value
Gold is a good store of value because it tends to maintain its value over time.
This means that if you buy gold today, you will likely sell it for the same price in the future.
This is not always the case for other investments, such as stocks, which can go up or down in price over time.
Investors often turn to gold when inflation is expected. The value of gold is not tied to the activity of any one company, so it can often maintain its value even during economic downturns.
Step 1. Choose your market to trade gold
There are a few different markets where you can trade gold. Futures, ETFs, CFDs, gold stocks and physical metals are the most popular markets. Each market has its advantages and disadvantages. Following are the main features of each:
ETFs are investment funds that have gold as their main asset. This means that when you buy a gold-based ETF, you are investing in gold. Gold-based ETFs can be traded on most major exchanges.
You can trade gold-based ETFs like stocks. This means they have low transaction costs because there are no other fees involved.
You can trade gold-based ETFs on major exchanges; their prices tend to be stable. So if you buy or sell a gold-based ETF quickly, you won't lose a lot of money.
Gold-based ETFs are a great way to diversify your portfolio. They offer exposure to the gold market without investing in physical gold.
4. Tax benefits
Gold-based ETFs offer some tax benefits. For example, you can sell them at a loss and use the loss to reduce your taxes.
5. Continuous Access
Gold-based ETFs can be sold at any time. You don't have to wait for the trading day to end.
1. Limited selection
Gold-based ETFs are a new investment product, and as such, there are not many funds to choose from.
2. High administration fees
Gold-based ETFs generally have high management fees. That means you won't earn as much profit from your investment.
3. No control over gold
When you invest in a gold-based ETF, you cede control of your gold to the fund manager. This means that you may not be able to get your money back when you want.
4. Risky investment
Gold-based ETFs are a risky investment. The price of gold can go up or down, which can affect the value of your ETF.
Gold based CFDs
Gold-based CFDs are contracts that allow you to trade gold without owning any physical gold. This means that you can profit from the price of gold without ever owning the asset.
Most traditional Forex brokers offer CFDs gold based. Contracts often repeat quotes for gold futures.
Some advantages of trading gold-based CFDs include:
1. Low transaction costs
Transaction costs for trading CFDs are lower than those for trading physical gold.
Gold-based CFDs are liquid assets. That means you can buy and sell them quickly without losing money.
Gold-based CFDs are a great way to diversify your portfolio. They give you exposure to the gold market without owning any gold.
4. Tax benefits
As with most financial derivatives, trading gold-based CFDs can offer tax benefits. For example, you will only have to pay taxes on your profits, not your original investment.
You can use gold-based CFDs as a hedging tool to protect your portfolio from risk.
1. High risk
As with all financial derivatives, gold-based CFDs are high-risk investments. The price of gold can go up or down, which can affect the value of your CFD.
2. Limited selection
At the moment, there aren't many gold-based CFDs to choose from. This means that you may not find the perfect contract for your needs.
3. No control over gold
When you trade a gold-based CFD, you cede control of your gold to the broker. This means that you may not get your money back when you want it in some cases.
4. High administration fees
Most brokers charge high management fees for trading gold-based CFDs. This means that you will earn less profit from your investment.
Gold futures are contracts that allow you to buy or sell gold at a specific price on a specific date in the future. You can trade them in most top forex brokers. You can use gold futures to hedge your risks or profit from the price of gold.
The main gold future pros in gold trading are:
1. Time advantage
Gold futures allow you to lock in the price of gold at a certain date in the future. This is useful for companies that need to buy or sell large amounts of gold at specific prices.
Traders who want to profit from the price of gold can use leverage to increase their potential gains.
3. Price Advantage
Gold futures allow traders to buy or sell gold at a price closer to the “spot” price. This means that you will get more profit from your investment when the contract expires.
Gold futures can serve as a hedging tool to protect your portfolio from risk.
The main disadvantages of trading gold futures include:
1. Limited Agreement Terms
You can only trade gold futures for a limited period of time. This means that they are not ideal for long-term investments.
2. Low Liquidity
Trading gold futures can be complex if there is not enough liquidity in the market. This is especially true when trading outside of normal business hours or when big financial news about gold comes out during non-trading times.
3. High administration fees
Most brokers charge high management fees for trading gold futures. This means that you will earn less profit from your investment.
Gold mining stocks
Gold mining shares are shares of companies that mine gold. The price of gold goes up when there is an increase in demand for the metal, therefore, the value of the stock also goes up.
However, it is important to note that there are many other factors that affect the price of gold mining stocks, including industry conditions and company management.
Here is a chart that shows how gold mining stocks have rallied during periods when the price of gold has increased:
Gold prices during the crisis
The main pros and cons of investing in gold mining stocks are:
1. Appreciation of prices
Gold mining stocks typically appreciate when the price of gold rises. This means that you can profit from your investment if you sell at the right time.
Many gold mining companies pay dividends to their shareholders. This means that you can earn a steady income from your investment.
Gold mining stocks can serve as a hedge against risk when trading gold.
Gold mining stocks are not highly correlated with other investments, including the price of gold itself. This means your portfolio will have less volatility when you invest in them.
5. Market exposure
The price of gold affects many other investments, including stocks and bonds. Gold mining stocks allow you to profit from other markets without trading them directly.
The main disadvantages of investing in gold stocks include:
Gold stocks are more volatile than the price of gold itself. This means that you could lose a significant amount of money if the price of gold goes down instead of up.
2. Currency risk
Gold shares are priced in US Dollars, so they will fluctuate with currency changes and the price of gold. Therefore, to avoid currency problems, one should look for companies that convert their gold reserves into US dollars before paying dividends to shareholders.
3. Mining risk
A supply and demand help determine the price of gold, but the supply of gold depends on the success of mining companies. This means that these companies' problems, including labor disputes and environmental issues like pollution, can affect their investment.
eToro earns a spot on our list of the best social trading platforms. They have established themselves as the leading online social trading platform.
eToro earns a spot on our list of the best social trading platforms. They have established themselves as the leading online social trading platform, offering user-friendly social trading to millions of traders around the world.
Whatever your level of experience, the eToro platform has a wide range of signal copying and sharing solutions with a vast online social community. They have a large selection of trading instruments (stocks, forex, cryptos, etc.) available on the eToro web and eToro mobile platforms.
Founded in 2006, the eToro online trading platform allows you to easily connect with other traders to view, compare and discuss trading strategies. Patented CopyTrader™ technology allows you to automatically copy trades from another trader's portfolio, creating your own bespoke portfolio.
In addition to copying other traders, you can also place and manage your own trades, which can then be offered to other traders for them to copy.
eToro also has a “Popular Investor Program” where popular investors can earn a second income by being followed and copied by other users on the eToro platform.
There is an eToro club that offers a range of exclusive benefits, services and tools to customers according to their membership level. This includes a dedicated account manager, market analysis, live webinars, expert investment support, premium trading tools, exclusive VIP events and other benefits.
eToro is regulated by some of the most respected regulatory authorities, including CySEC, FCA and ASIC. This ensures they must abide by strict rules and regulations in place to protect investors and gives their clients peace of mind that they are using a trusted social trading platform.
AvaTrade is included in our list of best CFD brokers. They offer award-winning online trading services on a wide variety of instruments.
AvaTrade is included in our list of best CFD brokers. They offer award-winning online trading services on a wide variety of CFD instruments including forex, commodities, indices, ETFs, stocks, bonds, cryptocurrencies and more. Customer service is offered 24 hours a day, 5 days a week, with live multilingual support and a dedicated account manager.
AvaTrade gives traders access to multiple free trading platforms, including the most popular and widely used MetaTrader 4 platform. This is a very easy-to-use platform, making online CFD trading easily accessible for traders of all experience levels.
In addition to various online trading platforms, they also offer a good selection of trading tools and educational materials to help you trade online.
AvaTrade has licenses from 6 regulatory authorities on 5 continents. Among these, they are authorized and regulated by the Australian Securities and Investments Commission (ASIC) and the Cyprus Securities and Exchange Commission (CySEC). This strict regulation in many jurisdictions can give clients peace of mind that they are using a safe and secure CFD broker.
AvaTrade is one of the largest CFD brokers in the world, providing online CFD trading to over 200.000 clients worldwide. There is a demo account option if you want to practice before opening a real account.
Wide variety of CFD instruments for online trading
Multiple trading platforms
Free Trading Tools for Chart Analysis
Regulation by 6 authorities
Free Demo Account
$ 100 minimum deposit
Step 3. Understand what determines the price of gold
Many factors determine the price of gold. They include:
Central bank gold reserves
Gold forms part of the gold and foreign exchange reserves of most countries. The government can buy and sell gold, which affects prices. As a result, a country's gold reserves can have a significant impact on the price of gold.
jewelry industry demand
In countries like India and China, demand is huge, affecting prices. In addition, jewelry is often seen as a store of wealth, and when the demand for gold jewelry increases, the price of gold also tends to increase.
Gold generally grows during large-scale emissions (QE programs). In 2022, we have these QE programs and ultra-low interest rates all over the world. This monetary policy creates a “hot money” effect, which leads to an increase in the price of gold.
Speculative trends and technical analysis
Long-term and short-term trends mainly drive gold prices. the investors watch the news, economic reports and central bank activities.
Speculative trends can also affect gold prices, such as inflation fears or deflation concerns.
Investors can make trading decisions using technical analysis.
Step 4. Choose your strategy to trade gold online
There are different gold trading strategies that you can use.
buy and hold: This is a long term strategy where an investor buys gold and holds it for some time. The goal is to sell it at a higher price than they bought it.
Day trading: is a short-term strategy where an investor buys gold and sells it on the same day. They hope to profit from the price difference.
swing trading: This is a medium term strategy where an investor buys gold and holds it for a few days or weeks. They hope to profit from the price difference.
Options: This is a strategy where an investor buys or sells options contracts. They hope to profit from the price difference.
Leveraged ETFs/ETNs: These are short-term strategies where an investor uses debt to increase their exposure to gold. They hope to profit from the price difference.
ETFs/ETNs: These are long-term strategies where an investor chooses to invest in gold-based Exchange Traded Funds or Exchange Traded Notes. They keep it for a while, hoping to cash in on the income.
Gold mining stocks: This is a long-term strategy where an investor chooses to invest in gold rather than physical gold. They expect to profit from dividends or capital appreciation.
Bullion: This is a long-term strategy where an investor buys physical gold and stores it securely. The goal is to sell it at a higher price than they bought it.
Summary about trading gold online
The article shows that gold can serve as an important part of an investment portfolio when used strategically.
Gold can be bought, sold, traded and stored in many different ways.
Various factors such as central bank gold reserves, jewelry industry demand, monetary policy and speculation drive gold prices.
As a result, investors can use several different gold trading strategies depending on their goals. As a result, investing in gold is the best decision ever!
Frequently asked questions about trading gold online
What is the 'hot money' effect?
The “hot money” effect is when investors move money quickly into an investment, causing a price increase.
What is technical analysis?
Technical analysis is the study of price charts to predict future price movements.
Why do prices fluctuate?
Prices fluctuate due to different factors including central bank gold reserves, jewelry industry demand, monetary policy and speculation.
What is arbitration?
Arbitrage occurs when a market has different prices for the same thing, such as trading gold at $1.525 in one place and $1.522 in another. This provides an opportunity for investors to buy low and sell high.
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