How To Trade Gold Online

Last Updated September 20th 2021
7 Min Read

Gold, the yellow metal, has held an unusual fascination in the minds of mankind since time immemorial. Gold was considered a symbol of power, wealth, and even strength throughout human history. Even now, gold continues to entice people in various forms that it has found its way into the trading world too as gold is based on the exchange since 1950. It continues to impact the global financial markets even today and it will be no surprise if it continues to do so in the future.

Nowadays, it is possible to trade gold futures thereby opening up investment opportunities with less capital, thanks to the brokerage firms offering good leverage. The price of gold refers to the price per ounce in USD. It is measured in a troy ounce, where one troy ounce equals 31.10 grams.

What Is Gold Trading?

Gold trading is a type of trading where the traders speculate on the price of gold online through spot prices, futures & options, shares, and exchange-traded funds (ETFs). It is also possible to trade via CFDs whereby you don’t have to take ownership or delivery of the commodity.

Check Out: How to Trade Gold

Why Get Into Online Gold Trading?

Online gold trading offers the trader the opportunity to short sell and profit from a market fall. Gold is considered a safe investment for traders with lower risk thresholds as it is relatively stable even during tough economic situations.  

A trader can take advantage of the high liquidity offered by trading gold as Online Gold Trading can be executed 24 hours a day, 5 days a week. So gold is virtually relentless and hence, it offers a high return on investment. Moreover, the high volatility resulting in sudden and ample movements gives the traders to earn substantial short-term profits.

Why Is Gold Trading Popular?

Gold trading is popular because gold has been a highly desired precious metal since ancient times. Longed for both its cultural and financial value, gold makes an attractive investment option because of the following reasons:

  • Gold is believed to be a ‘safe haven’ investment even in times of financial turbulence
  • Gold is used in a wide range of industrial applications such as electronics and computing, apart from jewellery manufacturing
  • Gold usually performs strongly in high-inflation situations and hence makes a good hedging tool

How To Trade Gold Online?

Now that we have understood what gold trading is and some of the reasons for getting into gold trading, let us see how it is done. Trading gold is similar to trading other financial products. There are basically four steps to trading in gold. They are:

  • Open a gold trading account
  • Find an opportunity
  • Take your first position
  • Monitor and close your trade

However, like all other trades, trading gold also requires a lot of research, preparation, and effort. Let us consider them in detail.

Define Your Goals

Whatever instrument you invest in, you need to define your goals at the outset. It means that you should have at least a basic trading or investment plan ready, which clearly lays down why you want to trade in gold.

You must decide if you wish to use gold as economic insurance through physical possession and keep it in physical form or use market moves to make profitable trades. Knowing your goal goes a long way in determining the best way of investing.

If you intend to invest in gold over a period and use your investment to build a store of wealth as a hedge or alternative to hard currency, then you should opt for physical possession of the metal. It is possible to buy and sell physical gold, but if you are looking to actively trade, you would need a commodity account to trade gold futures and options. You might be able to use your stockbroking account to trade gold ETFs or to buy gold mining company shares with prices that tend to reflect changes in the value of gold.  

However, if your reason for purchasing gold is saving, then you should place the physical gold you purchased in a depository or buy gold certificates.

If you are looking to build wealth over time, US-based brokers that allow trading in the gold market will also let you trade in gold shares and ETFs. Shares and ETFs are great options as they have good prospects.

Develop a Trading Strategy

Once you’ve defined your goals, the next step is to develop a viable strategy to meet your goals. If your purpose is buying gold for savings, there isn’t much to strategise. You will just have to wait for a sell-off and purchase the amount you want to invest in.

Short-term strategies – trading gold futures to earn profit needs some strategising than you normally would expect. Short-term strategies such as scalping and day trading can be viable if you have a competent discount broker. Even then, you might have to make a massive initial deposit. You can use technical analysis and historical gold price charts for short-term trading. You should also consider other factors such as open interest in the front month and activities in the following futures delivery dates.

Medium and long-term strategies – this involves strategic considerations of fundamentals of gold such as the production numbers and overall supply and demand status. If you aren’t a purely technical trader, your strategy must consider all these fundamental factors.

Market Sentiment

Geopolitical events frequently influence the precious metals market. As gold and silver are the conventional economic safe havens, any unrest in the world results in people buying gold. Events such as the outbreak of war, interest rate changes, changes in central bank gold reserve, elections in gold producing countries, and more influence global gold prices.

Market sentiment is an important facet because it offers a directional indication. So, keeping an eye on the CFTC’s Commitment of Traders (COT) report is a useful tool. This weekly report released every Friday at 3 p.m. offers a breakdown of the open interest in gold futures and options on futures.

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Select a Gold Broker

The third step towards trading gold online is to choose the best online brokerage suited for your needs. Open an account with the broker and test your trading plan using a demo account. If you plan to invest in and possess physical gold, you can acquire bullion or gold coins from a dealer that specialises in selling metallic gold.

While choosing the broker, make sure they allow you to trade gold futures and options, gold mining stocks, and ETFs that invest in gold and gold mining company shares. Also, ensure they have a base in the United States and are monitored by the National Futures Association (NFA) and the CFTC.

Test Your Strategy

Once you’ve chosen the right broker for your gold trading needs, the next step is to back-test your strategy using historical data to find out how it would have performed. If your strategy works well on past data during the test, you can open a demo account with the broker. Using this account, you can verify if your strategy would work in a real-time trading situation.

Your online broker will have a trading platform you can use to find historical data and back-test your strategies using a demo account. In case you are finding it difficult to devise your own trading plan, you can research other people’s plans and fine-tune them to your needs. Whichever approach you use, never start trading without a plan. Getting into trading without a plan is the major reason why people lose money in trading.

Start Trading

Once you have satisfactorily tested your strategy using a demo account, you would have gained enough knowledge and experience to start trading in the actual market with real money. However, you should always remember that trading will not be successful every time and so you should keep your emotions away and stick to your trading plan in all circumstances.  

You should employ sound money management techniques and position sizing techniques suited to the amount in your account and your risk tolerance. Always be sure to set a stop-loss order and other risk management techniques to cut your losses.

Conclusion

Gold is one of the most popular original commodities traded in markets that usually trade in broad sweeping moves. This means gold traders can utilise medium and long-term trend trading strategies to successfully trade gold. In some cases, scalping and day trading is also viable. However, as they require active management, you may end up paying more in way of commissions. Furthermore, your trading strategy will determine the timeframe for your trades.

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