If you are new to gold trading, there are several things you should know. For instance, you should know that gold trading is the practice of analyzing the gold market’s price to make a profit. Usually, gold trading is done through options, shares, ETFs, and futures. You should know that physical coins or gold bars are not handled during gold trading. As a matter of fact, the precious metal is settled in cash.
Read on to learn more.
How is Gold Trading Different from Forex Trading
Firstly, you should know that gold trading is different from forex, which is also known as foreign exchange. Your potential decision to buy gold or currencies comes down to your long-term goals and the potential risk that you can take. While forex happens to be the largest financial market, it is also incredibly volatile, although it comes with tons of opportunities and risks.
Compared to forex trading, gold trading is well known for its stability, which has made it an incredibly popular investment for storing money. Essentially, gold traders focus on taking advantage of long-term trends.
Understand the Various Factors Affecting Gold Prices
Before you start gold trading, you must develop a better understanding of what is gold trading and what actually moves gold prices. The thing about gold trading is that the gold prices are established by the ratio of supply and demand, similar to all exchange-traded markets. With that said, the following key factors affect the price of gold:
Geopolitical Uncertainty
Yes, you read this right! Geopolitical and financial uncertainty can affect the price of gold; however, trading gold is immensely popular because this precious metal can withstand potential instability, which is why gold is acknowledged as a “safe-haven” asset. As inflation increases, potential traders will prioritize storing their wealth in gold.
The Value of USD
Typically, gold is priced in USD, and any potential fluctuation in the price of gold can make this precious metal appear more or less attractive. For instance, if the USD loses its value, it can come off as an advantage for someone who wants to buy gold in a different currency.
The Industrial Use of Gold
You should know that gold is in high demand for jewelry and investments. The diverse yet constant demand for this precious metal indicates that the market is relatively stable. Potential investment flows can protect the gold price from volatility.
Be Mindful When Choosing the Gold Market You Want to Trade
Before creating a gold trading account, you must do your research and choose a gold market, such as stocks, ETFs, and futures. Keep in mind that when trading gold, you will be using derivative products instead of buying or selling real gold or gold coins. With that said, futures are one of the primary ways to trade gold.
Gold futures are essentially an agreement to buy or sell the precious metal for a predetermined price on a future date. These agreements are great for taking possession of the physical form; however, you can settle for cash, too.
