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Day trading gold is one way for retail traders to take advantage of opportunities in the financial markets. In this article, we look at what day trading gold involves, introduce several gold instruments, and how to start trading gold CFD at Vantage. Also included are some valuable tips and tricks to keep in mind while trading CFDs on gold.
An Overview of Day Trading Gold: What It Involves
Day trading gold involves buying and selling gold several times in a trading day to take advantage of short-term price movements. [1]
As a gold day trader, you aren’t interested in owning the gold itself. Instead, you prefer to trade various gold market instruments for trading opportunities. Any benefit or loss you make directly results from your market predictions with gold as your underlying asset.
As a day trader, you depend on volatility in the gold markets to speculate and make short-term trades. Some of these factors include upcoming news and trends.
Different Ways To Day Trade Gold
There are plenty of ways to access gold in the financial markets. Let’s take a look at some instruments:
1. Gold CFDs (Contract for Differences)
Gold CFDs are a way to trade gold, mainly with limited capital. With CFDs, you can trade gold on margin and enjoy greater exposure from the leverage your broker provides you. In Australia, with Vantage, you can trade Gold CFDs with 20:1 leverage.
With leverage, you have a double-edged sword. Without a proper strategy, you could lose more than just your capital. On the other hand, you can now enjoy the potential for greater trading opportunities from accurate price predictions.
Here are some quick advantages of gold CFDs:
- Access to gold markets at a lower cost
- You don’t need to pay the total value of gold before trading the CFD
- You can trade gold in both long and short
- Access to leverage
1-1. Gold Trading in Forex (XAU/USD)
Gold trading in forex (trading XAU/USD) is a standard that measures the price of an ounce of gold against the US dollar.
Gold FX gives you exposure to gold through the forex market. Since changes in USD values affect the value of gold, trading gold in forex is a great way to lower your risk during market crashes.
Volatility, supply and demand, and liquidity are factors to consider before trading gold in forex (XAU/USD).
Click here to read more about trading gold CFD in Australia.
2. Gold Futures
Gold futures are regulated contracts that oblige you to buy or sell a precise amount of gold at a fixed price on a future date.
Most times, gold futures help gold businesses and traders hedge their positions against loss if prices change against them in the future. Also, as a day trader, gold futures are a brilliant instrument for trading gold today because gold holds intrinsic value, and most investors use it as a strategy to beat inflation.
Like CFD markets, futures markets have high liquidity, which means you can maximise any opportunity from almost any market setting.
3. Gold ETFs
Gold ETFs are derivatives that hold several assets in a single basket. Unlike most trading tools, ETFs diversify your risk of losing everything at once.
Buying a gold ETF allows you to participate in the gold markets without owning the actual precious metal.
4. Gold Bullion
Gold bullion is physical gold kept in bars, coins, or ingots. Bullion can serve as legal tender or a store of value by governments and other institutions. As an investor, you can own bullion through brokers that operate in the bullion markets.
As a physical asset, most investors see bullions as a perfect store of value.[2]
5. Gold Certificates
Gold certificates are paper notes that equate the dollar value of the quantity of gold you hold in the National US Treasury reserves. The significant difference between gold certificates and other trading tools is that you own gold as the asset.
The disadvantage of gold certificates is that they can go from valuable to worthless fast, depending on the company’s financial status. For instance, If your broker company goes bankrupt, any gold certificates they issued automatically become worthless.
What Makes Gold Move?
Several factors affect the gold markets and how prices move:
1. Inflation
Because of its inverse relationship with the US dollar, inflation usually drives up gold prices. Also, an increase in demand for gold will drive up its prices, regardless of bull or bear markets [3].
2. Supply
Even though more gold comes into the market through mining, it doesn’t cause gold prices to plummet. Most times, other users take it and use it as a store of value. That means its supply reduces, and prices remain high.
3. Central Banks
Central banks are some of the largest buyers of gold. When the markets boom, they’ll still buy more gold, keeping the markets stable and causing gold prices to fall.
How to Day Trade Gold CFD with Vantage
You can get started day trading gold in a few simple steps. Here’s how to go about that:
1. Open Your Trading Account
To start day trading gold, open a trading account with Vantage. Once approved, you gain instant access to the markets, including instruments like Gold CFDs, ETFs, and Futures that you can trade immediately.
Before placing your first trade, add funds to your trading account by connecting it to your bank account, credit, or debit card.
2. Develop a Gold Day Trading Strategy
You can enter and exit markets with a gold trading strategy while efficiently managing your capital. Strategies help you take advantage of market opportunities while reducing your risk of losses.
3. Choose A Gold Instrument to Trade
According to your trading strategy, pick a gold instrument to trade. It could be Gold CFDs, ETFs and others. According to your risk management strategies, you can trade as many markets as you want and get into as many positions as you’d like.
4. Open Your First Position
Open your first gold position in your chosen market from your brokerage account. Depending on prevailing market conditions and your strategy, you can go long or short. You can place stop losses and take profit orders to manage your capital efficiently.
5. Monitor And Close Your First Position
You can now monitor all your open gold positions throughout your trading day across weeks or months. To do so, log in to your trading account and monitor the performance of your portfolio. You can also watch it via email, SMS, and app alerts.
Once you’ve made an accurate prediction, close your open position and take your profits, even though this can work vice versa and cause losses if the market moves against you. Your broker will take out any fees or charges directly from your earnings.
Tips and Tricks for Day Trading Gold
Here are some top tips and tricks that can help you day trade gold:
1. Open a Demo Account.
Vantage provides you with a demo account to train yourself and learn market strategies that work. Demo accounts prepare you to trade with real money. Also, they allow you to master indicators and all other technical tools and resources.[4]
2. Blogs & Newsletters
Learn new things and read helpful notes on newsletters and blogs. You can also join day trading discussion forums where experts give their views and suggestions on better ways to trade gold.
3. Academic
As a new trader, you can also learn how to trade from many online courses and trading workshops. You can also download articles and tutorials from skillful traders to learn more from their personal and professional experiences.
4. Government Treasury Actions
The US National Treasury plays a crucial role in determining the movement of gold prices. They also set bank rates that determine the pricing of the gold in the market.
5. Current News Updates
Day traders in gold markets keep in touch with the latest news which can maximise the small opportunities in price movements in gold prices or demand.
In conclusion
Gold trading is a special field and you need to know as much as possible about what is involved before you begin trading in gold.
Armed with the knowledge and tips from this article, you are now better prepared to start gold CFD trading. You can start by opening a demo or live account from Vantage today.
References
- “Day Trader Definition.” . https://www.investopedia.com/terms/d/daytrader.asp . Accessed 8 Apr 2022
- “Learn to Trade Forex With A Demo Account – BabyPips.” . https://www.babypips.com/learn/forex/demo-your-way-to-success . Accessed 8 Apr 2022.
- “7 Common Factors That Influence Gold Prices | The Motley Fool.” . https://www.fool.com/investing/2016/10/13/7-common-factors-that-influence-gold-prices.aspx . Accessed 8 Apr 2022
- “Learn to Trade Forex With A Demo Account – BabyPips.” . https://www.babypips.com/learn/forex/demo-your-way-to-success . Accessed 8 Apr 2022
