Gold Forex Trading. Maybe you’ve heard friends or business partners talk about their vast earnings with online gold trading. Perhaps you have no idea what it is, but it’s got gold in the name so it must be good. Whether you’re an experienced stock trader looking to diversify or someone brand new to the world of trading, this series will teach you everything you need to know.
We’re here to let you in on a little secret: becoming a successful gold trader doesn’t require great wealth or a Ph.D. in economics. In this first installment of our series, we’ll introduce you to the basics facts and terms of gold forex trading. In this article, we’ll erase the mystery about the “who, what, why, when, and how” of gold forex trading so you’ve got a solid foundation upon which to build. Let’s dive right in!
1. What is a gold forex trade?
In order to understand gold forex trading, you need to know the vocabulary. We understand that some of these terms and concepts can be confusing, but stick with us. Take the time to open a demo account and play around and you’ll get the hang of it in no time. Terms that were once completely foreign will start to make a lot more sense.
- Foreign exchange, also known as forex, FX, or the currency market, is the largest, most active financial market on earth.
- Forex participants frequently trade currency pairs. Let’s say you believe that the exchange rate between the U.S. dollar (USD) and the China’s yuan (CNY) will change. The first currency quoted in the pair is the base currency. The second is the quote (or counter) currency. The pair says how much of the quote is needed to buy a unit of base currency.
- Gold (XAU) acts like currency. It can be traded just like other currencies against the USD. The price of gold on the market is the value of one ounce of gold in US dollars.
- If the trader likes USD and XAU (USD-XAU), he or she checks online quotes and online charts. Currencies are measured in pips and pipettes. In forex, a pip is 0.0001. Most currencies are quoted four places after the point. The pip is the fourth place after the decimal. A pipette is smaller than a pip, or a fractional pip.
- Spot trades mean the trader buys gold “on the spot.” The trader might start with a spot trade in gold and then take an opposite position in the U.S. dollar (USD). Gold’s ability to quickly trade up or down (known as its volatility) creates many ways to make profits in gold forex. Remember, a trader doesn’t actually buy physical gold, it is an arrangement known as contract for differences (CFD) (don’t worry we’ll get into the nitty gritty later).
- Short and long-term trading info is presented in bar, line, or candlestick charts to help traders predict where gold price might go next.
- Buying and selling in gold forex is easy. A central exchange for gold forex doesn’t exist, and that fact saves traders money. Trades between buyers and sellers happen in an over-the-counter market (OTC). The buyer enters a bid and the seller enters an ask price. The difference between bid-asked is the spread. Tiny spreads in gold forex trades equal low transaction costs.
- Long and short trades reflect the gold forex trader’s predictions about gold price. If the trader thinks that gold will rise in price, he goes long. If the trader believes that gold is going to fall, she goes short. When the trader places forex trade, this is known as the open position. When the trader completes the trade, this is a closed position.
- Margin, or leverage, is borrowed money. If the trader is approved for leverage, it’s possible to control more gold and make more money. Leverage is one of the reasons so many people love gold forex trading.
Successful gold traders have a strong understanding of these concepts. Now that you know the basics, try opening a demo account to familiarize yourself with the terms and concepts. Once you see them in action, it all comes together.
2. Why is gold trading so popular?
Now that you have a better understanding of the basic terms and concepts of gold forex trading, we can get to the fun stuff. You probably already know that people can make a lot of money in a short amount of time by trading gold online. Here are other reasons gold trading is so popular:
- The gold forex market is decentralized. There isn’t a central exchange. The forex equivalent of the New York Stock Exchange doesn’t exist.
- Gold forex trading is a 24-hour market on weekdays.
- High liquidity is another reason that people love it.
- Low capital risk is one of the biggest reasons this is the largest financial market in the world. A small amount of capital is all that’s needed to get started.
- Low barriers to entry means everyone can participate.
- No commissions/brokerage fees are required, just the bid/ask spread.
- Transaction costs are low.
- No fixed lot size means you, not the broker, decides how much to purchase.
3. Who trades?
Governments, banks, corporations, hedge funds, retail traders, hedge funds, electronic brokers, speculators, and people just like you make gold forex trades:
- Governments buy gold to hedge against changes in exchange rates. The United States is the world’s largest government holder of gold. Germany, Italy, France, China, Russia, and Switzerland also have large gold reserves.
- Banks buy and sell gold forex because they work in a “multi-currency” environment.
- Corporations or commercial enterprises of all sizes buy and sell gold forex.
- Hedge funds enjoy highly liquid, low transaction costs, and volatile gold forex trading. It’s possible for them to make money gold prices trade up or down.
- More retail traders sign up to trade gold forex each week. No commissions and profits attract them.
- People just like you make extra money to earn play money, meet monthly bills, or transition from jobs they don’t like to full-time trading. Commuting can become a thing of the past.
4. When can you trade?
Twenty-four hour trading markets mean you can trade any time on weekdays. Because most gold forex traders don’t stay up 24 hours of the day, session activity peaks in Tokyo (Asian), London (European), and New York (North American) are important to know about:
- Tokyo is the first market to wake up after the Sunday break (11:00 PM GMT), so this market sees a lot of activity from China, Russia, Australia, and New Zealand.
- London (7:00 AM GMT) takes over shortly before the Tokyo session closes. UK and Europe activity is usually highest in this session.
- New York (12:00 PM GMT) opens as the London session continues. Traders from the U.S., Canada, Mexico, and throughout Latin and South America typically trade at this time.
Traders from around the world use the 24-hour markets to place real-time trades. Gold price changes may be highest at the open of any session, but international events can quickly cause gold price changes.
5. Where can you trade?
Trade from home or anywhere you’d like from the comfort of your desk or dock. As long as there’s internet access, you are free to trade from your computer, tablet, or smartphone. This means you can have the same access from the comfort of home as a professional trader working from a fully-equipped trading hub.
Experienced traders are welcomed to open a live account right away. New traders should open a demo account to learn how to enter and close orders, check balances, or contact trade support. It’s a great way to get a feel for the world of online gold trading – and even make some ambitious predictions without having to put your money on the line. Most new traders only need a couple hours of practice before they’re ready to trade for real. Once you’re ready, open a live account. After funding, you’re ready to trade. It’s fast and easy.
6. How do you analyze the market?
There are three common approaches for analyzing the gold trading market: technical analysis, fundamental analysis, and sentiment analysis. Technical analysts identify historical market patterns and use information from the past to inform trading decisions. Technical analysts are masters at reading charts and using patterns and indicators to predict where the market is headed.
Fundamental analysts care about external factors that affect price levels. These factors include everything from elections to interest rates and unemployment rates. Other external factors may include political instability, natural disasters, and social upheaval. Once you understand how the market moves in reaction to these events, you can make savvy trades based on your predictions.
Finally, sentiment analysts care most about how the market is “feeling.” Markets are generally described as being a bull market or a bear market. In a bullish market, most traders are optimistic about the outlook of an asset. When traders have a negative outlook about an asset, it is a bearish market.
While it is possible to use only one or two of these approaches, most successful traders use a combination of these three forms of analysis to inform their trading decisions.
Use technical and fundamental analysis throughout the trading day. Monitor international news, because sentiment changes can quickly shift gold forex trading patterns. Sentiment analysis and the long-short ratio tell you how other traders view the market at any moment. This information can change quickly, so you need to be on the ball.
7. How do you read charts?
If you’re new to gold forex trading, at first charts just look like squiggly lines. Writing them off as too complicated to understand will be to your detriment, so it’s critical to learn how to read them. Charts tell you everything you need to know about where the market is right now and where it has been. When you understand chart patterns and indicators, you can predict where the market is going.
Line and bar charts help the trader recognize price direction. Sometimes, it’s easy to see the trend. At other times, the trendline is changing. A rising trend (uptrend) shows a series of higher highs/lows and a declining trend (downtrend) shows lower lows/highs. A forex candlestick is a thin up-down line showing a trading range. A wide bar shows the open-close difference. If charts are still confusing, don’t worry. We’ll do a deep dive on charts later in this series, so stay tuned.
Now you know where, when, and how to trade. You know who trades and you understand why it’s so popular. You can tell the difference between a bear market and bull market, and you finally know what a pip is. Armed with this new-found knowledge or helpful refresher, there’s no time like the present to get started with online gold trading.