Day trading can be appealing for many reasons. The revolution of technology since the mid-’90s has affected financial markets and enabled individuals to day trade from any place around the world. But how should you start, you ask? Is gold the right commodity for you?
Day traders usually base their trades on a specific asset that suits their trading style and personality. While some traders prefer a liquid and volatile commodity, others will look for the opposite. For those who are keen to trade a new impulse commodity, gold might be among the best choices. Gold is, after all, the most essential and valuable commodity in the world and sets the base for the global monetary system. The most precious metal is highly affected by macroeconomics fundamentals and geopolitical events but also is deeply affected by technical analysis and market sentiment.
In this guide, we will cover all the important information about gold trading, including a step-by-step guide on how to get started with trading gold. We will include the best CFD brokers that offer gold trading and share some essential trading tips.
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How to Trade Gold in 3 Quick Steps:
Follow these three easy steps below if you would like to start trading gold:
Step 1: Open a Trading Account
Open a free trading account with our recommended broker. As part of the registration process, you will be required to submit your personal details for KYC.
Step 2: Deposit Funds
Once you have completed the registration and your account has been approved, you can transfer funds to your account by one of the provided payment methods.
Step 3: Demo and Live Trading
Begin trading on a demo account. A demo account allows you to trade in real-time but also learn about the mechanics of gold trading and understand basic terms.
67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money
Step 1: Open a Gold Trading Account
There are a number of ways to start trading gold. Besides the most common method of trading physical gold, the traditional way of trading gold is through a futures contract. The leading benchmark futures contract for gold prices is COMEX Gold futures (ticker symbol GC) that are being traded on the Chicago Mercantile Exchange. Gold futures contracts are also offered on several futures exchanges including the International Exchange in London (ICE).
Yet, the futures derivative market is mostly used by farmers, producers, and factories to hedge their crops and large production and reduce their risk of holding inventories for a long period of time. Other participants in the futures market include large financial institutions and proprietary trading firms.
But there is a better solution for the average Joe trader; Contract for Difference, also known as CFDs. A contract for Difference (CFD) is simply an agreement between a buyer and a seller to speculate on the price of a certain financial product without owning the asset. If you don’t have any plans to store gold bars in your house or find a place where you can store your inventory, then it’s recommended to trade through CFD broker. We have collected the most well-known brokers for gold trading:
1. eToro - Best Gold Trading Platform for Beginners
eToro is one of the largest online trading platforms in the world, with more than 4.5 millions users worldwide. This broker is highly regulated by some of the most trusted regulators across the globe. Those include the Cyprus Securities & Exchange Commission (CySEC) and the Financial Conduct Authority (FCA).
eToro supports a variety of financial instruments including built-in portfolios that can be traded by its clients. Obviously, this reputable broker offers members to trade gold CFD with a standard spread of 45 pips. Take note that you will be able to trade SPDR gold ETF's through eToro's trading platform, which is an ETF that was specifically designed to track gold's price performance.
- A social trading platform
- Highly regulated broker by CySEC and FCA
- Wide range of markets and products
- Charges withdrawal fee
- eToro does not offer a desktop-based trading platform
2. Plus500 - Competitive Spreads for Gold Trading
Founded in 2008, Plus500 is a leading online trading broker, offering more than 2,000 financial CFD instruments. The broker has regulatory licenses in several jurisdictions including the Australian Securities and Investments Commission (ASIC) in Australia, authorized & regulated by the FCA in the United Kingdom, and the Cyprus Securities and Exchange Commission (CySEC) in Europe.
Plus500 allows users to leverage their positions with a leverage ratio of up to 1:300 and provides a user-friendly web-based trading platform, offering a range of markets and products.
CFD Trading isn't for beginners and there are no learning tools on the platform.
- Highly regulated broker
- Plus500 offers a wide selection of stocks
- Doesn't support MetaTrader 4/5
- Not available in the United States
- Scalping and Hedging are forbidden and the platform does not support Signal or Social Trading
Step 2: Learn How the Gold Market Works
What is Gold?
Gold has been used as a tradable commodity for thousands of years. It is considered the most precious metal in the world and even today, gold is used as a financial safe-haven asset and is the alternative commodity for any economic crisis or uncertainty. Although many countries still hold significant gold reserves in their arsenals, the gold standard that has been used by many governments in the 18th century and until the mid-90s is no longer used by any government.
Unlike other commodities, gold is an interesting commodity as it is not primarily affected by supply and demand but rather by economic factors such as inflation, deflation, economic crisis, and the public confidence in the traditional monetary economic system. Gold is still being used for a variety of things such as pieces of jewellery, electrical and medical purposes, however, macroeconomic factors are the main force that drives gold price.
How the Gold Market Works
The gold market may seem a bit complicated, however, it relies on a fairly simple concept. The physical gold market includes producers, individuals, central banks, and large financial institutions. The gold futures market is a significant part of the gold market although it is being used for speculators and hedgers rather than by countries and producers. Gold futures were first introduced in the mid-70s at the time when countries abolished the gold standard concept. A standard gold future (GC) is an exchange-traded contract of 100 troy ounces at a specified delivery date, while a micro gold future (MGC) is a contract of 10 troy ounces of gold. At the time of writing, the Chicago Mercantile Exchange (CME) is the largest gold exchange by volume in the world.
Gold is often perceived as a ‘safe-haven asset’ and its price usually rises in times of economic recession and high inflation. Ironically, gold prices remain stable or drop when the economy performs well. Regardless, any economic and political factors might have a direct impact on gold prices. For example, the unemployment rate, inflation rate, economic growth, geopolitical conflicts, parliamentary elections, and many more can determine the future direction of gold prices.
Step 3: Choose a Gold Trading Strategy
Gold has been always perceived as a safe haven asset in times of uncertainty and is the most actively traded commodity in the world. Consequently, it is viewed and analyzed every day by a large number of day traders, which makes technical analysis an effective strategy for this commodity.
If you want to start trading gold, you’ll have to find the right balance of technical and fundamental analysis. Here are some basic tips that can help you get started:
Fibonacci retracement is a popular technical analysis indicator. The key factor that makes Fibonacci retracement an effective trading method is high volume and liquidity, which as we know is the case with gold trading. A Fibonacci retracement is a technical analysis indicator that refers to areas of support or resistance. Once you learn how to draw these lines in a gold trading chart, you will find plenty of trading opportunities.
Japanese Yen Correlation
The Japanese Yen and gold have a strong correlation for the past century due to the fact that both assets are considered as safe-haven assets. Some traders use this correlation to predict gold’s future price movements.
Market News and Political Events
As previously mentioned, gold is extremely sensitive to market news and geopolitical tensions. It might be beneficial to have a basic knowledge of politics and economics but if even if you lack this basic skill, you should follow all major political and economic developments in major countries.
Furthermore, it’s advisable that you find an economic calendar that covers the most significant financial events and indicators from all over the world. Some of the most notable events that influence gold prices include:
- Central banks interest rate decisions and meetings
- Non-Farm Payrolls
- CPI – Consumer Price Index
- GDP – Economic Growth
- Unemployment rate
- CFTC Gold-Net positions
In simple terms, the gold-silver spread is a measurement of the number of silver ounces a trader needs in order to buy a single ounce of gold. This spread is being used by day traders as an indication of the future price of one of the two commodities. Occasionally, one of the two commodities precedes the other, which creates an immediate trading opportunity.
Step 4: Open a Gold Trade
If you are keen to start trading the real markets, eToro offers the most intuitive and user-friendly trading platform. Luckily, open a gold trade through eToro is super simple and if you are not confident with your trading skills, you can copy other successful traders.
Whenever you have completed the registration process on eToro’s homepage, search for Gold at the top search box.
Next, you will be transferred to gold’s page where you can find posts of other members, stats and charts. If you want to place an order in the market, click on the ‘Trade’ button and a new window will pop-up.
Now, choose the size of the trade, stop-loss take profit rates, and the leverage ratio. Click on the ‘Open Trade’ button and your order will immediately get an execution.
Gold traders tend to use a combination of technical analysis and market news coverage. There are estimations that gold’s market cap is around $2.5-3.0 trillion, which set the commodity as one of the most liquid markets, an essential element for day traders. Gold is a speculative asset, controlled by market sentiment rather by fundamental value. Furthermore, it is not a seasonal commodity and provides excellent opportunities to profit at nearly all times of the year.
Therefore, day traders find gold more profitable than most of the other assets in the market. Once you have chosen one of the brokers recommended above, we suggest that you apply the suggested strategies and tips on a demo account before you decide to risk real money.
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What is the best time to trade gold?
If you are planning to apply a full trading day, then the best hours for gold trading is from 7:00 to 17:00 GMT. This way, you can trade during the European session as well the US session.
What is the market symbol for gold?
The accepted code for gold is XAU for the spot market and for the futures market the accepted symbol is COMEX GC (Chicago Mercantile Exchange), and ZGH for the International Exchange in London.
What are the main factors that affect gold prices?
Gold prices are influenced by many factors such as economic data, uncertainty, inflation/deflation, global monetary policy, gold mining (supply and demand), economic crisis, and geopolitical tensions.
How much money do I need to trade gold?
The minimum amount required in order to open a gold futures contract (GC) is $1,000. It's advisable to hold additional funds in your account for unexpected margin calls. For a gold CFD contract, the minimum requirement for a trading account at eToro is $200.