What is Gold Spot Trading?
The best way to explain Gold Spot Trading is that it is trading gold as if it were currency on the Forex Market. Trading Spot Gold is basically Forex Trading a currency pair that is made up of Gold against the US Dollar. Just as Forex Trading is usually a trade of a currency pair against one another, such as USD/EUR is trading US dollars for Euros, Gold Spot Trading treats Gold as the currency that one is trading against the US dollar.
Trading Spot Gold or Gold Spot Trading works very similarly to other types of Forex trading. There is an ask, or a price at which a trader is willing to sell their gold (XAU) for a specific amount of USD and then a bid or the price at which they will buy the gold. The difference between the two prices is called the spread. The prices are based on an ounce of gold.
You can buy and sell gold in lots, and it can happen multiple times per day because you can buy and sell using leverage so you do not actually have to come up with the cash for each trade. The gold market moves quickly.
photo/ Steve Bidmead via pixabay
It is important to know that with Gold spot trading you are not physically receiving the gold that you are purchasing. There are many similarities between spot gold trading and physical gold trading but because gold spot trading moves so quickly it is a virtual trade as opposed to a physical one. If you are interested in physically holding on to the gold, this is not the type of trading you are looking for. These transactions are all electronic and the funds enter and leave your brokerage account. That means that to trade spot gold you must choose a brokerage firm and open an account with them.
Choosing a firm is based on many different factors. You need to find a Forex broker who trades spot gold, has an account choices you are comfortable with and leverage you are happy to work with as well. Once you choose a broker, you can open an account by depositing funds according to the type of account you chose, then you can begin.
When you purchase a certain number of ounces of Spot Gold at an agreed upon amount of USD, you then look to sell that gold when the price goes up. The term for this is going long and it is done based on a permitted amount of leverage allotted to you by the brokerage firm. That means that for every $100 dollars you deposit, they allow you to trade a larger amount.
The same risks apply when you trade spot gold using leverage as apply when you are trading any other forex pair using leverage. It is important to beware of using too much leverage so that you do not lose more than you have. Another common risk associated with Gold Spot Trading is the price fluctuation. The benefits are great but so are the risks.
Author: Shan Ge
