Gold is considered to be one of the most precious metals and it has been collected and traded since the dawn of civilization. Gold spot trading is potentially a great way to diversify your portfolio if you are a forex trader. Gold spot trading is essentially the trading of gold as if it were a currency on the forex market. This is because when you are trading gold you are, in fact, trading the currency pair of gold (XAU) against the US dollar, where the price is listed for one ounce of gold. Gold spot trading is also known as cash trading as the contracts are settled immediately. This is in contrast with gold trading in futures where the contract will mature some time in the future.
How Gold Spot Trading Works
Just like with a currency pair that is made up of two different currencies, the currency pair of gold against the US dollar has an ask price and a bid. In other words, there is a price at which the trader is prepared to sell their gold (ask) set in US dollars and there is a price at which the trader is willing to buy the gold (bid). The difference between the ask and the bid prices is known as the spread.
The gold market moves very quickly. It is possible to use leverage when trading in gold which means that you don’t have to have the cash in your trading account in order to be able to trade large amounts of gold. This allows you to trade gold multiple times in a single day. However, the fast pace of gold trading also means that you do not physically have the gold in your hands, but the trades are virtual. The transactions are all electronic with the cash moving in and out of your account through a broker.
Trading in Gold
Spot gold trades take place over the counter (OTC) in the global forex market directly between the buyers and sellers. Gold spot prices are determined by supply and demand for physical gold.
To get started trading in gold, you must open an account with a forex broker who trades spot gold. Ensure they have a range of account choices to suit you, as well as leverage that will work for you. You will then need to make a deposit into your account and can begin trading. When you buy a gold currency pair, you will be buying a certain number of ounces of gold, while selling the gold currency pair means you will be selling a certain number of ounces of gold for the currency it is paired with. Selling the gold currency pair when the spot price of gold has increased is known as going long and it will be impacted by the amount of leverage offered to you by the broker.
The price of gold changes all the time and having an online trading account will help you take advantage of these changes.