Trading Gold On Forex Can Be Highly Profitable
Gold prices recently breached the historical barrier of $1200 per ounce in the spot market before back to around $1100 per ounce. Gold market has been experiencing an unprecedented boom for the last ten years.
In the last decade, many investors turned towards forex after the historic crash in the stock market. Many small investors lost more than 60-70% of their saving accounts in the stock market crash. Now, forex is a great money making opportunity. It is being said that forex trading will make many millionaires in this decade.
Many people don’t know this that you can trade gold on forex too. Many forex broker platforms that you use to trade forex, allow trading of gold and silver against the US Dollar (USD) from the same platform. Both these precious metals have high demand in the industrial sector and as the global economy recovers from the recession, the prices of gold and silver are expected to skyrockets as industrial production picks up and consumers start buying again. When you trade a currency pair, you go long on one currency and short on the other. In other words, you simply buy one and sell the other.
But when you trade gold, you take long or short position in gold in the spot market with the opposite position in US Dollar (USD). In other words just like trading a currency pair like EURUSD, JPYUSD, GBPUSD and other pair involving USD as the counter currency when you trade gold, you are trading against USD.
Not surprisingly the symbol for gold spot quote is XAUUSD. The first symbol XAU is simply the gold in troy ounce. So if the gold price quote is 1100 XAUUSD it means that one troy ounce of gold is equal to $1,100.
Just like any currency pairs, stock or for that matter any security, the price quote in the spot gold market has got a bid-ask spread. Suppose the price quote in the spot market is 1110/1115. This means is that you can buy one ounce of gold at a rate of $1,115 and sell one ounce at the rate of $1,110 to your broker. Now, spot gold trading on forex is a fast moving market. Due to the fast moving nature of the spot gold market, the spread keeps on changing throughout the day!
Spot gold market is a fast moving market and the price quotes keep on changing. So, suppose just after 60 minutes, you find the quote to be 1120/1126. You see a profit and decide to get out selling at $11,200 making a profit of $30. Now if you had used leverage, you would have needed a much lower initial investment to make a profit of $30 in just 60 minutes. Now a standard lot in currency trading is equal to $100,000. But in case of gold on forex, a standard lot is equal to 10 troy ounces of gold. So, if you find the price quote to be 1112/1117 and you are interested in going long. In that case you will have to buy 1 lot of gold that is equal to $11,170.
Gold and USD have an inverse correlation relationship. What this means is that the gold prices and USD move in opposite direction in the long term. This inverse relationship may not hold in the short term. But if you are a trend trader or a position trader, you can hedge your position in currency pairs that have correlation with gold prices by taking opposite positions in the spot gold on forex market.
Mr. Ahmad Hassam has done Masters from Harvard University. Download this 1 Minute Forex Trading System FREE. Get this Forex Swing Trading Forex-4 Pack Training Kit FREE!
