CFD TRADING ON GOLD - OUR ADVICES FOR SUCCESSFUL TRADING IN 2022
Gold has been considered a safe-haven for traders and investors for centuries, mainly because its immunity from external economic factors due to its significant scarcity and high levels of demand. Whenever markets go through a hard time because of recession or uncertainty, all investors, big or small, turn to gold to preserve the value of their investments. However, trading in gold directly is not very efficient or cost-effective for several reasons, and that is why trading gold CFDs is a better option.
Why trading gold CFDs?
If you look at the whole picture from a practical perspective, trading gold CFDs is better than trading physical gold. With a number of great benefits, gold CFD trading is an appealing investment opportunity. First, you need to store and transport physical gold, and it comes with the cost of security. However, covering all these costs can often be more than what most regular investors can afford. These investors are more interested in speculating the price of gold than becoming full-fledged gold dealers.
Apart from the pragmatic reasons to choose CFDs, the benefit and costs of transacting the CFD structure make sure that CFDs are more preferred by most traders than dealing in gold directly. Since CFDs are inherently margined products and the expenses of leveraging transaction sizes are relatively minimal, traders can take larger positions than they can afford to earn high profits from smaller ticks in market prices. It makes CFDs a popular choice among investors who look for more profits from less upfront investment.
Factors that influence the gold price
- Currency fluctuations: Gold is traded in USD in the international markets. Since the gold price is dollar-denominated, the movement of the USD influences the price of gold strongly. A falling USD tends to push the price of gold higher because other commodities and currencies across the world rise in value when the USD falls. On the contrary, the strength of USD often increases because of the growing economy of the US. Since it has an inverse relationship with gold, a rising USD pushes gold prices down.
- Demand and supply: Just like any other traded commodity, demand and supply play a major role in determining the price of gold. Unlike oil, gold is not a product that can be consumed. All gold ever mined before is still available in the world. Moreover, the amount of mined gold is not very high every year. So, it the demand for gold increases, the price increases because the supply is comparatively limited.
- Inflation: Inflation is another factor that impacts gold prices. It is not guaranteed, but generally, rising levels of inflation have the tendency to increase the price of gold, while falling levels of inflation or deflation decreases the gold price. Inflation is almost always a symbol of expansion and economic growth. When the economy grows and expands, it is common for the money supply to be expanded by the Federal Reserve. As a result, the value of every existing monetary note is diluted in circulation. So, assets with a perceived store of value like gold become more expensive to buy. Inflation has been comparatively tame in recent quarters. The lack of inflation is one of the factors that coerce the Federal Reserve not to raise lending rates. However, it decreases gold prices that usually do well in a rising inflation environment. This push and pull between inflation and interest rates play a tug-of-war on the price of gold constantly.
- Economic data: the nation’s economic data is another driver of the price of gold. Economic data such as manufacturing data, job reports, wage data, and broader-based data such as GDP growth impacts the monetary policy decisions that can affect gold prices. For instance, a stronger economy – jobs growth, low unemployment, GDP growth in excess of 2%, and manufacturing expansion – tends to decrease gold prices lower. Strong economic growth indicates that the Federal Reserve can tighten monetary policy, thus impacting the opportunity cost dynamic. On the contrary, rising unemployment, weaker jobs growth, subpar GDP growth, and weakening manufacturing data can increase gold prices.
Advantages of trading gold CFDs
Trading gold CFDs has many advantages. For example, you can be free from stamp duty and you do not have to deposit the full value amount of trade which is mandatory if you purchase physical gold. More advantages of trading gold CFDs are
- Investment stability: Traders are provided with investment stability from gold CFDs, which is very useful especially during the harsh and unstable economic periods. Trading gold has always been considered a solid investment. You can leverage gold CFDs and it is one of the most common ways to increase one’s stake in a bid to gain better profits. However, keep in mind that you are exposed to high risks at the same time and the risk value can be very high too.
- No expiration: Traders can hold gold CFDs as long as they want because they do not have expiration date. As a trader, it would be you who will decide when it is the right time to close the positions based on the prevailing market rates and desired profit margins.
- Market liquidity: You can benefit from the market liquidity while trading gold CFDs. It only takes a fraction of second to execute buy/sell orders. A day trader can easily profit from the fluctuations that occur during the day. The amount of commissions charged while trading CFDs is very small. At times, no commissions are charged at all.
- Minimal costs: Lastly, all costs related to gold CFDs are very minimal. Thus, it contributes to high annual savings. However, the costs depend on your location and the broker you are trading with. You can trade gold CFDs from a volume of as low as 0.1 lot per CFD.
Margin trading and leverage
You can trade CFDs on a margin. Every trader must maintain a given minimum level. The deposits you make to your accounts must not fall below this minimum level or there will be margin calls made. It is important for the trader to cover these costs if they do not want their positions to be liquidated. Usually, the margin ranges from 0.5% up to 30%. Thus, it allows traders to benefit from the leverage by magnifying the potential profits or losses in trades.
Hence, traders also consider CFD trading as margin or leverage trading. Keep in mind that high risks come with high profits. If you want to trade gold on CFD, remember that you cannot use it as a hold strategy. As long as the trader owns proper money, takes risk management seriously, and use stop losses, it is feasible to use as a short-term or medium-term strategy.
How do you trade CFDs in IQ Option?
You can trade commodity CFDs on the long and short side. It allows traders to benefit from bullish and bearish price movements. A trader needs to sell the CFD to go short, and to go long, the CFD is needed to be bought. It can be done instantaneously on the trading platform of IQ Option just with a single click. If a trader goes short and sells a CFD and the price moves lower, they can profit from the move lower, just like a trader who will gain from a move higher by going long and buying a CFD.
To trade CFDs on IQ Option, you also need to know about IQ Option commodity leverage. Commodity CFDs are available to both EU and non-EU clients. However, the leverage differs for these two groups. Clients who are from outside of the European Union and who are pro EU traders can have access to leverage up to 1:150. Retail EU traders who are not pro, however, can access leverage of 1:20 on gold and 1:10 on other commodities. Only these leverage settings can be used by these traders. There are no higher or lower settings available.
Commodity spreads on IQ Option start from about 0.066% which is on wheat. On gold, the commodity spread is 0.093%. These spreads are not fixed always. These are floating spreads and can change according to news releases, market liquidity, and other factors.
Different commodities have different trading hours on IQ Option. Some are available for 23 hours a day and 5 days a week, while others are available for only 4 and a half hours per day, and 5 days a week. You need to visit the broker’s site and sign into the trading platform to know the trading hours of the commodity CFD you are interested into.
A great thing about IQ Option is that you can also place pending orders on commodities even when the market is closed. Traders may execute these orders either at the first available price when the market opens, or at a price specified by them. If you want to place an order to be executed at the first available price, select ‘At Opening’.
Popular gold CFD trading strategies
If you want to trade gold CFDs effectively, you must have a hood understanding on the market for gold along with a basic knowledge and experience in CFD trading. Based on your margin requirements that can be less than 5% at times, gold CFD trading can be extremely tightly leveraged. It means that small ticks in price may deliver heavy returns. It has indeed to be weighed up against the expenses of financing that accrue daily for the position’s duration. However, gold CFD trading holds the potential to be very lucrative with margin working in your favor.
When you are trading gold CFDs, you must look out for strong signals which include market uncertainty in the stock markets, and other forms of economic and financial hardship that may create issues for investors or may work in their favor. Apart from these externalities, you can trade gold CFDs on statistical data by using recent graphs in order to decide pricing highs and lows. Like most things, gold tends to trade in cycles. So, analyzing past pricing data and tapping in to the process of those cycles can provide you with the signal to enter a great position in the gold market through CFDs.
Several opportunities are available on the online gold market. Investors consider it a powerful defense against the high market volatility. However, it is essential to consider all benefits and risks of gold CFD trading before you invest. If you want to earn higher profits, you must study and analyze the commodity market so you can make an intelligent and informed decision. It is true that you can make good profits with gold CFDs but there is also the possibility of incurring huge losses if you are not careful. To avoid such risks, you must invest time in studying and analyzing the market movements.
You can try IQ option with the free and unlimited demo account. The minimum deposit for trading with real money is $10 only.