Spot Trading Gold On Forex Can Be Highly Profitable
Have you ever given a gold ring to your friend as a token of your true love? Gold has been the most precious metal from the dawn of civilization. It is still considered to be the ultimate currency and the ultimate store of value in times of political uncertainity. For the last ten years, the gold market is in a secular uptrend with the spot prices having recently breached the historical barrier of $1,200 per troy ounce. After that there was a retracement and the prices did come down to around $1,100 per ounce but this uptrend is expected to continue for sometime.
Forex trading is the hottest market right now after the recent stock market crash. Many small investors lost their lifetime saving in the stock market crash of 2008. Investors have turned towards forex in droves. Forex trading is considered to be a recession proof business as there is neither a bull market nor a bear market in currencies. Currency prices are always quoted relative to one anther and currencies are traded in pairs. What this means is that if one currency goes up the other goes down. It is being said that many millionaires will be made in the currency markets.
Now, many forex brokers also allow you to trade gold in the spot market from the same platform that you trade forex. If you have been trading forex, you can easily trade gold too. Now when you trade currencies, you take a long or short position on two currencies.
In case of spot gold trading on forex, you trade one ounce of gold in the spot market againt US Dollar (USD). So just like when you trade a currency pair, when you trade gold on forex, you are taking either a long or a short position in gold against USD. There are many currency pairs that you can trade like the GBPUSD, EURUSD, UADUSD, NZDUSD, JPYUSD. Spot trading gold on forex is almost similar with gold replacing one currency in the pair and the other currency is always 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.
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! 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.
A standard lot of gold is equal to 10 troy ounces. So if you buy one lot of gold at the rate of 1110/1115, you will have to pay $11,105 for the 10 ounces of gold. Suppose the market rallies and in the next hour the price quote is 1117/1121, you can sell your lot at $11,170 making a profit of $65. Not bad huh!
Gold is also know as anti dollar. What this means is that their is an inverse correlation between gold and USD. This inverse relationship can help you hedge your positions in other currency pairs.
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!
Filed under: Currency-Trading
