Why And How To Trade Gold (Part II)

Now that we are familiar with gold trading methods, we want to discuss their advantages and disadvantages.

Why And How To Trade Gold (Part II)

Benefits of CFD contracts

• You can trade with less capital (unlike the techniques mentioned earlier of Trading, when you require money in the order of hundreds of thousands of euros, for differential contracts, thousands to tens of thousands of euros will be enough).
• Leverage (defines the ratio of the quantity of capital you set into a given trade to the budgets provided by the broker. In Purple Trading, we offer 1:20 power for gold Trading - indicating that you can open a trading position of $ 3,000 for $ 150. This then corresponds to both earnings and possible loss. Thus, it is necessary to use the power wisely).
• The opportunity to speculate on the promotion and drop of the cost of gold - With CFD contracts, you are not the owner of gold, which indicates that not only are you not nervous about the fall of the expenses of this precious metal, but you even have the opportunity to benefit from it. 

ETF

ETF portfolios are a group of shares or bonds of businesses in which the investor funds at once. Their composition still pursues a particular idea. In the case of gold, the ETF portfolio will have shares or bonds of businesses that mine or procedure gold. This way of investing in gold is inactive and long-term, with the possibility of receiving rewards.

What affects the cost of gold

1.     Interest rates - If interest rates drop and having currency deposited with the bank evolves disadvantageous, investors often glance for another option to capitalize on their wealth. And it is exactly the gold that can offer what they are looking for. And so they reach for it, improving the need and thus gold's worth. Conversely, gold fees fall if central banks (mainly the Fed) grow rates.

2.     US Dollar - As we initially noted, the association between the US dollar and gold has a historical measurement. This also suggests a connection between the costs of the two entities, which could be inversely proportionate. In most cases, gold costs rise along with the falling dollar cost. However, exceptions establish this rule, so you should assume the dollar cost only as one of several aspects to follow when trading gold.

3.     Oil prices - The level of oil costs often mimics contemporary geopolitical developments and overall market uncertainty. In times of crisis or war, we can also notice an oil price increase. And it is precisely the price of gold that is also mirrored in this uncertainty because investors are looking for the already noted "haven" for their capital, which they will get with gold. In most cases, when oil costs rise, gold costs also increase. Another explanation may be that the oil fee is connected to the dollar and if oil boosts, so does inflation, which again directs investors to look back on a more suitable way to invest. And that is specifically the investment in gold.

4.     Nervousness on the stock markets - Nervousness on the stock markets can be caused by the wars cited above or economic crises, as well as by years of political transition (election of the US President, Brexit). This displays a change in the manners of investors who start trading gold as a "haven."

5.     Demand for gold - In addition to jewelry, the possessions of gold are also employed in producing electronics, medicine, and aviation. However, the effect of the cost of gold, in addition to the demand from these sectors, also counts on official government investments. Gold is bought/sold by central banks to control their reserves and stabilize the weight of their currency. The current volume of gold bought this way is at the most elevated level in the last 50 years. And where there is continued demand, a slight fee boost can also be predicted.

How to choose a broker appropriate for gold Trading

If you are weighing trading gold, you should pick a quality broker. In addition to purchasing gold in physical condition, you will require an intermediary between you and the market for all variants of Trading (CFDs, ETFs, Futures, purchasing at a spot expense), and the broker plays this position.

1.     Trading conditions - You will require excellent trading conditions if you actively trade/speculate. Separate, you should be interested in the implementation speed (the response with which your trade order contacts the broker's server and, from there, the market. This is displayed in milliseconds, and the closer this metric is to 0, the better) and spread costs (the difference between the bid and ask cost, again, the lower, the better). In Purple Trading, we pay awareness to our services' maximum practicable level of transparency. If you are curious, consider statistics on the implementation speed and spread costs (gold can be discovered as the XAU/USD symbol in the CFD column). Purple Trading descends under the Cypriot regulator CySEC, further exploited by the European Securities and Markets Authority ESMA. Thus, our consumers have the highest possible level of protection per EU constraints, so they can also depend on negative balance protection.

2.     Broker License - Normally, brokers based in the EU are caused to show a higher degree of clarity due to regulations shielding clients. On the other hand, the so-called Offshore vendors can offer more power (up to 1: 400) and frequently more inferior service expenses. However, the client/trader is covered less than the EU brokers. For illustration, negative balance protection, which prevents you from falling into the red in your trading account, is an obligation for EU brokers, not offshore brokers. Purple Trading drops under the Cypriot regulator CySEC, further exploited by the European Securities and Markets Authority ESMA. Thus, our clients have the highest possible level of protection per EU restrictions, so they can also rely on adverse balance shields.

3.     STP vs. MM model - Established on how brokerage businesses process their customers' trading orders, they can be classified into several classes according to so-called models. The most fundamental sections are STP (Straight Through Processing) and MM (Market Maker). The STP broker acts as an intermediary between the client and the demand in which his order is matched with the counterparty. Thus it's being conducted. Then there is MM, which settles all its customers' orders directly with itself and artificially creates the counterparty. The MM broker makes money if the buyer doesn't, and vice versa. This can create space for manipulating consumer orders, which is also demonstrated by several cases from the past. However, this is not true with Purple Trading, founded on STP. We have no conflict of interest because we only thrive when our clients succeed. This topic is meaningful but should be cited in talks between traders. So if you are interested, you can read more practically in the following posts.