For thousands of years, gold has served as one of the original stores of wealth and mediums of exchange. If you have some trading experience and think you want to trade gold online, keep in mind that the broker you select and the online trading platform you use can have a significant impact on your potential profits.
Step 1: Define Your Goals
Have a basic trading or investment plan in mind and know why you want to operate in the gold market.
Decide whether you want gold as economic insurance by physically possessing the metal, keeping it as a store of wealth or taking advantage of market moves to make profitable trades. This helps you determine the best way to invest in gold.
If you plan to invest in gold over decades and use your investment as a store of wealth, as an inflation hedge and/or as an alternative form of hard currency, then taking possession of physical gold would probably be your best choice.
You can still currently buy and sell physical gold, but If you want to trade gold actively and are based in the United States, you will probably need to open a commodity account to trade gold futures and options. You can also use a stockbroking account to trade gold ETFs or gold mining company shares that have prices which tend to reflect changes in the value of gold.
Other reasons to purchase gold could be for savings purposes, which typically involves placing physical gold in a depository or purchasing gold certificates.
Build Wealth Over Time
U.S.-based brokers that offer trading in the gold market will often also let you trade in gold shares and ETFs. You can invest in gold by purchasing gold mining company shares or exchange-traded funds (ETFs) with good future prospects.
This gives you a choice about how you prefer to trade in the market. Keep in mind that gold mining shares, in addition to reflecting movements in the price of gold, also have their own corporate dynamics and can be affected by general stock market moves.
If you qualify, you can also trade gold purely for speculative purposes, which generally involves buying and selling gold futures on the Comex for U.S. based gold traders. However, due to the Dodd-Frank Act, trading in leveraged and spot precious metals in the United States has been prohibited since 2011, so U.S.-based traders cannot use contracts for difference (CFDs) to trade gold.
Step 2: Develop a Trading Strategy
Once you’ve defined your goals, you can work out a viable strategy for your needs.
Buying physical gold or purchasing gold for savings purposes doesn’t take much strategy. You generally just wait for a sell-off in the gold market and purchase the amount you wish to invest in.
Trading gold futures for profit requires much more strategy you plan to use. Short-term strategies such as day trading and scalping can be viable choices with a competent discount broker, although you may be required to make a substantial initial deposit.
Historical gold price charts and the ability to perform technical analysis on them can be invaluable to short-term traders. Other important considerations when trading in the gold futures market consist of the amount of open interest in the front month and activity in subsequent futures delivery dates.
Medium and Long-Term Trading
Medium and longer-term trading also require strategic considerations, such as the underlying fundamentals of gold, including production figures and the overall supply and demand for the metal.
Unless you’re purely a technical trader, your trading strategy will probably take all of these fundamental factors into account.
Geopolitical events often influence the precious metals market. Gold and silver have traditionally been economic safe havens, which means that when unrest in the world occurs, people generally buy gold since it represents a form of hard currency. Events such as the outbreak of war, U.S. interest rate changes, announced central bank gold reserve shifts and elections in gold producing countries can often influence world gold prices.
Market sentiment can also be an important directional indicator, so the Commodity Futures Trading Commission’s (CFTC’s) Commitment of Traders (COT) report can be useful in that regard for the gold market. This report is released every Friday at 3 p.m. CST by the CFTC and provides a breakdown of the open interest in gold futures and options on futures further broken down by trader type and separated into long and short positions. Open interest consists of the amount of outstanding futures and options contracts that have not been liquidated and excessive imbalances in open interest can signal market reversals.
Step 3: Pick a Gold Broker
Once you’ve defined your objectives and have developed an appropriate strategy for meeting them, you can find the best online brokerage for your needs and test your trading plan in a demo account. If you plan to invest in and possess physical gold, you can obtain bullion or gold coins from a dealer who specializes in selling metallic gold.
The brokers we have highlighted below allow you to trade gold futures, options and shares on gold mining stocks, as well as ETFs that invest in gold and gold mining company shares. All of the brokers on the list have a base in the United States and oversight from the National Futures Association (NFA) and the CFTC.
TradeStation gives you access to trade over 80 futures products that include gold futures. The broker’s comprehensive desktop platform gives you the ability to trade futures, options and stocks all on one platform.
TradeStation also offers a mobile app where you can place advanced order types and analyze the market using the broker’s advanced trading software.
TradeStation has a $5,000 minimum deposit and charges software usage fees for accounts below $100,000 in size. Other ways to waive software fees include making 10 round-trip futures trades, a trade of 50 option contracts or 5,000 shares of stock.
Futures trades cost $1.20 per contract for 300 contracts or less and are as low as $0.25 per contract for 20,000 contracts or more traded.
E*TRADE can give you access to more than 200 futures products and stocks of gold mining companies and gold ETFs such as SPDR Gold Shares (GLD). E*TRADE also offers gold options that can be used in combination with futures contracts for more sophisticated traders.
E*TRADE features an intuitive and easy-to-use platform available for mobile devices. The broker charges a flat commission of $1.50 per futures contract traded and requires a minimum deposit of $10,000 to open an account.
E*TRADE provides futures research from CME Group, the world’s largest futures exchange.
With some of the lowest commissions for futures in the business, award-winning Interactive Brokers caters to more advanced and well-funded futures traders.
The broker offers access to 35 world market centers trading in futures, commodities and futures options.
Its trading platforms feature a complete set of analysis tools and are designed for all trading levels.
Commissions for futures contracts and options are a low $0.85 per contract, with further discounts available for high-volume traders.
The minimum deposit amount is $10,000.
FOREX.com is one of the largest U.S. forex brokers and offers trading in unleveraged gold and silver spot trading. FOREX.com requires a minimum of $50 USD to open an account, but since precious metals trades cannot be leveraged, a considerably higher amount would be required to make a trade in spot gold.
FOREX.com recommends that you maintain an excess margin balance and has a direct market access account with a $25,000 recommended balance, which would be ideal for trading unleveraged spot metals. FOREX.com only charges the dealer spread as commission and also offers gold futures and options trading through its subsidiary FuturesOnline.
Step 4: Test Your Strategy
After you develop a viable trading technique and select a broker, backtest your strategy using historical data to see how it would have performed. If your strategy works well when tested on past data, open a demo account with the broker you’ve selected to verify that your strategy would also work in a real-time trading situation.
The online broker you select will ideally have a trading platform you can use to access historical data and backtest your strategies in a demo account. The popular MetaTrader platform includes a useful backtesting function.
If you have a problem developing your own trading plan, you can research other people’s trading plans and either follow the same system or develop your own using the other plan as a base strategy. Trading without a plan of action is much like sailing without a compass or a map and is one of the main reasons that the majority of traders lose money. You can also explore social trading to copy a more experienced operator’s trades.
Step 5: Start Trading
After you have successfully tested your strategy in a demo account, you’re ready to trade real money. Keep in mind that you may react emotionally to making or losing money, which is the reason you should develop the discipline needed to stick to your trading plan.
Implement sound money management principles and position sizing techniques appropriate to the amount of money you have in the account and your risk tolerance. The use of stop-loss orders and other risk management techniques is also recommended.
Gold is one of the original commodities traded in markets and it generally trades in broad sweeping moves. This is why many gold traders can use medium and long-term trend trading strategies to trade the meta.
Day trading and scalping strategies are also viable for gold in some cases, but these active styles usually involve paying more in commissions. Your trading strategy will ultimately determine the time frame for your trades and may influence your choice of broker.