Gold Trading UK Guide 2022
Gold is the most traded commodity in the world, along with oil, natural gas, and grains. But this precious metal is also one of the most intriguing assets because of its use as a favorable hedge against inflation, being the number one safe-haven asset in the world. Apart from that, Gold has significant use in various industries including jewellery, dentistry, medicine, mobile phones, etc.
While back in the days, trading gold was challenging as you had to buy and sell the metal itself and store it, these days, anyone can easily buy and sell gold at any point.
In this guide, we explain how to start gold trading in the UK. We explain the the fundamentals of gold, benefits, risks, trading strategies, and suggest some popular gold trading platforms in the UK.
What is Gold Trading?
Gold trading is simply a trading method using gold as an asset to trade in the financial markets. Much like any other financial tradable assets, gold trading in the UK involves the buying and selling of the commodity in order to make short/long term returns or to hedge your portfolio against inflation or a down market.
Gold is an important asset in the economic monetary system and rare metal throughout the universe, with very high values. Many investors use gold in a time of inflationary pressure, political instability, or economic recessions. There are several ways to trade gold with the most common and traditional one is to purchase physical gold in the form of bars, coins, or jewelry. Nowadays, there are other methods in which an investor can buy and sell gold that includes the futures contracts, gold funds or ETFs, options, and CFDs.
Gold Trading Price
Gold is traded in various forms and markets, meaning you’ll have to understand the differences between spot gold and gold futures trading. The key difference between the two is that when you trade the spot gold, the price displayed represents the current market value of the asset or in other words, the price that you can immediately buy or sell. Gold spot is traded continuously on the interbank spot market that derives directly from the OTC (over the counter) global gold markets. The spot price of gold is the benchmark for the gold price around the globe and plays an integral role in the gold bullion industry.
Gold futures, on the other hand, have different expiry months, usually for the next 12 months. As such, a gold futures contract allows an investor to buy or sell an asset at a future date and a specified price. The price of a gold future contract tends to be higher than gold spot price as these have carrying costs, which include storage, insurance, and interest rate financing.
Gold contract is sold in one brick of gold which represents 100 troy ounces and is traded in dollars and cents per ounce. For example, when gold is trading at $1940 per ounce, the value of the contract is $194,000. It is worth mentioning that the majority of CFD brokers offer you to trade CFD contracts that follow gold spot price.
There are other differences between the two assets that include:
- Minimum Trades Size: Gold futures have a minimum trade size of 0.01 (1000 units) while gold spot has a minimum trade size of 0.10 (10,000 units)
- Overnight Swaps: You will have to pay overnight swap (rollover fee) for gold spot contracts only.
- Minimum Tick Size and Value: The minimum tick size for gold futures is $10.00/tick and for a gold spot is $10.00/pip
Gold Trading Hours
The international gold market (spot gold) is traded 24/5, thus investors can trade gold around the world at any time. The global gold market, however, is closed from 22:00 GMT to 23:00 GMT daily.
Ways of Trading Gold
As we mentioned previously, there are four popular methods to trade gold when taking aside the trading physical gold. Below, we’ll go through the three methods in which an investor can electronically buy and sell gold without having to hold and store the precious metal.
Gold Contract for Difference (CFDs)
CFDs offer an alternative way of trading commodities like gold and oil trading. In simple terms, CFDs are a form of derivative trading that enables you to trade on a specified asset without owning the asset, meaning you enter an agreement with another investor to speculate on the price of the commodity.
Instead, when you are buying and selling gold via a CFD broker, you are able to do this online. On top of that, you can trade with leverage as well as trade fractions of a lot. This means that you don’t need as much money to enter a gold position when compared to buying gold futures directly from the exchange.
Future contracts is the most common way of trading gold though it is much more complicated and pricey than trading gold via CFDs. These financial contracts have been used as an insurance tool for farmers, producers, and big companies for centuries. Nowadays, futures contracts are used to hedge a position but also to speculate on the price of the asset.
Essentially, when you buy a future’s contract, you do not pay the settlement price but instead, you are entering into an agreement to buy or sell the commodity at a specified date, place, and price. While trading futures on an exchange offers high liquidity and allows you the ability to built trading strategies, it is quite complex and requires a long registration process and a large amount of investment.
Nonetheless, there are plenty of gold futures exchanges around the world including, but not limited to:
- Chicago Mercantile Exchange (CME)
- The US futures market (COMEX)
- Tokyo Commodity Exchange (TOCOM)
- Shanghai Gold Exchange
- Multi Commodity Exchange of India/National Commodity and Derivatives Exchange
- Intercontinental Exchange
The most significant gold futures exchange is COMEX, which is the world’s largest financial derivatives exchange.
Another way to trade gold is via options. Call and put options on gold basically give the holder of the contract the right to buy or sell the precious metal at a pre-set price and at a pre-set date. These options typically trade on a futures exchange such as the Chicago Mercantile Exchange (CME) but you can also find call and put options on CFD platforms like Plus500.
Gold options offer advantages when compared to futures such as additional leverage, the ability to limit your potential losses, and the implementation of hedging trading strategies.
For example, at the time of writing gold futures price for December 2021 stands at $1947.9. If you believe that gold prices will increase in value, you will therefore be buying call options. For this example, we chose the strike of 1950 for October 2020. Remember that the expiration date impacts the price of an options contract and thus, a December contract will be much more expensive than the October contract.
Each option contract of gold controls 100 ounces of gold so if the cost of the 1950 strike option contract is $20.50, then the amount you’ll have to pay for the option is $20.50 x 100 = $2050.
Here’s what might happen when the contract expires. Assuming that gold is priced at $2,000 at the time of expiration, the investor could use the option to purchase gold at $1,950 per ounce, then immediately sell it in the openfor $2,000 per ounce. This will lead to a total profit of $5,000.
Reasons Why People Start Gold Trading UK
If you are still wondering whether you should trade gold or not, below we have outlined some of the main reasons why people may trade gold:
Gold is an ideal hedge asset for financial market risks
Gold is primarily known as a safe haven asset that has the ability to preserve its value during economic slowdowns. It also might serve as a suitable hedge against high inflation. As such, many investors choose to invest in gold as a hedge against any danger in the market.
Gold is a highly liquid asset
Having high liquidity is always a top priority for traders and large financial institutions. Gold is the most traded precious metal and one of the most traded commodities in the world. This means you can always find gold-related news and financial analysis. Moreover, you can also use the gold COT report, which is crucial data for active day traders published once a week by The Commodity Futures Trading Commission (CFTC) and allows the public to understand gold market dynamics.
Finally, if you are a UK resident who trades on a spread betting account, profits are exempt from capital gains tax (CGT). Many well-known brokers in the UK allow trading in a spread bet account.
How to Begin Trading Gold
Unlike stocks and bonds, gold does not pay dividends or any other form of passive income. This means you’ll need to speculate on the price of gold. It’s important to remember that you can buy or short sell gold so you can make a profit by speculating the price will rise or fall. For example:
- Let’s say that you place a short sell order on a gold CFD contract worth £1,000 with a leverage ratio of 10:1, meaning you will have to invest an amount of just £100.
- A few days later, gold dropped 10% of its value
- Now, your gold CFD position is worth £1,100
- Once the trend is over, you place an order to close the position
- This leaves you with capital gains of £1100 as you have invested only £100
With that in mind, you need to take into consideration the high risk involved with this type of trading. On the other side, if the market goes against you by 10%, you would lose your capital. As such, you’ll have to closely monitor the requirements of each contract and keep sufficient funds in your trading account.
Risks of Gold Trading
Gold trading online can be used as hedging against economic risks, however, there’s a high risk associated with UK gold trading when you speculate on its price fluctuations.
First and foremost, gold is different from most tradable assets in the market as its value has little correlation with other assets. Secondly, Gold’s price movement is somewhat a dwell between market news and demand and supply. It is, therefore, can quickly cause an unexpected price movement regardless of the trend direction.
Finally, there’s a risk that you lose your capital, particularly when you use high leverage through CFD trading.
Taking the above into consideration, you’ll have to create a risk management plan before you start trading gold. Some of the most important risk management techniques for active day traders include a risk/reward ratio, stop loss and take profit orders, and apply the One-Percent Rule.
Gold Trading Strategies
As with all other forms of investments, you will need to find an effective gold trading strategy to anticipate market trends. Here are some key points to keep in mind:
The gold/silver ratio represents the amount of silver it takes in order to buy one ounce of gold. This tool is very popular among gold and precious metal traders as these two metals tend to have a strong correlation. As these two commodities have a strong correlation, the gold/silver ratio can be used as a way to determine when to buy or sell gold or when to buy or sell silver.
Follow Precious Metals
Precious metals tend to move in the same direction as these assets often bought as a hedge against market risks. But occasionally, you’ll find a scenario where one of the precious metals is not in correlation with the rest of the group. It’s advisable to add all the precious metals (gold, silver, platinum, and palladium) to your watchlist and follow their price movements closely.
Market News and Economic Data
Gold is a bit more reactive to market news and economic data than other assets. Evidently, since the Covid-19 pandemic has emerged, gold has gained almost 25% due to the turmoil in the market. This means you’ll have to follow relevant news and important economic data releases by major central banks. As such, we suggest that you find a reliable source of financial information and monitor closely an economic calendar. Some of the most significant economic data to follow include the Growth Domestic Product or GDP (US, EUR, UK, China, JPY, AUD, etc), Consumer Price Index, Non-Farm Payrolls, Employment Data, and Interest Rates announcements.
Gold Trading Tips
Here are a few tips you should take into consideration when trading gold.
Tip 1: Use A Risk/Reward Ratio
Using a risk-reward ratio is very simple but also extremely effective. The ratio helps you to assess the expected return and risk on any given trade or even a longer period of time (day, week, month). The majority of day traders, for instance, use a risk/reward ratio that typically falls between 1.0 and 0.25, however, if you’re planning on swing/long term trading, then you should apply a risk/reward ratio of 1:3 to 1:5, meaning you’re willing to risk £1 to potentially make £3.
Tip 2: Practice Gold Trading on a Demo Account
The majority of online CFD brokers allow you to open a paper trading account (aka demo account) in order to get familiar with the trading platform and test your trading strategies with virtual money. While it’s not mandatory, it will certainly help you to achieve your goals.
Tip3: Learn Technical Analysis
Technical analysis is essential in a day and swing trading. This form of analysis strives to predict price movements by analyzing historical data and has become even more important to use in the modern electronic market. As such, you should grab a few investing books, find informative articles and guides about day trading, and get familiar with the most common technical analysis terms and indicators. To start, we suggest that you use the following indicators: Moving Average (MA 26, MA 12), Relative Strength Index (RSI), Bollinger Bands, Fibonacci Retracement levels, and Volume.
Tip 4: Follow the US Dollar
The US dollar is the benchmark pricing and settlement currency for the price of gold globally. As such, you’ll have to understand the factors that move the currency markets and in particular, the US dollar. While the demand and supply of gold play an important role in its price, it does not change during a trading day, and thus, the strength or weakness of the US dollar can affect gold prices.
Tip 5: Try Gold Trading Signals Service
Another way to get trading ideas is to find a respected gold trading signals provider. Trading signals operate on an algorithmic formula and alerts you via an email or an SMS when certain parameters are met. However, these signals aren’t always accurate, so it’s wise to use them in conjunction with other forms of analysis.
Popular Gold Trading Platforms
As gold is among the most active and traded precious metal in the world, almost any brokerage firm will allow you to buy and sell this commodity, and evidently, there are hundreds of UK gold trading platforms in the market. But trading gold can be quite expensive if you trade via your bank or financial brokerage firm that connects you directly to futures exchanges like the CBOE. To make things easier for you, below we list some of the most popular gold trading platforms for UK investors as of 2022.
Plus500 is another option that is suited for active day traders that wish to place a large number of orders in the markets. This largely can be attributed to Plus500’s no-commission policy and the competitive spreads it offers. More specifically, the spread of gold at Plus500 is 0.77 or 0.04%.
In terms of trading tools and features, Plus500 provides a market sentiment tool that enables you to see the open positions of investors on a particular asset. Further, you can make use of its price alerts feature that notifies you when price changes on individual products. Another feature is that it offers options on gold, meaning you can also buy call and put options.
Finally, Plus500 is heavily regulated and its parent company is listed on the London Stock Exchange under the ticker symbol PLUS. You will be able to open an online trading account by depositing just £100, which can be done via Paypal, a bank transfer, or a debit/credit card.
Commission 0% Deposit Fee Free Withdrawal fee Free Inactivity fees £10 per month after 3 months of inactivity
AvaTrade is an additional trusted CFD trading platform that is worth considering. This broker stands out for offering a huge diversity of assets on a range of platforms that includes the MetaTrader4, MetaTrader5, AvaTradeGo, and AvaOptions. It is also one of the most popular trading platforms for automated trading, enabling UK traders to copy the trades of others.
In terms of its specification for gold trading online, AvaTrade offers a leverage ratio of 5:1 for retail traders and 200:1 for professional traders. The spread of 0.28 is very competitive and the broker enables you to trade gold in increments of 0.01. Besides that, the platform does charge any commissions except the buy and sell spread.
You can start trading gold at AvaTrade with a deposit of just £100, which can be funded instantly with a UK debit or credit card. AvaTrade is also is regulated in multiple jurisdictions including the UK’s FCA.
Commission 0% Deposit Fee Free Withdrawal fee Free Inactivity fees £50 per quarter after 3 months of inactivity
Sponsored ad. 79% of retail investors lose money trading CFDs at this site
FXCM is a popular online trading platform in the UK as it allows users to trade CFDs as well as a spread bet. For those unaware, spread betting is tax-free and can be traded with the same leverage as CFDs. While FXCM is suitable for forex trading, the broker also offers a selection of markets and products including gold. While the average spread of 0.81 is relatively high, the broker compensates by offering investors to trade on the popular MT4 and does not charge overnight financing costs.
FXCM maintains a leverage ratio of 10:1 for commodity trading though these restrictions do not apply to professional investors. FXCM offers fast execution speed that stands at an average of 0.026 seconds or 26 milliseconds. Further, the broker connects investors to many liquidity providers such as Deutsche Bank, UBS, Morgan Stanley, Barclays, and more.
When it comes to regulation in the UK, Forex Capital Markets Limited is authorized and regulated by the Financial Conduct Authority (FCA) of the United Kingdom under the registration number 217689. You can open an account by depositing a minimum of $360 (£300) with a debit/credit card, e-wallet, or bank wire transfer.
Commission 0% (spreads on CFDs) Deposit Fee Free Withdrawal fee $5 Inactivity fees $50 a year after 12 months of inactivity
Sponsored ad. 73.05% of retail investors lose money when trading CFDs at this site
Here’s a comparison of what each gold trading broker offers.
UK Gold Broker Fees Charge Per Trade Deposit Fee Gold Leverage Plus500 0% Commission Free 10:1 AvaTrade Free Free 5:1 for retail traders and 200:1 for professional traders FXCM Free Free 10:1
How to Begin Gold Trading in the UK
If you have landed on this page, you are probably wondering how to start trading gold. If so, we are now going to show how to open an online trading account and start trading gold using an FCA broker.
Open an Online Trading Account
The first thing you need to do is to navigate to your broker’s homepage and sign up for an online trading account. On the registration form, you’ll need to create a username and password as your login credentials.
Then, you will be channeled to a short questionnaire where you have to provide some personal information like your full name, home address, date of birth, national insurance number, email address, and mobile number.
Verify Your Identity
FCA-regulated brokers will ask you to verify your identity before you can buy and sell gold CFDs. As such, you will be asked to upload a copy of your passport/driver’s license and a utility bill or bank account statement.
Now, you’ll need to fund your account. Most brokers have a minimum deposit threshold and will accept credit/debit cards, bank transfers, and e-wallets.
Start Trading Gold
If you are ready to place your first order in the market. Search for ‘Gold’ on your dashboard and click the asset when it appears.
In the order form, you’ll need to enter your stake amount, decide the leverage you wish to apply and then click on the ‘Place Order’ button to complete your transaction.
Gold traders tend to focus on macroeconomic events like economic data, turmoil scenarios in the market, political instability, and inflationary pressure.
If you wish to start trading gold today, you can do so with an FCA-regulated broker that offers the asset. There are many to choose from, so make sure to do your own research and partner with a platform that suits your goals.
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