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 everything you need to know about gold trading in the UK. We explain the the fundamentals of gold, benefits, risks, trading strategies, and suggest the best gold trading platforms in the UK.
- 1 What is Gold Trading?
- 2 Ways of Trading Gold
- 3 Advantages of Gold Trading UK
- 4 How to Make Money Trading Gold
- 5 Risks of Gold Trading
- 6 Gold Trading Strategies
- 7 Gold Trading Tips
- 8 Best Gold Trading Platforms
- 9 Gold Trading UK Pros & Cons
- 10 How to Begin Gold Trading in the UK
- 11 Step 1: Open an Online Trading Account
- 12 Conclusion
- 13 FAQs
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, 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 major 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. For that reason, trading gold via CFDs is the easiest and most cost-effective way as you do not have to invest a large amount of money, and make sure you hold enough funds to meet margin requirements.
Instead, when you are buying and selling gold via a CFD broker, you are able to do this without paying any commission. 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 pf 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 2020 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.
Advantages of Gold Trading UK
If you are still wondering whether you should trade gold or not, below we have outlined some of the benefits of gold trading in the UK.
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 serves as the best 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 you should consider trading on a spread betting account. If you do so, profits are exempt from capital gains tax (CGT) in the UK. Some of the most well-known brokers in the UK that allow trading in a spread bet account include FXCM and IG Markets.
How to Make Money 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 suggestion to help you draw up a trading plan:
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 before you start trading and a few tips to keep in mind 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 in the US dollar can affect gold prices.
Tip5: Try Gold Trading Signals Service
Another way to get trading ideas is to find a good 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. Bear in mind that online brokers like Plus500 offer users a free trading signals service.
Best 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 the safest and most cost-effective gold trading platforms for UK investors as of 2020.
1. eToro – Best UK Social Trading Platform
eToro is a regulated and secure online trading platform that allows users to trade thousands of financial assets manually or automatically. This broker is most known as a social trading platform with more than 12 million traders registered on its platform, and a user-friendly trading dashboard that is very similar to any other social network.
On eToro’s platform, you can trade gold CFDs, which means you can apply a leverage ratio of 10:1 when you buy or short sell the commodity. Additionally, eToro allows you to trade on some of the most popular gold Exchange Traded Funds (ETFs) such as the SPDR Gold (GLD), the iShares Gold Trust (IAU), the Gold Miners ETF VanEck Vectors, and many more. For ETFs, you can use a leverage ratio of 5:1.
Being regulated by the FCA, eToro is one of the safest trading platforms in the United Kingdom. You can get started on eToro with an initial deposit of £150 deposit, which you can make via PayPal, debit/credit card, bake wire transfer, or you can try out the $100,000 demo account.
eToro is also very popular for stock trading, as it’s one of the few brokers that allows you to buy and sell stocks with zero commission.
|Inactivity fees||$10 a month after 12 months inactivity|
- User-friendly online broker
- A 10:1 leverage ratio for commodities like gold
- Buy gold without paying any commission
- Low margin requirements
- Deposit funds with a debit/credit card, e-wallet, or UK bank account
- Ability to copy the trades of other users
- Not suitable for advanced traders – limited technical analysis tools
75% of retail investor accounts lose money when trading CFDs
2. Plus500 – Best CFD Platform for Active Traders
While eToro is the most recommended trading platform for those who are looking for social trading experience, Plus500 is most 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 tight spreads it offers. More specifically, the spread of gold at Plus500 is 0.77 or 0.04%, which is below the average in the industry.
In terms of trading tools and features, Plus500 provides a useful 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 great thing about Plus500 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.
|Inactivity fees||£10 per month after 3 months of inactivity|
- Tight spread on gold CFDs
- Allows you to trade gold options
- Trade with leverage ratio of up to 10:1 on gold
- Supports risk management tools and price alerts service
- User friendly platforms
- Heavily regulated
- Mobile trading app
- Doesn’t support automated trading
80.5% of retail investor accounts lose money when trading CFDs with this provider.
3. FinmaxFX – Trade Gold with High Leverage
FinmaxFX is a good option for investors that want to apply high leverage when trading gold. This is because FinmaxFX is an offshore online broker and as such, is not restricted to ESMA leverage limitations. On this platform, you’ll get a leverage ratio of 200:1 when trading gold and 100:1 when trading other commodities such as silver, platinum, palladium, and copper.
Overall, FinmaxFX offers you to trade on more than 180 shares, 45 FX currency pairs, 26 global indices, and commodities. You will get access to its online, desktop, and mobile trading platforms via the MetaTrader5, which is considered as one of the best CFD trading platforms in the market.
Another benefit to FinmaxFX is that you can their trading signals service and a range of market insights including financial news, technical analysis forecasts, market reviews, and investment strategies. On top of that, the broker offers a wide selection of educational resources for beginners that include video lessons, e-Book, and live webinars.
|Deposit Fee||$25 fee on bank wire transfer|
|Withdrawal fee||3.5% for withdrawing funds with credit card, €25 for bank wire transfer|
|Inactivity fees||£80 per month after 2-3 months of inactivity, £120 per month after 3-6 months of inactivity, and £200 per month after 6 months of inactivity|
- Small minimum deposit
- Leverage of up to 200:1 on gold
- Supports the MetaTrader 5
- Allows automated trading
- A comprehensive education center
- Offers futures trdaing on grains, and softs
- Does not hold licenses from top-tier regulators
- Charges high withdrawal and inactivity fee
There is no guarantee you will make money when trading CFDs with this provider.
4. AvaTrade – Best Trading Platform for Professional Traders
AvaTrade is an additional trusted CFD trading platform that is worth considering, particularly for more experienced investors. 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 top 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.
|Inactivity fees||£50 per quarter after 3 months of inactivity|
- Low trading commission and tight spreads
- Supports MT4/MT5
- A great trading platform for automated trading
- Regulated in several jurisdictions
- No deposit or withdrawal fees
- Low deposit requirement of just £100
- Not regulated by the FCA
- Charges inactivity fee
79% of retail investors lose money trading CFDs at this site
5. FXCM – A Spread Betting Trading Platform
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 most suited 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.
Much like eToro, FXCM maintains a leverage ratio of 10:1 for commodity trading though these restrictions do not apply to professional investors. FXCM particularly takes pride in its fast execution speed that stands at an average of 0.026 seconds or 26 milliseconds. Further, the broker connects investors to top 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)|
|Inactivity fees||$50 a year after 12 months inactivity|
- Supports MetaTrader 4, ZuluTrade, and Ninja Trader
- Authorized and regulated by the FCA
- Offers a spread betting account for UK investors
- Fast order execution
- No overnight fee for gold futures
- No trading commission
- Relatively high spread for gold
- High minimum deposit requirment
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|
|eToro||£0 if trading stocks & ETFs, spread for CFDs & crypto||0.5% conversion fee||10:1|
|FinmaxFX||Free||$25 fee on bank wire transfer||200:1|
|AvaTrade||Free||Free||5:1 for retail traders and 200:1 for professional traders|
Gold Trading UK Pros & Cons
- Gold is widely considered an inflationary hedge asset
- Very liquid asset, relatively easy to buy and sell
- Widely covered asset – Stay on top of market news
- Gold will always have a value
- There’s a lot of information and market insight about gold
- You can use high leverage when trading gold via CFD brokers
- There are several ways to trade gold – CFDs, futures, options , and ETFs
- Investing in gold via futures exchanges is very pricey
- Gold pays no dividends
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 eToro, an FCA broker that allows you to trade gold without paying any commissions. Bear in mind that the process of opening an online trading account works largely the same with any other CFD broker.
Step 1: Open an Online Trading Account
The first thing you need to do is to navigate to eToro’s homepage and sign up for an online trading account. Once you enter the broker’s homepage, click on the ‘Join Now’ button. On the registration form, you’ll need to create a username and password or sign up using your Facebook or Google account.
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. You’ll also have to inform eToro about your financial background, knowledge and your trading experience.
Step 2: Verify Your Identity
eToro is an FCA regulated broker, meaning you’ll have to verify your identity before you can buy and sell gold CFDs. As such, you will then be asked to upload a copy of your passport/driver’s license and a utility bill or bank account statement.
Step 3: Deposit Funds
Now, you’ll need to fund your account. eToro accepts several UK payment methods that include a debit/credit card, e-wallet (PayPal, Skrill, Neteller), or bank account. In the UK, eToro requires investors to deposit a minimum of £150. If you wish to make a first deposit, click on the ‘Deposit’ button on the trading dashboard and choose your preferred payment method.
Step 4: Start Trading Gold
If you are ready to place your first order in the market, log in to the eToro trading dashboard, enter Gold XAU/USD into the search box at the top of the page, and click on the first result that pops up.
Then, you will be channeled to Gold’s trading page where you can get access to tools and features that will help find relevant information. Once you are ready to make a trade, you’ll need to set up an order. Simply click on the ‘Trade’ button and an order form will be provided.
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.
Many traders find gold trading in the UK to be a profitable. Not only you can speculate on gold prices, but you can also use gold as a hedging tool against inflation and uncertainty in the markets. As such, gold traders tend to focus on macroeconomic events like economic data, turmoil scenarios in the market, political instability, and inflationary pressure.
If you are a beginner, gold is definitely a good asset to start with. As we have shown in this guide, CFD brokers like eToro and Plus500 provide the easiest way to enter the gold market. All you have to do is to sign up on one of these platforms, learn how the platform works, and find a successful trading strategy.
Want to get started with eToro today? Simply click the link below to create your account and begin gold trading!
eToro – Best Gold Trading Platform in the UK
75% of retail investor accounts lose money when trading CFDs with this provider.
What is the ticker symbol of gold's spot price?
XAU is the ticker symbol for gold spot price. The most common pair related to gold is XAU/USD.
What are the best gold ETFs?
Some of the most popular gold ETFs as of 2020 include SPDR Gold Shares(GLD), iShares Gold Trust (IAU), VanEck Vectors Gold Miners ETF (GDX), ProShares Ultra Gold (UGL), and Direxion Daily Gold Miners Index Bull 3x Shares (NUGT).
What drives the price of gold?
Gold is often used as a safe haven asset to hedge against inflation and economic recessions. This is mainly because unlike fiat money, the supply of gold doesn't change much and is therefore the most valuable asset on the planet. Nonetheless, some of the main factors that influence gold prices are the supply and demand of gold, gold mining, central banks' monetary policy, economic data (CPI, GDP, Non-farm Payrolls, etc.), inflation, currency movements (especially the USD, AUS, JPY), and political and economic instability.
What’s the minimum amount needed to trade gold?
This depends on the method and platform you choose. For gold futures trading, you'll need an account investment of at least £5000 as gold future contract has a total value of approximately $190,000 at the time of writing and requires an initial margin of around $4,950. For that reason, a gold CFD contract is much more affordable. If opting for eToro or Plus500, for example, you can start trading gold with a minimum investment of £100-£150.
How do you short sell gold?
While short sell gold via futures requires high margin requirements, CFD brokers often require low margin requirements and a low amount of investment. As such, the most effective method to short sell gold is using a CFD broker.