Can You Day Trade Gold?

Quite often, Forex traders will start to look to branch out into other financial markets. One of the first places they tend to look to is precious metals, which makes quite a bit of sense considering that the average Forex broker will also offer spot gold and silver trading. While you can obviously trade those markets through your Forex broker, there are other ways to trade gold for financial gain as well.

The initial question

The answer to the initial question: “Can you day trade gold?” Is an emphatic yes! After all, there are huge firms out there involved in the gold futures market, and also the spot market in various parts around the world. For this article, I will refer to the futures chart, but you should know that the range of trading in both futures in the spot metals market run concurrently. There may be a slight pricing difference due to the time involved in a futures contract, but you will find that you can trade either one in the same manner.

Choose your market

There are various ways to trade gold, such as spot gold at your Forex broker, options trading, futures trading, and a whole host of other instruments. By far, the most commonly quoted version is the futures market, so that is the chart that I will show you. However, you should know that there are both advantages and disadvantages to trading gold in the futures market.

Spot gold typically moves up to $10 a day. Depending on the size of your position, this can be significant, or it could be minor. However, when you look at the futures market, it is a standardized contract. You are trading 100 ounces per contract, so it has a standardized amount of value per tick. Each tick is based upon $0.10 and based upon the 100 ounces that means that each time this market moves it changes your contract value by $10.

Futures markets are also much more liquid and easier to trade than spot, which quite often will have an extraordinarily tight spread. In fact, it’s normally one tick. In the spot market, it can be quite large and therefore it automatically puts the trader at a disadvantage, although trading for longer-term moves allows them to overcome this issue, and of course you can always change the size of your trade to counterbalance that as well.

Another major advantage to trading futures can be seen on the chart. You can see the price ladder on the right, it tells you exactly how many orders are willing to buy and sell at specific prices. This can be a huge advantage, as spot markets don’t give you that benefit, much like Forex markets.

No one-size-fits-all solution

There is no one-size-fits-all solution to trading, and as a result you will need to think your situation through before putting money to work. If you can trade larger positions, then the futures market makes quite a bit of sense. However, the spot metals market shouldn’t be overlooked if you have a smaller account, as the margin to open a position per contract is $3400 if using futures. In other words, it makes sense for smaller traders to stick with the spot market, even if the spread is something like $0.90, as you can simply take a small position out for a directional that. In the end, it’s possible.

In the end, you will find the gold tends to trade like anything else. It has fundamental issues that drive it, not the least of which will be the US dollar. Quite often, the US dollar falls in strength, it can send the gold market in the other direction. On the other hand, if the US dollar strengthens quite a bit, gold markets should fall. That’s not all the time, as they can both be thought of as a safety play in certain circumstances.

Central banks have been buying gold recently, at least in the time of this writing, and that of course can drive up the value of gold as well. Keep in mind that gold has been valuable for thousands of years, so it’s very unlikely that will change anytime soon.