20/10/2020
Gold Trading Basics: Guide for Beginners
Many retail traders have only just come to your life the potentials in gold trading after seeing the yellow metal gain nearly 60% this year, and surging to new highs in the process. The essence of this article is to showcase gold trading basics and present a guide for beginner traders to follow.
Gold is listed as a tradable asset on several forex trading platforms, usually as a pairing with the US dollar. Some platforms also pair gold with other currencies such as the British pound and the Euro, but the common experience with the US dollar. This pairing is written as XAUUSD.
Unlike currency trading, the trading of gold has its own unique methodology based on the unique characteristics of the yellow metal itself. What is written below is a description of how these characteristics affect the training of gold, and how beginner traders should approach the trading of gold.
What Makes Gold Suitable for Trading?
Any asset that is traded in the market must have some characteristics that make it suitable for such activity. So what makes gold suitable for trading?
The value of gold responds to market forces, that is, the price of gold is subject to the forces of demand and supply. If the price of gold were to remain stable irrespective of what the demand or supply of the metal is, then there will be no way to profit from it.
It must be liquid, that is, it must be easy to find buyers and sellers in sufficient volumes.
It must contain economic value and have future benefits.
Such an asset must have sufficient price differential over time, and must have enough volatility to create such a price differential within the shortest possible time.
Gold fulfills all these conditions. It has sufficient volatility to create the price differential that can be traded for profit or loss. It is very liquid and can easily be bought or sold in the financial markets. Gold also has enormous economic value and as an asset that has been used as a store of value over several centuries, it has tremendous future benefits. The price of gold is also subject to the forces of demand and supply.
