CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you can afford to take the high risk of losing your money.

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1 June 2020

Different Ways to Trade Gold

The History of Gold Trading

Gold has been irrevocably linked with investment since before it was first used as a currency in 560 BC. In fact, up until the depression of the 1930's a system which valued a country's currency directly against gold was used. This was called the Gold Standard. The system was abandoned due to the need for more flexibility in the monetary system but the USD only completely severed the link in the early 1970's.

Despite the abandonment of the gold standard, gold still maintains its position as a popular investment tool and is commonly viewed as a safe haven, a sensible long-term investment and a good hedge against inflation. There are a number of ways to trade gold including physical, ETFs and CFDs.

Physical Gold Trading

This is the most obvious way to trade gold and involves the buying and selling of gold in its 'touchable' form. Jewellery makes up about 50% of this type of gold trading. Investors who trade gold via this method tend to have a long-term investment horizon as it is not usually a day trade.

Exchange Traded Funds (ETFs)

ETFs are an alternative way to trade gold which is in a manner like one can trade shares. These FTFs are investment vehicles that aim to track the gold price and can be traded on stock exchanges.

Contracts for Difference (CFDs)

A very flexible and popular way to trade gold is via CFDs. A CFD is a financial instrument used in a form of derivative trading. It gives investors the opportunity to take a view on both the long and short-term view of the price action of gold. A good deal of investors finds the fact that CFDs are a margin product, which means that investors only have to invest a small proportion of the resulting exposure, very attractive.

For instance, if the broker offers 20:1 on Gold CFDs, it means that for every GBP 100 a client invests in gold, they actually achieve an exposure of GBP 2,000. This leverage element combined with the speed and ease of transaction makes this a popular way to trade gold with both small and large investors.

Even so, investors should note that CFDs are still high-risk financial instruments and your capital is at risk. So, it’s recommended that you develop your knowledge in advance of risking real money by testing your strategies on the demo account. If you need more information about opening a free demo account or trading gold, please speak to your personal account manager.

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