Trading spot metals with FOREX.com allows you to speculate on the price movements of gold (XAU/USD) or silver (XAG/USD) relative to the US dollar or other major currencies.
Our spot metals markets are quoted and traded in a very similar way to currency pairs. Trading is available 24 hours a day from Sunday 11pm GMT through to 10pm Friday GMT.
The 'spot' price refers to the price quoted for the metal to be paid for (including delivery) two days following the date of the transaction (the settlement date).
Spot gold and silver trades globally over the counter with the main centres for trading in London, New York, and Zurich. Liquidity in the spot metals market is typically highest when European market hours overlap with trading in New York, and the market can experience periods of illiquidity around the close of the US market.
Who trades spot gold and silver, and why?
There are many different reasons that drive investors to trade spot gold and silver:
Reading a spot gold or silver quote is very similar to reading a forex quote. Quotes for spot metals are represented in the same way as quotes for currency pairs. For example, spot gold traded against the US dollar is XAU/USD.
Spot metal prices are quoted internationally in US dollars per troy ounce, so for a quote of XAU / USD 900.25, 1oz of gold is equal to $900.25
When the quote for gold goes up, this means that gold has strengthened in value and is now worth more dollars than before.
Conversely, when the quote for gold goes down, this means that the value of gold has weakened compared to the dollar, and it is therefore worth fewer dollars than before.
BIDS, ASKS and the Spread
Just like other markets, spot gold and silver quotes consist of the BID and the ASK:
The BID is the price at which you can SELL.
The ASK is the price at which you can BUY.
The difference between the bid and ask prices is called the spread, and represents the cost of trading.
Trading spot metals.
Spot metals are quoted internationally in US dollars per troy ounce, and trading takes place in ‘lots’. A single lot of gold is 10oz. A single lot of silver is 500oz.
A typical quote you might receive for spot gold is 900.25/75. This means that you could sell at 900.25, or buy at 900.75. The spread is the difference between these two prices (900.75-900.25) or 0.50, and represents the cost of trading.
The smallest amount that you can trade with FOREX.com is 1 lot,(10 troy oz). At 1 lot, the smallest price change possible (0.01) is equivalent to $0.10.
As an example:
You decide to buy 1 lot of XAU/USD (spot gold) at 900.25.
A few minutes later, the bid (or sell) price has risen to 900.95, and you decide to exit your trade.
Calculating your profit:
You bought 1 lot at 900.25
You sold 1 lot at 900.95 a difference of 0.70, or 70 pips
I lot = 10 oz, and the price quoted is always for 1 oz
Your trade has therefore made 70 pips x$0.10, equal to $7.00.
If the price had moved against you to 899.60, your loss would be calculated as follows:
You bought1 lot at 900.25
You sold 1 lot at 899.60, a difference of 65 pips.
Your trade has therefore made 65 pips x $0.10 per pip, equals to $6.50.
Pips or points
Like forex prices, spot gold prices are quoted in very small increments called pips or "percentage in point". A pip refers to the second decimal place for a spot gold quote, or 0.01.
Each pip represents 1 cent in dollar value.
When calculating the value of your trade, remember that spot metals trade in lots. For spot gold, a lot is 10oz, which means that a one pip (1 cent) movement in the gold price represents a $0.10 dollar price movement for each lot that you are trading.
Hedge against inflation
One of the most common descriptions of gold and silver as an investment is as a hedge against inflation. The thinking is that as the decrease in buying power affects currencies, owning gold is one way to hedge against the value of your wealth decreasing. Unlike a currency, an amount of gold will continue to maintain its value no matter what the inflation rate is.
Alternative to the US Dollar
Gold and silver is also used as a hedge against the US dollar when the reserve currency comes under pressure.
A "safe-haven" investment
Another view of gold is as a "safe-haven" investment. During times of high volatility and risk, investors often move funds to gold as a way to safeguard against uncertainty.
Understanding economic and political factors
Macroeconomic indicators, such as the unemployment rate and Gross Domestic Product (GDP) shed light on the strength of an economy, and influence the attractiveness of gold to investors, and therefore its price.
Political events can also have a significant impact on the price of gold. If uncertainty arises over conflict or instability in region, this will affect the perceived safety of investment in a country's bonds or currency, and investors may choose to move funds into gold or cash. If this instability affects a region that is a significant player in the oil or commodity markets, these prices will also be affected, and might have a carry-over effect into the gold markets, pulling or pushing the price of gold further.
Typically the spot gold market is somewhat volatile, and prices are susceptible to short-term fluctuations that do not necessarily follow a long-term trend. It is important to understand the risks associated with trading volatile markets before opening spot metal positions.
Hedge against inflation
One of the most common descriptions of gold and silver as an investment is as a hedge against inflation. The thinking is that as the decrease in buying power affects currencies, owning gold is one way to hedge against the value of your wealth decreasing. Unlike a currency, an amount of gold will continue to maintain its value no matter what the inflation rate is.
Alternative to the US Dollar
Gold and silver is also used as a hedge against the US dollar when the reserve currency comes under pressure.
A "safe-haven" investment
Another view of gold is as a "safe-haven" investment. During times of high volatility and risk, investors often move funds to gold as a way to safeguard against uncertainty.
Understanding economic and political factors
Macroeconomic indicators, such as the unemployment rate and Gross Domestic Product (GDP) shed light on the strength of an economy, and influence the attractiveness of gold to investors, and therefore its price.
Political events can also have a significant impact on the price of gold. If uncertainty arises over conflict or instability in region, this will affect the perceived safety of investment in a country's bonds or currency, and investors may choose to move funds into gold or cash. If this instability affects a region that is a significant player in the oil or commodity markets, these prices will also be affected, and might have a carry-over effect into the gold markets, pulling or pushing the price of gold further.
Typically the spot gold market is somewhat volatile, and prices are susceptible to short-term fluctuations that do not necessarily follow a long-term trend. It is important to understand the risks associated with trading volatile markets before opening spot metal positions.
Leverage trading, or trading on margin, means that you are not required to put up the full value of a position. As a result you can open a significantly larger position than you would be able to if you needed to fund your trade in full. Trading on leverage increases the potential for profit, and allows traders to participate in markets that would otherwise be cost prohibitive, but also increases the risks, and so the potential for losses.
Leverage for spot gold and silver trading is set at 100:1. This means that for every $1 you have in your account balance, you can trade $100 worth of a position.
Margin
Margin is the amount of money you must have in your account to open and maintain a position.. At 100:1 leverage, your margin factor is 0.01 (1%), which means that you are required to have a minimum cash balance of 1% of the total value of the positions you hold in your account at any one time.
As an example:
The current gold price is quoted as XAU/USD $920.55
You buy 1 lot (10 oz) of gold at $920.55.
Your margin requirement is 1% of your trade size, and is calculated as follows:
Trade size x price x margin factor
10 (oz) x $920.55 x 0.01 = $92.06.
Another way to look at this example is to say that 100:1 leverage gives you the ability to trade 10 ounces of gold, at 920.55, with $92.06.
Profit and loss calculations for spot gold and silver are fairly simple.
Both gold and silver trade in lots, and the smallest trade you can place is 1 lot.
For gold, 1 lot is 10 troy ounces, and the smallest price increment (pip) is 0.01. This means that a one pip movement in the gold price represents a $0.10 price movement for each lot that you are trading. (1 cent x 10oz)
For silver, 1 lot is 500 troy ounces, and the smallest price increment (pip) is 0.001. This means that a one pip movement in the silver price represents a $5 price movement for each lot that you are trading. (1 cent x 500 oz)
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