15.08.2022
What are the best trading instruments, and how should they be used? New traders frequently ask this question, and we are here to answer it. Let's look at how to trade spot metals on the foreign exchange market.
Right, spot metals are a part of the foreign exchange market, just like currency pairs. More precisely, there are futures for metals (e.g., gold futures) and spot metals (e.g., spot silver — XAG). A metal's “spot” price, such as gold (XAU) or silver (XAG), is the cash price of that metal at a certain time, while futures represent the price of a metal or any other good for an upcoming, postponed delivery.
Metal trading entails exchanging the spot price of gold, silver, palladium, and platinum for a major currency. XAGUSD (Silver against the dollar) or XAUUSD (Gold against the dollar) are two examples.
In this article, we will consider only spot metals, as they are available for trading in Grand Capital.
When it comes to trading metals, there are a few key things that you need to know. The first is that the prices of metals are volatile and can move up and down quickly. This means you must be careful when placing your trades and consider the risk involved.
The second is that metal prices are affected by global events. For example, if there is political instability in a country where a lot of gold is mined, then the price of gold will likely go up. So, keeping an eye on the news when trading metals is essential.
Finally, it would help to choose the suitable metal for your needs. Gold may be a good choice if you're looking for a safe investment. However, silver or platinum may be better options if you're seeking assets with more potential for growth.
Now that you know some basics let's look at specific strategies.
One popular strategy is known as scalping. It involves opening and closing multiple positions throughout the day to take advantage of small price movements. Scalping can be profitable in both rising and falling markets, but it does require quick reflexes and a sound understanding of market conditions.
Another option is swing trading which generally entails holding onto positions for more extended periods to profit from more significant price swings. Swing traders usually hold their positions for one or two days, but some may keep them for weeks or even months, depending on market conditions. Start swing trading with our recent guide.
Finally, there is position trading which involves taking a long-term view of the market and holding onto your positions for months or even years. Position traders generally have a higher risk tolerance as they look for large price movements over an extended period. Identifying the long-term trend might be challenging, but our position trading article will help you decide.
Now let's look at an example of how to trade metals using the XAUUSD currency pair.
The first thing you need to do is choose your position size. This is the amount of money you're willing to engage on each trade. For this example, we'll say that you have $10,000 on your account and are ready to invest 1% per trade. This means that your position size would be $100.
Check out the other risk management tips.
Next, you need to set your stop-loss and take-profit levels. A stop-loss order will automatically close your position if the price reaches a negative level. A take-profit order will automatically close your position if the price reaches a positive level.
Let’s say you want to buy XAUUSD at $1,200 with a stop-loss at $1,190 and a take-profit at $1,250. This means that if the price reaches $1,250, you will make a profit of $50 or 5%. However, if the price falls to $1,190, your position will be closed automatically, and you will lose $10 or 1%.
Once you set your entry price, stop-loss, and take-profit levels, you must wait for the market to reach one of these levels. If it does, your position will be automatically closed at either a profit or loss, depending on which level was reached first.
As mentioned before, gold is susceptible to various political tensions. Gold prices usually go up when a menace of some military assault or any other geopolitical turmoil emerges. The reason for this is that gold can’t completely depreciate.
For example, a currency can plummet tremendously by 2-3 times due to default in a state. A stock share can fully depreciate in case of bankruptcy. Such dramatic scenarios are impossible for precious metals. Their supply is always tight, and demand is high enough because there are plenty of applications for such goods (electronics, jewelry, art, and aerospace).
That is why investors call gold a safe-haven asset. Many traders use it to wait out a storm in the market. Such “storms” have happened recently and done noticeable shifts to the bullion’s quotes. Here are two of them:
In the winter of 2021-2022, Russia has been gradually moving troops to the border of Ukraine. Starting in December 2021, the XAUUSD price began to rise from roughly $1,780. By the end of February, before the invasion began, the price went up to $1,900. However, after the Russian military crossed the border of Ukraine on February 24, the price of XAUUSD rocketed even quicker and reached $2,070 by March 8.
As you can see, a long position on XAUUSD might have brought a vast profit back then.
Such an upward trend does not always happen when the assault starts. Sometimes even the possibility of war shifts the price quite significantly.
At the beginning of August 2022, the U.S. House of Representatives Speaker, Nancy Pelosi, has been officially visiting several Asian countries. Her route might have included Taiwan, an unrecognized island state separated from China. The possibility of Pelosi’s visit to the island made the Chinese government threaten the USA and Taiwan to begin a full-scale military operation to protect the sovereignty of the PRC.
Pelosi arrived in Taiwan on August 3. Shortly before her airplane landed, the XAUUSD price began to rise from $1,755 and spiked to $1,794 on August 4.
As you can see, such news is a reasonable way of trend identification. However, technical analysis might work well, too. Use our Daily reviews section to find professional trading ideas by our finance specialists.
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