Trading Gold with Binary Options
Trading Gold using Binary Options
The principle behind trading gold is the change in the perception of this commodity as a store of value. Gold is highly sought after during times of economic downturn. During the major sovereign European debt crisis of 2010, 2011 and 2012, we witnessed massive buying of gold at these times and a spike in the price of gold. This buttresses the perception of gold as a store of value. The concept of gold as a store of value has been with us from time immemorial and it is not likely to change anytime soon.
Trading Gold in the Binary Options Market
Apart from being traded in the futures and options markets, trading gold is one of the popular commodity trades in the binary options markets. This gives retail traders a cheaper and less stressful way of trading gold. Gold trading in the futures markets is costly, highly leveraged and requires large amounts of trading capital to meet up with the margin requirements. This makes it simply out of reach of most retail traders. It is much better for a retail trader without much experience to trade gold with $500 than to cough up $20,000 to hit the gold futures markets as a greenhorn and suffer the heartbreak of losing all that money in a few trades.
Every binary options broker offers the gold asset on their platforms. There is no need to worry about leverage, margin or contract sizes. A typical contract in the futures market for the gold asset is equivalent to 100 troy ounces. This is the minimum contract for gold that a trader can purchase or sell in the futures market. The cost of an ounce of gold will determine the cost of the futures contract. If gold costs $1600/troy ounce, a futures contract will therefore cost 1,600 X 100 = $160,000. With a leverage of 1:20 for the futures markets, the trader has to come up with $8,000 to control a futures contract.
In contrast, a trader in the binary options market only needs a minimum of $25 to trade gold. As experience is gained, that amount can be stepped up and with payouts that approach 80%, a trader can use $1000 to make $800 trading gold in the binary options market. Four trades placed that way and successfully pushed into winning territory will deliver a monthly gold trading return of $3,200. So the trader is still able to make profits that rival those of the futures traders at lesser cost and at lesser risk.
Procedures for Trading Gold using Binary OPtions
The first step is to get either a binary options account with a broker that offers gold as one of the traded assets. After filling an account opening form online, the trader is required to submit a utility bill or bank account statement as proof of residence, AND a proof of trader’s identity (national ID card or international passport).
Once the account is activated, the trader can get down to the business of trading gold. Trading gold can be done on a technical and fundamental basis. The following is an example of a technical trade on the gold asset, done using the charts.
The chart above is a chart or gold showing a chart pattern. Using this chart pattern (a symmetrical triangle with a downside bias), the trader can wait until the asset has broken out of one of the trend lines, which in this case was the lower trend line. The impact of this trade is expected to last for sometime (this is a daily chart), and so an expiry of 48 hours would be enough to see the PUT trade end in profit territory.
For the purpose of the binary options market, traders will find more opportunities when technical trade setups such as the one illustrated above, are used for generating trade signals.
More posts to check out: