Bullion Trading Education
Bullion Trading Education
Many investors hold gold and silver as part of their balanced investment portfolio. Gold and silver, also known as safe-haven assets, have always been reliable assets to mitigate the associated financial risks in times of crisis and to hedge against inflation.
BYFX’s minimal acceptable order size of Gold is 1 ounce (0.01 lot). Precious metals are quoted in US dollars, usually expressed in dollars per ounce. Gold has a long history connected with money. Bretton Woods Conference in the US in 1944 has fixed the dollar to Gold at the existing parity of US$35 per ounce. The Bretton Woods system has eventually collapsed in 1971 due to imbalance of United States fiscal environment and Gold is traded freely on the World’s floating market afterwards.
For Gold = (Volume in lots) x (100 oz.) x (Price) = position value in USD
Trading 1 lot (100 ounces Gold)
When Gold price moves 0.01, it moves 1 pip.
1 pip is a price movement of 0.01 on the quote
1 pip = USD $1.00 (0.01 *100)
1. XAU/USD Long Position：
Long 10 ounces (0.1 lot) Gold
Market price=USD 1500.00 /ounce
Closing price=USD 1550.00 /ounce
The Buy position 10 ounces (0.1 lot) was closed (sold) at 1550.00 from a 1500.00 open.
Market movement = 1550.00 – 1500.00 = 50.00
P&L Calculation = 0.1(lot)*100(oz.)*50 = US$500
Silver trade example:
For Silver = (Volume in lots) x (5000 oz.) x (Price) = position value in USD
Trading 1 lot (5000 ounces Silver)
When Silver price moves 0.001, it moves 1 pip.
1 pip is a price movement of 0.001 on a quote
1 pip = US$5.00 (0.001*5000)
2. XAG/USD Short Position:
Short 750 ounces (0.15 lot) Silver
Market price = USD 20.00 /ounce
Closing price = USD 21.00 /ounce
The short position 750 ounces (0.15 lot) was closed at 21.00 from a 20.00 open.
Market movement = 20.00-21.00= -1.00
P&L Calculation = (750/5000) *5000*1= Loss US$750
3. XAU/USD trading example on MT4
XAU/USD Long Position
The figure below is a captured XAU / USD price chart from MT4 platform on August 15, 2017.
Market price = USD 1273.75 /ounce
Closing the position at USD 1275.00 /ounce
The Buy position 1 lot was closed at 1275.00 from a 1273.75 open.
P&L Calculation = 1(lot)*100(oz.)*($1275.00-$1273.75) = US$125
XAU/USD Short Position
Short 100 ounces Gold on the same day
Market price = USD 1275.00 /ounce
Closing the position at USD 1273.90 /ounce
The short position 1 lot was closed at 1273.90 from a 1275.00 open
P&L Calculation = 1 (lot)*100(oz.)*($1275.00 -$1273.90) = US$110
Gold trading is the most active trading activities within the precious metals trading market. London, New York, Hong Kong and Zurich are some of the main gold trading markets around the world. Gold spot trading is similar to forex spot trading, which can be traded almost 24 hours a day and 5 working days a week because the gold market operates in multiple time zones.
In bullion trading, margin allows traders to participate in leveraged trade and hold positions greater than the margin deposit value. BYFX provides 200:1 leverage, which is o.5% of contract value for bullion trading. For example, when gold price is at USD $1200, you have to deposit USD$600 for trading 10 ounces gold. Trading bullion on margin lets you increase your buying power.
Long and Short trades
Spot gold trading is different from physical gold trading. Spot gold trading can be traded in two different directions, investors can go long or short gold trades depending on the anticipation of a rising or falling market.
As gold is quoted in U.S. dollar, the gold price has an inverse relationship with dollar. If gold price rises, investors need to pay more dollar to exchange for gold, and vice versa. In other words, when gold price is strong, the dollar is weaker, and vice versa. So one of the factors for changing in gold price is from the strength of the dollar.
When the gold production increases, its supply will increase. The gold price may fall when the supply of the increasing gold increases in the market. On the contrary, when the gold production continues to decline, then the price of gold will rise due to less supply and higher demand of gold.
War or political events are some major factors that moves the gold price. When a country faces crisis, people become uncertain about geopolitical stability and lack confidence in governments or financial markets. Political chaos often put a negative impact on the country’s paper money. People may invest in gold when they think the value of their paper money will decline. Once the demand of gold increases, it leads to a rising trend of gold price.
Financial instability in western countries such as the US, European countries often affect the global economy. People will feel encouraged to invest in gold when there’s a financial crisis. The market demand for gold will increase, driving the price of gold higher. On the contrary, when the financial economy is stable, people may tend to be more confident in the currency. They will invest more in currency and less in gold, so that the gold price will fall.
All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary.