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What is forex?
<p>In the world of financial markets, forex has a special place. It is the world's most popular and biggest financial market, and as of April 2022, it has an average daily trading volume of USD 7.5 trillion. But what does forex mean, and how can you trade it? In this article, we’ll walk you through the basics of the forex market and the terms you need to know to start forex trading. </p> <h2>What is forex, and what is forex trading?</h2> <p>Forex, commonly referred to as FX, stands for the foreign exchange market. It’s a global marketplace where dozens of currencies are converted into one another for various purposes, such as international trade, tourism or personal gain. Due to its nature, forex trading involves a wide range of participants in this exchange process – governments, banks, multinational corporations, institutional investors, retail traders and even regular people. In fact, anyone who has ever travelled abroad and exchanged their home country’s currency for a local currency of their destination has done a transaction on a foreign exchange market.</p> <h2>Why is the forex market so popular?</h2> <p>There are many reasons why the currency market is so popular among online traders. Here are some of its main benefits:</p> <h3>Easier to follow</h3> <p>There are only a few currencies that most traders follow – these include the US dollar, Euro, and British pound. Other favoured but less frequently traded currencies are the Canadian, Australian, and New Zealand Dollars, and the Japanese Yen. As there are only a handful of popular currencies to focus on, it can help make it easier for traders to develop a deeper understanding of their behaviour and the factors that influence their movements. </p> <h3>Liquidity</h3> <p>The large number of participants and transactions bring high liquidity to forex trading, resulting in very low trading costs. And the ever-present supply and demand makes trading on leverage highly accessible. The latter allows good traders even with a small amount of capital to extract value from the forex markets, something that’s difficult to do when trading stocks.</p> <h3>Volatility</h3> <p>Forex prices can be influenced by various factors, which often cause high volatility and, as a result, numerous trading opportunities. Take a value stock as a comparison, it may hardly move some days, making it difficult to day trade. This is not the case with Forex trading, and you can find opportunities anytime during the day, whether it be after, before, or during work hours. </p> <h3>Round-the-clock access five days a week</h3> <p>Due to its decentralisation, forex transactions can be carried out at any time, except during the weekend. There is no centralised exchange, instead central banks, large banks, hedge funds, and retail brokers have built electronic networks, and deal directly with each other to facilitate trading outside traditional trading hours.</p> <h3>How does forex work?</h3> <p>When a forex trader exchanges a currency, you sell it and buy another one. Since there are always two currencies involved in this process, forex instruments are quoted in pairs – for example, EUR/USD or GBP/USD. The first currency is referred to as the base, and the second one is called the quote.</p> <br /> <br /> <img alt="base currency EUR - USD Quote currency" src="/getmedia/6ce661c1-e988-483e-ad7a-39908fb6f085/what-is-forex-trading-image01.png" style="display: flex; margin: 20px auto;" title="base currency EUR - USD Quote currency" /> <h2>Types of pairs in the forex market</h2> <p>Forex pairs are divided into three large groups depending on what currencies are included in them.</p> <h3>Major currency pairs</h3> <p>Major pairs include the currencies of the most developed countries traded against the USD. The US dollar is always present in these pairs as the base or quote currency because it is an official reserve currency worldwide, meaning it is widely used in international trade and held as a reserve by central banks across the world. It makes USD the dominant currency in forex and other markets like commodities that are also traded against it. Some of the most popular major pairs are EUR/USD, GBP/USD and USD/JPY.</p> <h3>Minor currency pairs</h3> <p>Minor pairs also include currencies of large economies but are not tied to the USD – EUR/GBP, EUR/CHF or GBP/CAD, for example.</p> <h3>Exotic currency pairs</h3> <p>Exotic pairs usually consist of one currency of a major economy traded against the currency of a developing country. Some examples are AUD/MXN, USD/HKD and GBP/ZAR.</p> <h2>How does currency trading work?</h2> <p>The value of a forex pair indicates the value of a base currency against the quote currency. In other words, it shows how many units of the quote currency you can get for 1 unit of the base currency. This is also called an exchange rate.<br /> For example, the EUR/USD currency pair exchange rate at the time of writing was 1.02839, which means for 1 euro, you would get 1.02839 US dollars.</p> <br /> <img alt="base currency EUR - USD Quote currency" src="/getmedia/b7de8307-5d14-4929-8cd6-d1aa06f5dc55/what-is-forex-trading-image02.png" style="display: flex; margin: 20px auto;" title="base currency EUR - USD Quote currency" /> <p paraeid="{b45da9f9-ab40-462f-8ec2-c07bc0d46b8a}{75}" paraid="900764359">It is important to note that since the forex market is decentralised, the exchange rate may vary from one broker or bank to another. </p> <p paraeid="{b45da9f9-ab40-462f-8ec2-c07bc0d46b8a}{91}" paraid="1272472748">When it comes to online trading, brokers source their exchange rates from a group of establishments called liquidity providers – usually banks and other large financial institutions and display them as bid and ask prices.</p> <h2>What are bid and ask prices in forex?</h2> <p>In forex trading, you have probably come across "bid" and "ask" prices. Think of the "bid" as the price you'll receive when you want to sell a currency. The "ask" is the price you'll pay when you want to buy. For example, if you're looking at EUR/USD, the "bid" tells you how many US dollars you'll receive for selling 1 Euro, while the "ask" represents how many US dollars you need to spend to buy 1 Euro. As you can see in the image below, you would receive 1.02839 USD for selling one Euro, while if you were to buy one Euro, you would need to pay 1.02847. This buy price is slightly higher than the sell price because of the spread, which is the difference between the “bid” and “ask” prices. </p> <br /> <img alt="table with instrument sell buy columns" src="/getmedia/0dc1949c-bd93-47ef-a868-7acf8d50ef8f/what-is-forex-trading-image03.png" style="display: flex; margin: 20px auto;" title="table with instrument sell buy columns" /> <h2>What is the spread in forex trading?</h2> <p paraeid="{b6259188-8ad3-442e-91ef-fc8790f06976}{19}" paraid="909016290">A spread in forex trades means the difference between the buy and sell prices that represents the transaction cost of every currency pair. Whether you buy or sell a currency, you will always be charged this amount upon opening a trade. The spread is what your broker earns for enabling you to trade. It is a markup, the same way as retailers adds a markup in any other product. However, the high competition in the forex markets ensures it’s the cheapest financial market to trade. </p> <p paraeid="{b6259188-8ad3-442e-91ef-fc8790f06976}{75}" paraid="1881540912">In the image below we see that the cost of trading is 0.8, for a 100,000 Euro transaction the cost would be 8 USD, making it unbeatably cheap. </p> <p paraeid="{b6259188-8ad3-442e-91ef-fc8790f06976}{95}" paraid="643707991">When you open a trade, the spread is deducted from the start. In a winning trade, the spread cost is deducted from a profit, and in a losing one, it is added to the loss. </p> <br /> <img alt="table with instrument sell buy columns" src="/getmedia/0d6ce7ac-c7be-40f0-82b6-4a292c3855ac/what-is-forex-trading-image04.png" style="display: flex; margin: 20px auto;" title="table with instrument sell buy columns" /> <p>It’s important to note that a spread directly depends on the liquidity of a currency pair. For example, the most liquid pairs (majors) usually have very tight spreads, meaning traders can open positions at a lower cost and make a profit faster if the market moves in their favour. Minor pairs are traded less often and have wider spreads, slightly increasing the trading cost, and exotic currency pairs have the widest spreads.</p> <p>The spread amount also varies from broker to broker and can even be different depending on the account type within the same broker. For example, if you trade forex with ThinkMarkets, a Standard account will give you access to tight spreads – just a few pips, but if you choose a ThinkZero trading account, most pairs will have 0 spreads.</p> <h2>What are pips in forex?</h2> <p>In forex trading, pip stands for percentage in point or price interest point. It is the smallest one-digit movement of a currency’s price measured by the fourth decimal point and used to calculate a spread.</p> <p>Here is a little graphic to help you understand how the price of a currency works:</p> <br /> <img alt="EUR/USD" src="/getmedia/5a1f9093-0c16-4fcd-b1c7-7e8274bec12c/what-is-forex-trading-image05.png" style="display: flex; margin: 20px auto;" title="EUR/USD" /> <p>Forex pairs that have Japanese yen as a quote currency are displayed only until the third decimal point, so the pip is measured by the second one.</p> <img alt="USD/JPY" src="/getmedia/5ee3c9cb-3972-4b49-b098-7c761624aefb/what-is-forex-trading-image06.png" style="display: flex; margin: 20px auto;" title="USD/JPY" /> <p>To calculate a spread, you need to subtract the sell price from the buy price. In our previous example, the spread is:</p> <br /> <img alt="1.02847 - 1.02839 = 0.8 pips" src="/getmedia/72f5e4d8-fc4b-4dbe-aa5f-b081b3ec9fbd/what-is-forex-trading-image07.png" style="display: flex; margin: 20px auto;" title="1.02847 - 1.02839 = 0.8 pips" /> <p>On ThinkMarkets’ proprietary platform, ThinkTrader, the spreads are displayed within each price quote for your convenience, so you don’t need to calculate them.</p> <p>Now, your next question may be how to calculate your profit or loss in pips when you trade forex and how to trade forex in the first place. Head over to our <a href="/en/trading-academy/forex/what-affects-forex-exchange-rates">next article</a>, where we discuss it in detail. You can also create a demo trading account on ThinkTrader to apply your newly obtained knowledge in practice.</p>
What are commodities, and how does the commodity market work?
<p paraeid="{77b08084-55df-414f-a05a-e7bbe41122e7}{62}" paraid="1480891234">The commodity market is the oldest existing financial market in recorded human history. Thousands of years ago, before paper money was invented as a unified medium of exchange, people used to barter commodities such as crops or cattle. At a later stage, many parts of the world used coins made of various metals as a form of payment. Even with the invention of modern currencies, reliance on commodities – gold in particular – remained in the form of the gold standard. This mechanism meant that a fixed price for gold was used to determine the value of a currency up until the 1970s. It was eventually abandoned to be able to adjust currencies to economic growth and have more flexibility to regulate other economic indicators, such as interest rates. However, gold, along with other commodities, remained an important part of the financial markets. <br /> </p> <p paraeid="{77b08084-55df-414f-a05a-e7bbe41122e7}{84}" paraid="563053549">The origins of commodity markets can be traced back to the need for agricultural producers to manage risk and secure a selling price for their goods ahead of the harvest. This led to the development of forward and futures contracts. One of the earliest examples of such a system was the Dojima Rice Exchange in Japan, established in the 17th century. <br /> <br /> In this article, we'll focus on the commodity market and explain what commodities are, what are the most popular commodities among traders and why commodity trading can be beneficial for your strategy. If you'd like to know more about the stock market instead, head to our <a href="/en/trading-academy/stocks/what-are-stocks">stocks</a> and <a href="/en/trading-academy/indices/what-is-a-stock-market-index">indices</a> articles.</p> <h2>What are commodities?</h2> <p>Commodities are raw materials that can be mined, grown or processed. These raw materials are usually divided into hard and soft commodities.<br /> <br /> Hard commodities include natural resources, such as precious metals (gold, silver, and others), and energy (oil and gas), used to manufacture finished goods or generate power.<br /> <br /> Soft commodities include agricultural products ready for producing food or materials in their final form – wheat, coffee, cattle., etc.</p> <br /> <img alt="" src="/getmedia/ed861ada-ea29-42e2-a541-428f1a0154e4/article-what-are-commodities-diagram.webp" style="width: 552px; height: 298px;" /> <p><br /> Hard commodities are usually more popular than soft commodities among traders due to their longer shelf life and lesser dependence on weather conditions.</p> <h2>Top 4 most popular commodities to trade</h2> <h3>Brent crude oil (BRENT)</h3> <p>Brent oil is one of the most traded commodities in the world. It is extracted from the North Sea in Northern Europe and is usually used to produce diesel and gasoline. Brent's price is slightly different than, US crude oil (WTI) due to export limitations on WTI and the different types and quality of oil. Brent is also considered more influential in the world due to its proximity to Europe, Africa and AsiaMiddle Eastern oil producers also use Brent as a benchmark when setting their prices. </p> <h3>US crude oil (WTI)</h3> <p>US crude oil, also called West Texas Intermediary, is extracted in the US, mostly in Texas. WTI has a lower sulphur content than Brent, making refining it easier and cheaper. However, geographical location makes international transportation of WTI more challenging. WTI is usually used for the same purpose as Brent. Hence despite the slight difference, their prices are usually very correlated.</p> <h3>Natural Gas (NGAS)</h3> <p>Natural gas is an important energy source used for heating, cooking and electricity generation. It is often found in the same areas as oil. However, unlike oil, gas produces fewer emissions when burning, which makes it a much cleaner and more versatile energy source that can be used as a fuel to power various machines, compared to oil-based products.</p> <h3>Gold (XAUUSD)</h3> <p>Gold doesn't need much introduction. For centuries, the yellow metal has been used in the form of money, as an investment instrument, and as a hedge against currencies' volatility. Gold is mined in multiple countries, with China, Russia and Australia topping the exporters' list. The main applications of gold nowadays are jewellery, electronic parts and money, as many governments keep gold reserves in their central banks as an indicator of financial health.</p> <h2>What is the commodity market?</h2> <p>The commodity market is a centralised financial market that gives producers and consumers of various commodities access to each other's services. Like the stock market, the commodity market consists of dozens of commodity exchanges worldwide, connected electronically.<br /> <br /> What sets a commodity exchange apart from a stock exchange is that the former transacts in commodities while the latter transacts in securities. </p> <h2>What are the benefits of trading on the commodity market?</h2> <p>The commodity market offers multiple benefits to traders, such as:</p> <h3>Diversification</h3> <p>Commodity instruments can be beneficial to any trading portfolio as they offer great diversification. Many commodities are often inversely correlated with other financial markets, which means they move in opposite directions, presenting multiple trading opportunities.</p> <h3>Hedge against inflation</h3> <p>Traders and investors have been using commodities, especially gold as a safe-haven asset and protection against depreciating currencies for years. In times of high inflation, it becomes more expensive to buy commodities, and their prices often start rising, attracting a lot of traders.</p> <h3>Steady demand</h3> <p>No matter the global economy's state, commodities are always in demand. People always need power and food. Even when oil and gas are replaced by clean and renewable energy and precious metals run out, people will always need agricultural products; hence there will always be a steady demand.</p>
How to trade commodities
<p>There are two types of traders in the commodity market. The first type mentioned in our <a href="/en/trading-academy/commodities/what-are-commodities">What are commodities, and how does the commodity market work</a> article is producers and manufacturers. These commodity traders are interested in the physical exchange of materials they produce or need for manufacturing. This category also includes investors who physically purchase precious metals like gold as a store of value.<br /> <br /> The second type is institutional traders that speculate on commodity prices purely for personal gain. Since online trading brokers like ThinkMarkets don't offer a physical exchange of assets, we'll focus on speculative trading in this article.</p> <h2>Commodity futures vs commodity CFDs</h2> <p>Commodities can be traded on the spot market, meaning you get physical product delivery. But this is impractical and costly as you need to safely store the item/s.<br /> <br /> If you’re just interested in speculating on the price change of a commodity, then an alternative to buying "spot" is to buy on the futures market. Suppose you were to purchase a futures contract with a three-month expiration date. If the contract's price rises at any point during this period, you’ll make a profit- you even have the option to sell it before it converts into a spot transaction upon expiry. Conversely, if the price declines, you can also opt to sell at a loss to prevent further potential losses before the contract matures.<br /> <br /> A commodity CFD is a contract between a retail broker and a client that follows the price movements of the underlying future.. The benefit of a commodity CFD is that it offers leverage, is cheaper to trade, and you can also trade in smaller sizes. The drawdown is that the CFD are not listed on an exchange, like futures are, which makes them less transparent.Yet, it is still the most popular way for retail traders to trade the markets. With CFDs, there is no expectation of receiving the physical commodity, and the futures contract is closed just before it turns into a spot deal.</p> <h2>How to trade commodities with CFDs</h2> <p>A CFD is one of the most popular derivatives in the trading world. Traders are usually attracted by an appealing offer CFD trading provides – speculation on the price movements of a commodity without buying it. If you are not familiar with the concept of CFD trading, we’ve covered it in detail in our <a href="/en/trading-academy/cfds/what-are-cfds">CFD trading: a beginner’s guide</a>.<br /> <br /> In a nutshell, CFDs track the real-time price movements of an underlying asset, whether it’s the current price of an instrument or its futures contract. Let's see how it works in a Brent oil trade example.<br /> <br /> In CFD trading, two types of trades (orders) are available, depending on the direction of the price movement: a long trade and a short trade.</p> <h3>Going long</h3> <p>Let's say the current price of BRENT is USD 85, and your research indicates that its price will go up. You place a long (buy) trade, and the price increases to USD 95. In this case, you profit from the price difference. If your prediction is incorrect and the price drops to USD 75 instead, you incur a loss. </p> <img src="/getmedia/6484b507-a8f7-4db8-9744-c01fbd553de3/article-how-to-trade-commodities-long.webp" /> <h3>Going short</h3> <p>If your research indicates that the price is going to drop, you open a trade in the opposite direction – going short (sell). If your prediction is correct and the price goes down to USD 75, the price difference is your profit. Should the market move in the opposite direction and reach USD 95, the price difference becomes your loss.</p> <img src="/getmedia/433f3338-d9c8-480d-9e97-1cd80cfc9eaa/article-how-to-trade-commodities-short.webp" /> <p>Now let’s see how you can calculate your profit or loss in these trade examples.</p> <h3>Lots</h3> <p>A lot represents a contract size in trading, which depends on the underlying asset this contract tracks. One standard lot has a set number of units of this asset. For example, in forex, it's units of currency, and in the stock market, it's the number of shares.<br /> <br /> The commodity market doesn't have a standardised measurement of units, as all commodities are different in shape and form. For natural gas, for example, one lot means 1,000 Btu (cubic feet). For gold – 100 ounces (about 2.83 kg). For BRENT and WTI – 100 barrels. In our trading example above, the contract size is 0.1 lot.<br /> <br /> You can find more details about every instrument on our <a href="/en/contract-specifications">Contract specifications </a>page.<br /> <br /> Now that you know about tick value and lots, let’s see how we can calculate profit in our first example, where we go long on BRENT. We have the following data:</p> <ul> <li>Entry spot: USD 85</li> <li>Exit: USD 95</li> <li>Tick value: 0.01 = USD 1 </li> </ul> <p>Here is the formula you can use:</p> <p style="font-size: 1.5em; font-weight: bold">Price difference/tick size × contract size = Profit/Loss in USD</p> <p style="font-size: 1.5em; font-weight: bold">(USD 95 - USD 85 = USD 10)/0.01 × 0.1 = USD 100</p> <p>Another important thing to understand is that CFD trading is leveraged, so when you open a trade at USD 85, you don't need to pay the full amount.</p> <h3>Leverage</h3> <p>Leverage is the process of using funds borrowed from a broker to open trades of a bigger size than your initial capital allows. To use these funds, traders are required to put down a small deposit, called a margin.<br /> <br /> With ThinkMarkets, you can trade Brent oil with a 100:1 leverage. It means that you only need to deposit 1/100th of the trade worth:</p> <img src="/getmedia/f6de5f4b-a76d-4610-8603-6c196cfd1d05/article-how-to-trade-commodities-leverage.webp" /> <p>It is crucial to understand that even though your capital is much smaller than the actual trade worth, leverage multiplies your profit and loss.<br /> <br /> When your capital is USD 8.5 instead of the full amount of USD 85, in a successful trade, your profit is multiplied and would still be USD 100 – bigger than your initial capital. However, if your trade is losing, the loss will also be bigger than your capital. That's why using risk management tools like stop loss and take profit when trading CFDs is crucial.<br /> <br /> This summarises the basic terms a trader needs to understand before getting started with commodity trading. In our next article, What affects commodity prices?, we'll explain the driving forces behind commodity prices to help you identify trading opportunities and understand whether you should choose a long or short trade.</p>
What affects commodity prices?
<p aria-level="2" paraeid="{e924138a-6dcb-453d-9c78-dc877d0b0cb4}{219}" paraid="578068771" role="heading">The price formation of any financial instrument on any market is subject to supply and demand. However, since commodities are natural resources and materials, the dependence of the commodity market on supply is much heavier than in any other market. In fact, the scarcity of these resources is exactly what makes them so valuable. Moreover, hard commodities like oil, gas or precious metals are not renewable, which only adds to their value. </p> <p paraeid="{e924138a-6dcb-453d-9c78-dc877d0b0cb4}{225}" paraid="1650331047">Following the law of supply and demand, a deficit in supply and steady demand usually leads to increasing prices and vice versa. Here are some of the major factors that affect price movements in the commodity market and can signal potential trading opportunities: </p> <p><br /> <br /> <img alt="" src="/getmedia/b291aca4-b0c4-4abb-b06e-fe873c2ec867/article-what-affects-commodities-prices-factors.webp" style="width: 552px; height: 297px;" /></p> <h3>Natural disasters</h3> <p>Since commodities are mined, extracted or grown, nature plays a significant role in these processes. A flood, drought or other severe weather conditions can disrupt the extraction. When it comes to soft commodities like wheat or corn, crops can simply be destroyed entirely. Moreover, unfavourable weather can also impact supply lines and make transportation and exports more difficult. Hence, whenever any of these events happen, it can reduce the supply drastically, and with the same level of demand in place, prices of affected commodities may start climbing. <br /> <br /> Keep in mind that nature also plays a role in seasonality. For example, agricultural commodities are seasonal, and their prices tend to decrease during harvest due to the influx of new crops. Natural disasters affecting commodity supply, like hurricanes, in many parts of the world can also be seasonal.<br /> <br /> Another seasonal trend to look out for is the US summer driving season. During warm months, people tend to travel more, increasing the demand for gasoline and driving the price of crude oil up.<br /> <br /> On the other hand, during cold months, traders usually see an increase in other energy products, such as natural gas, as it's widely used for heating.</p> <h3>Geopolitical tensions</h3> <p>Any prolonged political or geopolitical unrest, whether its localised strikes, territory dispute or war, affects supply channels. The Russian invasion of Ukraine is one great example to demonstrate how it works. Both countries are in the league of the largest commodity suppliers – oil and gas on the Russian side and wheat and corn on the Ukrainian. Sanctions applied to Russia and blocked by war supply chains in Ukraine caused a lot of volatility in the commodity market. </p> <h3>Currency exchange rates</h3> <p>Fluctuations in currency exchange rates are usually caused by inflation, interest rates and other economic indicators. As most commodities are traded against the US dollar, they are dependent on its value. Compared to other currencies, the USD's appreciation or depreciation can affect commodity prices, making buying the same materials cheaper or more expensive. </p> <h3>Economic growth or shocks</h3> <p paraeid="{5eba7bd5-70b9-4970-bfb4-bb9c5d629148}{105}" paraid="1068723066">Growing economies require a steady supply of commodities to produce various goods. Increasing demand with limited supply may lead to rising commodity prices. On the flip side, in times of crisis and crashing financial markets, people often turn to safe-haven assets like gold, driving their prices up. </p> <p paraeid="{5eba7bd5-70b9-4970-bfb4-bb9c5d629148}{115}" paraid="1345993558">However, as the infamous COVID-19 pandemic showed, economic turmoil means decreased production and demand for other commodities, like oil, which inevitably leads to lower prices. </p> <h2>How to trade commodities</h2> <p paraeid="{5eba7bd5-70b9-4970-bfb4-bb9c5d629148}{135}" paraid="365515749">With ThinkMarkets, there are two ways of doing it: commodity CFDs, stocks, and ETFs. <br /> </p> <p paraeid="{5eba7bd5-70b9-4970-bfb4-bb9c5d629148}{181}" paraid="137634938">Commodity stocks are shares of the companies that mine, produce or process commodities. Some examples of popular commodity companies are Newmont Mining (NEM), Devon Energy (DVN) and Wheaton Precious Metals (WPM). Their price movements are usually correlated with the price of commodities they deal with. <br /> </p> <p paraeid="{5eba7bd5-70b9-4970-bfb4-bb9c5d629148}{187}" paraid="1179293991">Commodity ETFs are exchange-traded funds that are invested in commodity futures contracts. Some of the most popular commodity ETFs are iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT), Invesco DB Commodity Index Tracking Fund (DBC), and iShares Gold ETF (IAU). <br /> </p> <p paraeid="{5eba7bd5-70b9-4970-bfb4-bb9c5d629148}{209}" paraid="716910402">With ThinkMarkets, you can trade both commodity stocks and commodity ETFs, as well as CFDs. A commodity CFD tracks the price of the underlying commodity in a futures contract, giving you giving you direct exposure without the hassle. <br /> </p> <p paraeid="{7982c857-0853-4e82-9d1c-27b7f22c303c}{34}" paraid="343195021">If you are just starting out your trading journey, it is highly advisable to practice trading on a <a href="/en/demo-account">risk-free demo account</a> first.<br /> </p>
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How does the Commodity Channel Index (CCI) indicator work?
<p dir="ltr">The <strong>Commodity Channel Index (CCI)</strong> is used to determine the overbought or oversold conditions in the market.<br /> <br /> The CCI has been one of the most commonly used indicators for years in the commodity markets, and forex markets have warmed to it in recent years.<br /> <br /> Commodities markets have a long history of liquid trading conditions, meaning traders can look back at past data to back test and see how it has performed over the years.<br /> <br /> In fact, many traders around the world have used the CCI not only for commodities and forex, but for stocks and bonds as well.</p> <h2 dir="ltr">Structure</h2> <p dir="ltr">The CCI indicator is an oscillator, meaning it measures the strength or weakness behind the market, and whether or not a trend is reliable.<br /> <br /> The indicator has a centre line for the ‘zero level’ that shows a neutral reading. The indicator shows up in its own window below the price chart, and it is bound by 100 points on both sides of that zero line.<br /> <br /> The indicator line rising above the 100 level shows a potential overbought condition in a currency pair, while a move by the indicator line below the -100 level shows a potential oversold condition.<br /> <br /> Between those two levels, it shows that the market has either positive or negative momentum, but it doesn’t provide an actionable signal in and of itself.<br /> <br /> However, there are many ways to use the Commodity Channel Index, as we shall see.<br /> <br /> <img alt="" src="/TMXWebsite/media/TMXWebsite/commodity_channel_index_1.png" /></p> <h2 dir="ltr">Calculating the CCI</h2> <p dir="ltr">The Commodity Channel Index has been around for a few decades, becoming much more widely used as computing power became reasonably priced.<br /> <br /> Developed in 1980 by commodities trader Donald R Lambert, it is more complicated than most older indicators.<br /> <br /> This is because it was developed in an era when computers’ processing power was growing, meaning more mathematically complex equations were possible.<br /> <br /> The CCI helps figure out what the typical price (TP) of an asset may be at a given time.<br /> <br /> This is done by finding the mathematical mean of the high, the low, and the close prices and using this to determine the TP.<br /> <br /> Calculating a simple moving average for the price movement is the second step in determining the indicator’s reading. The final step to coming up with the CCI reading is this equation:<br /> <br /> <strong>CCI = (typical price – moving average) / (0.015 x mean deviation)</strong><br /> <br /> When the indicator was created, the 0.015 constant was used as a way of having between 70% and 80% of the readings fall between +100 and -100.<br /> <br /> The idea is that if readings rise above the 100 level, or if they fall below the -100 level, it shows that we are seeing an unusual deviation from normalcy.<br /> <br /> When we see these moves, the market is indicating overbought or oversold conditions - information you can use to underpin your strategy.</p> <h2 dir="ltr">Applying the CCI on MetaTrader 4 and 5</h2> <p dir="ltr">To apply the indicator on a chart in <a href="https://www.metaquotes.net/en">MetaTrader</a>, click on the ‘Insert’ tab, then the ‘Indicators’ tab, followed by the ‘Trend’ submenu, and finally on the Commodity Channel Index choice.<br /> <br /> You can then can choose the standard settings and attach the indicator, or customise the settings as you wish.<br /> <br /> One thing to bear in mind: choosing a too-short period (the default is 14) will make the indicator too sensitive to be useful.</p> <h2 dir="ltr">Reading the CCI on a MetaTrader platform</h2> <p dir="ltr">As mentioned previously, there are two areas that suggest an overbought or oversold condition.<br /> <br /> The idea is that when the market sends the signal line above the +100 level, the trader should start to look for signs of selling or rolling over by the market.<br /> <br /> On the other hand, if the signal line drops below the -100 level, then the market looks likely to be oversold, and the trader should be looking for the signs of a reversal.<br /> <br /> While the market is in an overbought or oversold condition, the trader will look for candlestick formations or perhaps another indicator to tell them when it is time to act.<br /> <br /> Take a look at the chart below.<br /> <br /> <img alt="" src="/TMXWebsite/media/TMXWebsite/commodity_channel_index_2.png" /><br /> <br /> You can see that the first set of red arrows was when the CCI spiked well above the +100 level.<br /> <br /> You can see that the market went on to drop from there as the New Zealand dollar fell from extreme highs.<br /> <br /> The next arrows suggest an oversold condition, and therefore - in theory - a buying opportunity. However, this signal failed.<br /> <br /> Conversely, the next two signals, the first one a sell signal and the second a buy signal, both worked out.<br /> <br /> The very last set (not marked by an arrow) is a sell signal that has yet to play out completely. In other words, out of the first four signals, three of them were profitable.<br /> <br /> However, no indicator is perfect, so traders use candlestick formations or perhaps moving averages to help confirm opportunities.<br /> </p>
What is Gold Trading? Why Trade Gold?
<p>Gold trading appeals to various market participants of the financial markets due to its attractiveness for portfolio diversification and potential opportunity for gains from price movements.</p> <p>Unlike forex trading, where currency pairs often oscillate within single-digit percentages in any year, the gold price today can make double-digit moves within the same period, especially during times of high inflation and economic uncertainty when it acts as a safe haven.</p> <p>Gold is a precious metal with intrinsic value traded in both bull and bear markets, which provides opportunities for speculators to engage in trading this commodity.</p> <p>In this article, you will learn some gold trading basics, including:</p> <ul> <li>What gold trading is</li> <li>Historic importance of gold</li> <li>Gold’s supply and demand</li> <li>How does the gold market work</li> <li>What influences the price of gold</li> <li>Why trade gold</li> </ul> <h2>What is Gold Trading?</h2> <p>Gold trading refers to the process of buying and selling gold with the aim of making a profit from short- and long-term price fluctuations, with the latter also meeting the status of gold investing. Although trading gold offers opportunities, it also carries a significant risk of loss from rapid market moves.</p> <p>Given its accessibility today as a dollar-denominated currency pair (symbol for gold: XAU/USD), leveraged and unleveraged trading, and the ability to buy gold and also sell gold, the yellow metal offers retail traders a versatile speculative medium.</p> <p>But day trading gold requires specific skills and sound risk management. Understanding its origins, how the gold market works, what influences gold prices, and how trading fits into the bigger picture of the global market for the yellow metal are all essential learnings for gold traders.</p> <h2>Historical Value of Gold</h2> <p>Gold has played a role in the global economy for thousands of years. Early civilisations realised its rarity, durability, and universal recognition, establishing it as currency in ancient cultures like Egypt and Rome.</p> <p>As global trade expanded, the inconvenience of transporting it led to gold-backed paper claims and eventually digital money. However, the gold-backed global reserve currency ended in 1971 under President Nixon. Nonetheless, central banks continue to invest in gold due to its ability to maintain value during economic downturns and act as a hedge against inflation.</p> <p>Since the Global Financial Crisis, central banks of sovereign nations have used gold as a reserve asset and have increased their holdings to diversify reserves and reduce dependency on any single currency or asset.</p> <h2>Gold Supply and Demand</h2> <p>The supply of gold primarily comes from two sources:</p> <ul> <li><strong>Mining:</strong> Adding <a href="https://www.gold.org/goldhub/data/gold-demand-by-country" target="_blank">roughly 2%</a> to the global inventory annually</li> <li><strong>Recycling:</strong> Previously owned gold products reintroduced to the market</li> </ul> <p>Mining gold involves costly exploration, a lengthy permitting process, and even more expensive infrastructure development. New large mines also often require years and billions of dollars to become operational. As the gold mining industry is cyclical, it takes careful planning to navigate market conditions, including the cost of capital and interest rates.</p> <p>Despite significant geopolitical risks and operational challenges, quality mines can achieve margins of over 50% or higher when gold prices are high.</p> <p>On the other hand, gold demand comes from several sources, including:</p> <ul> <li>Jewelry (particularly in countries like India and China)</li> <li>Industrial applications</li> <li>Central banks</li> <li>Investment products (gold ETFs, gold futures, etc.)</li> </ul> <h2>How the Gold Market Works</h2> <p>The gold market is highly liquid and operates globally through a standardised system often called the “circle of integrity” — a network of accredited refiners and warehouses where traders can deal in contracts rather than physical metal.</p> <p>Gold is traded physically (gold bars, gold coins), and more frequently, through derivatives such as futures, Exchange-traded funds (ETFs), and Contracts for Difference (CFDs), known as gold CFDs.</p> <p>The major trading venues for gold trading include:</p> <ul> <li><strong>COMEX (New York):</strong> The most significant futures exchange</li> <li><strong>London OTC Market:</strong> Traditional physical gold hub</li> <li><strong>Shanghai Gold Exchange (SGE):</strong> Major Asian market</li> <li><strong>Gold Spot Market (XAU/USD):</strong> Used by retail and forex traders</li> </ul> <h2>Trading Mechanisms</h2> <p>Futures markets trade at the anticipated price of gold, and contract holders must make a physical delivery. This system allows producers to pre-sell the gold at current prices while allowing traders to speculate on price movements and even take advantage of spread differences between trading platforms.</p> <p>Most gold traders use XAU/USD (gold is priced in US dollars with an ounce of gold equal to around $3000), one of the most popular trading instruments among them, with a simple goal: buy and sell gold to make a profit.</p> <h2>What Influences Gold’s Price?</h2> <p>The price of gold is affected by several factors, which is why it can be so volatile.</p> <p>The main culprits behind its fluctuations are macroeconomic and geopolitical elements. By understanding these drivers, one can better analyse gold's future movements and craft more effective trading strategies while managing risks.</p> <h3>US Dollar</h3> <p>Gold and the US dollar (typically) have an inverse relationship. Since gold is priced in dollars, when the dollar strengthens, gold becomes pricier for foreign buyers, which usually leads to lower prices. On the flip side, a weaker dollar tends to boost demand and drive up gold prices. This correlation is historic but not set in stone – its strength varies, owing to seasonality and exogenous factors.</p> <h3>Interest Rates and Inflation</h3> <p>Gold doesn’t generate any income, like interest or dividends. When real interest rates (adjusted for inflation) are low or negative, demand for gold starts to increase due to its appeal as a safe haven. According to <a href="https://www.pimco.com/gbl/en/resources/education/understanding-gold-prices" target="_blank">PIMCO</a>, changes in real yields can explain the majority of changes in gold prices over recent history. Inflation, in particular, tends to increase gold demand, as investors turn to it to safeguard purchasing power.</p> <h3>Geopolitical Risk and Economic Uncertainty</h3> <p><a href="https://www.investopedia.com/articles/basics/08/reasons-to-own-gold.asp" target="_blank">Gold is known as a “crisis commodity”</a>, performing best during periods of instability. Events such as wars, political instability, pandemics, or financial downturns lead investors to seek out safe-haven assets. For instance, despite falling inflation in 2025, geopolitical risks from tariffs increased uncertainty, driving the gold price today above the $3,000 per ounce mark for the first time on record.</p> <h3>Internal Central Bank Policy Mechanisms</h3> <p>Central banks own large reserves of the precious metal, and their actions can influence gold prices through internal policies and how they manage reserves. In 2024, central banks in China and Poland ramped up their gold reserves in preparation for future uncertainties.</p> <h3>Supply Constraints</h3> <p>While demand is an important factor, supply issues—like mining disruptions or regulatory challenges—can also impact prices. Environmental regulations, for instance, can create hurdles that temporarily or permanently shut down large mines, which can reduce global supplies.</p> <h3>Investment Demand</h3> <p>ETFs and other investment products can also affect gold prices, with inflows into gold ETFs indicating rising investor interest. In Q1 of 2025, nearly <a href="https://finance.yahoo.com/news/etf-flows-reach-record-q1-223000036.html" target="_blank">$300 billion of inflows to ETFs</a> were recorded in just the first three months, with active ones, including the GLD (GLD.P) and IAU (IAU.N), en route to $480 billion of inflows this year.</p> <h2>Why Trade Gold?</h2> <p>Gold is seen as a way for long-term investors to hedge portfolios, but it is also a favored instrument for active traders. Here's why:</p> <h3>Liquidity and Accessibility</h3> <p>The XAUUSD pair is among the most liquid instruments in the world, regularly exceeding <a href="https://www.gold.org/goldhub/data/gold-trading-volumes#:~:text=Gold+is+a+liquid+asset,one+of+its+appealing+qualities." target="_blank">$230 billion</a> in daily trading volume. Trading is available 24/5 on forex platforms, giving gold traders round-the-clock access to the market. This high liquidity results in tight spreads essential for high-frequency day trading gold.</p> <h3>Opportunity to Gain</h3> <p>While gold is often viewed as a stable store of value, it can experience short-term price fluctuations due to economic data releases, policy changes, and geopolitical events. These ups and downs make gold an attractive asset for short- and medium-term speculation. However, trading comes with inherent risks.</p> <h3>Diverse Trading Instruments</h3> <p>Traders can engage with gold through spot markets, futures, and ETFs. Spot trading allows for speculation without needing to own physical gold, while futures and derivatives provide leverage and the chance to hedge risks or bet on price movements.</p> <h3>Safe-Haven Appeal</h3> <p>During market downturns, traders frequently position their capital into gold, driving prices higher. This behavior creates opportunities to position for volatility, especially for those who can accurately gauge the macroeconomic landscape. However, even gold can experience price drops during significant liquidation events, offering opportunities for short-side trading in gold futures.</p> <h2>How to Take Advantage of Gold?</h2> <p>The gold market’s characteristics offer flexibility for different traders, investors and even institutions:</p> <p>Long-term investors might be interested in physical metal, investing in gold mining stocks or ETFs for their yields, while institutions might hedge their exposure through the futures market.</p> <p>For speculators, one way to trade gold is through the spot gold market, which offers another opportunity to capture daily moves and take advantage of opportunities when they arise.</p> <p>Gold traders can take advantage of gold’s seasonality and the gold-silver ratio, or simply deploy a price action gold trading strategy similar to that of forex.</p>
How to Trade Gold: A Short Guide
<p>As one of the most popular and liquid assets, gold trading offers several opportunities that can satisfy the needs of various traders, even those interested in learning how to trade gold now.</p> <p>In this short guide on gold, we will explain:</p> <ul> <li>Common ways to trade gold</li> <li>The difference between the financial instruments involving gold</li> <li>A step-by-step process on how to trade gold</li> <li>Gold trading with technicals</li> <li>General tips around gold trading</li> </ul> <h2>Common Ways to Trade Gold</h2> <p>In the past, trading gold involved buying and selling physical metal, but today, gold trading is possible through a variety of trading instruments that follow gold spot prices and require no ownership.</p> <p>These include:</p> <h3>Gold CFDs (Contracts for Difference)</h3> <p>Gold CFDs are price derivatives that mirror movements in spot gold prices without owning the asset. These derivatives allow traders to open leveraged positions with a small initial deposit, though leveraged trading amplifies both potential gains and losses.</p> <p><a href="https://www.thinkmarkets.com/eu/how-does-cfd-trading-work/" rel="noreferrer noopener" target="_blank">CFDs</a> are traded over-the-counter rather than on centralised exchanges. They do not expire but are often subject to overnight holding fees when gold positions are kept open.</p> <h3>Gold ETFs (Exchange-Traded Funds)</h3> <p>A gold ETF tracks the price of gold and holds the underlying asset. They are highly liquid and have lower investment costs compared to physically owning gold but come with storage and insurance fees. <a href="https://www.thinkmarkets.com/en/etf-trading/" rel="noreferrer noopener" target="_blank">ETFs</a> provide a more stable gold investment option compared to leveraged products with access to lower leverage.</p> <h3>Gold Futures</h3> <p>Derivatives contracts traders use to speculate on future gold prices. In contrast to the spot prices, futures trade at an anticipated price of a product at a predefined point in the future. Gold <a href="https://www.thinkmarkets.com/en/trading-academy/futures/what-is-futures-trading/" rel="noreferrer noopener" target="_blank">futures</a> can be traded 24 hours a day, allowing instant reaction to market changes, but are often traded by experienced traders, as they are more complex.</p> <h3>Gold Mining Stocks</h3> <p>Gold mining stocks provide indirect exposure to gold by investing in companies that mine, refine, or sell gold. Stock performance depends on both gold prices and company fundamentals.</p> <p>Gold <a href="https://www.thinkmarkets.com/eu/stocks-trading/" rel="noreferrer noopener" target="_blank">stocks</a> often extend 2-3 times the price movements in gold, offering operational leverage to gold prices. While they can outperform gold during bull markets, they may underperform despite rising gold prices due to company-specific factors.</p> <h2>Difference Between CFDs, ETFs, and Gold Stocks</h2> <p><img alt="Difference between gold trading instruments (ThinkMarkets)" src="/getmedia/de850eba-ed8a-4f37-957d-c73110b4f505/Difference-between-gold-trading-instruments.jpg" /></p> <p style="text-align: center">Gold CFDs vs. ETFs vs. Gold Stocks</p> <p><strong>Note:</strong> At ThinkMarkets, gold ETFs, gold mining stocks, and other instruments are all offered as CFD products, which means leverage is available across all these asset types. The table above reflects the general characteristics of these instruments in traditional markets rather than their specific implementation at ThinkMarkets.</p> <p>Each gold trading instrument offers a different risk-return profile, and the choice depends largely on an individual’s trading goals and experience level.</p> <h2>How to Approach Gold Trading?</h2> <p>The best way to <a href="https://www.thinkmarkets.com/eu/precious-metals-gold/" rel="noreferrer noopener" target="_blank">trade gold</a> depends on what one wants to achieve from trading, risk tolerance, trading experience, available capital, and market outlook. The following table provides some guidance:</p> <p><img alt="Is gold trading right for me (ThinkMarkets)" src="/getmedia/1839feeb-6fe7-4498-abe2-88efab47823a/Is-gold-trading-right-for-me.jpg" /></p> <p style="text-align: center">Gold Trading Instruments for Various Trader Profiles</p> <p>CFDs offer the most control and flexibility, while ETFs and stocks suit gold traders who prefer lower exposure due to reduced leverage.</p> <h2>How to Trade Gold - Step By Step</h2> <p>By going through the following steps, you can start trading gold today.</p> <h3>Step 1 - Create a ThinkMarkets Account</h3> <ul> <li><a href="https://portal.thinkmarkets.com/account/individual/" rel="noopener noreferrer" target="_blank">Sign up</a> for a ThinkMarkets account online.</li> <li>Complete the KYC (Know Your Customer) verification process.</li> <li>Fund your account using one of the options (bank transfer, credit card, or e-wallets).</li> </ul> <h3>Step 2 - Access the Trading Platform</h3> <ul> <li>Decide which trading platform you want to use. ThinkMarkets offers MetaTrader 4, MetaTrader 5, and TradingView.</li> <li>You can also use our proprietary ThinkTrader platform to trade in gold.</li> </ul> <h3>Step 3 - Locate Gold CFD (Symbol: XAUUSD)</h3> <ul> <li>In the market search bar, type “XAUUSD” — this is the most liquid gold CFD available.</li> <li><a href="https://www.thinkmarkets.com/eu/gold/" rel="noopener noreferrer" target="_blank">XAUUSD chart</a> shows the price of gold in US dollars per troy ounce (31.1 grams).</li> </ul> <h3>Step 4 - Carry Out a Gold Price Forecast</h3> <ul> <li>Add technical indicators like RSI, Bollinger Bands, and MACD to your gold charts. Check daily, weekly, and monthly timeframes.</li> <li>Monitor fundamental factors like inflation, central bank policies, geopolitical tensions, and the strength of the US dollar.</li> <li>Use ThinkMarkets’ economic calendar to stay updated on key events.</li> </ul> <h3>Step 5 - Determine Entry & Exit Levels</h3> <ul> <li>Define your gold trading strategy: breakout, reversal, trend-following, or range trading.</li> <li>Plan your exit strategy—whether for gains or to hedge risk.</li> <li>Consider using indicators like ATR (Average True Range) to determine potential exit points.</li> </ul> <h3>Step 6 - Set Up Risk Management</h3> <ul> <li><strong>Stop Loss:</strong> Automatically exit a trade at a loss when it moves against you.</li> <li><strong>Take Profit:</strong> Lock in gains once your target price is reached.</li> <li><strong>Position Sizing:</strong> Limit your risk to 1–2% of your capital per trade.</li> </ul> <h3>Step 7 - Place a Trade: Buy or Sell Gold</h3> <ul> <li><strong>Buy (Long):</strong> If you expect gold prices to rise.</li> <li><strong>Sell (Short):</strong> If you expect gold prices to fall.</li> </ul> <h3>Step 8 - Monitor, Adjust, Repeat</h3> <ul> <li>Watch your open positions or set alerts. Gold prices often react during major forex sessions or news events.</li> <li>Adjust stop-loss and take-profit levels as market conditions change.</li> <li>Stay flexible—trading strategies should evolve with the market.</li> </ul> <p><img alt="XAUUSD chart (ThinkTrader)" src="/getmedia/b9b2a6c8-9b47-4924-937f-6cf7fb83b124/XAUUSD-Chart-ThinkTrader-Platform.png" /></p> <p style="text-align: center">Gold Trading Instruments for Various Trader Profiles</p> <div class="article__content"> <style type="text/css">.didyouknow { display: block; background: #f1fdf0; width: 600px; border-radius: 20px; gap: 20px; padding-top: 48px; padding-right: 40px; padding-bottom: 48px; padding-left: 40px; font-family: Figtree; font-weight: 600; font-size: 22px; line-height: 140%; letter-spacing: 0%; } </style> </div> <div style="text-align: center"> <style type="text/css">.btn { font: Figtree; justify-content: center; align-items: center; text-align: center; gap: 7px; font-style: normal; font-size: 18px; line-height: 24px; padding: 13px 20px; border: 1px solid #ddd; border-radius: 38px; background: #5ee15a; } </style> </div> <div class="didyouknow">Start Your Gold Trading Journey by Opening a Demo Account Here!<br /> <br /> <a class="btn" href="https://portal.thinkmarkets.com/account/individual/" style=" text-decoration: none; font-weight: 500; color: #000000; background: 5EE15A; " target="_blank">Apply Now</a></div> <h2>Technical Indicators for Gold Trading</h2> <p>Most gold traders use a technical trading strategy. The indicators featured in step 4 will be useful on a gold chart:</p> <p>Relative Strength Index (RSI): This indicator shows overbought or oversold levels above 70 and below 30. It is useful for spotting price extremes and basic divergences, such as showing that bullish momentum has weakened despite a new high.</p> <p>Bollinger Bands (BB): Using the Bollinger Bands with gold helps spot breakout or reversal points based on volatility. They show the standard deviation from the average price movement over a specified period of time, with the width providing valuable information about market price movements — narrow bands often precede breakouts.</p> <p>Moving Average Convergence Divergence (MACD): This indicator shows the relationship between two moving averages. It helps traders identify trend direction, strength and potential reversals through signal line crossovers. Its histogram visually represents momentum strength and potential shifts, making it easier to interpret changing market dynamics.</p> <p>Average True Range (ATR): The ATR indicator measures market volatility by calculating the average range between high and low prices over a specific period, typically 14 days. This indicator helps traders set appropriate stop-loss levels and profit targets based on current market conditions.</p> <p>On-Balance Volume (OBV): Confirms price trends with volume movement. It tracks cumulative buying and selling pressure by adding volume on up days and subtracting it on down days. When OBV rises along with price, it confirms an uptrend's strength.</p> <h2>What Are The Best Times to Day Trade Gold</h2> <p>Gold spot trades 24/5 through CFDs. Consider it as trading gold in forex, meaning the gold market <a href="https://www.thinkmarkets.com/eu/day-trade/" rel="noreferrer noopener" target="_blank">day trading</a> hours are not restricted in CFDs. The commodity remains highly liquid throughout the trading week, as forex trading is. In March of 2025 alone, global market liquidity reached $297.64 billion, according to the World Gold Council. However, volumes often peak during the following trading hours:</p> <ul> <li><strong>London Open (8:00–10:00 GMT):</strong> European traders enter the forex market, boosting trading volumes in gold.</li> <li><strong>New York Open (13:00–16:00 GMT):</strong> The overlap between New York and London hours sees the highest volatility and most reliable intraday gold trading opportunities.</li> </ul> <p>Gold traders should monitor these windows for heightened activity and potential price breakouts, especially around economic data releases. However, trading high-impact news is highly risky, and one can lose money when trading CFDs.</p> <p>Important: While gold CFDs can be traded 24/5 on the ThinkTrader platform, gold stock CFDs and gold ETF CFDs are only available during the regular hours of their respective exchanges.</p> <h2>Is Gold Trading Right For Me?</h2> <p>Gold is among the oldest, most popular, and most liquid assets. Its dual role as a commodity and a financial asset makes it a compelling trading instrument across bullish and bearish market cycles. It is a globally accepted store of value, and its price is highly responsive to economic and geopolitical developments currently driving up demand for gold.</p> <p>Before stepping into gold trading, consider your financial goals, risk tolerance, and market understanding. Ask yourself if you can withstand day trading gold while price movements range from 1-3% without making emotional trading decisions. Gold trading requires knowledge of macroeconomics, including how inflation, interest rates, and geopolitical events affect gold prices. If trading gold in forex is not for you, perhaps you can invest in gold ETFs.</p> <p>Also, consider your available capital, as different trading instruments require additional capital, from $500-1,000 for gold CFDs (though $5,000+ allows for proper risk management) to $5,000-10,000 for gold ETFs. Your time availability is also crucial; day trading gold requires several hours of monitoring and XAUUSD analysis, while ETF investing in gold demands minimal time commitment.</p> <p>So far in 2025, spot gold has been one of the best-performing and most popular assets among forex brokers for day trading. Investors and traders alike looked to diversify away from less liquid trading instruments due to gold's consistency in respecting technical levels during highly volatile periods.</p> <p>At ThinkMarkets, we offer XAUUSD trading and various other financial instruments, but whether gold trading is right for you depends on your personal circumstances and financial objectives.</p>
A Gold Trading Strategy for 2025
<p>In today’s uncertain landscape, a gold trading strategy has become an essential tool for traders and investors looking for both stability and potential growth.</p> <p>Gold trading continues to explode in popularity in 2025, partially as a result of trade war developments. It now enjoys an almost 80% bull run off the 2023 lows due to a steady rise in safe-haven demand.</p> <p>Whether you're an experienced gold trader looking to refine your approach or new to gold trading seeking a proven gold trading strategy, this short guide delivers actionable insights.</p> <p><strong>What you'll learn in this article:</strong></p> <ul> <li>Why gold has outperformed other assets</li> <li>What creates $30-50 daily price movements</li> <li>Which strategies are performing well</li> <li>Step-by-step instructions for a breakout strategy</li> <li>How to use the gold-silver ratio for opportunities</li> <li>Practical risk management techniques</li> </ul> <h2>How do Gold Traders Benefit from Gold in 2025</h2> <p>Gold prices today trade substantially higher compared to other years, outperforming all other trading instruments like equities, bonds, and forex currency pairs. The popularity of the yellow metal shows no signs of slowing down, calling for the disclosure of gold trading strategies that work in 2025.</p> <p>Let's first explore <a href="/en/trading-academy/commodities/what-is-gold-trading-why-trade-gold/">what factors created opportunities for gold</a> traders, because some of these are likely to continue influencing gold price forecasts for the remainder of 2025:</p> <p><strong>Geopolitical Uncertainty</strong> - Ongoing conflicts between Russia and Ukraine, as well as conflicts in the Middle East, are a constant source of market volatility this year. Although this creates opportunities to <a href="/en/precious-metals-gold/">trade gold</a>, there is a great risk of capital loss. For context, <a href="/en/trading-academy/forex/day-trade/">day trading gold</a> has seen movements of $30-50 per ounce per session, compared to previous ranges of $10-20.</p> <p><strong>Economic uncertainty</strong> - This year, global trade wars have taken a heavy toll on economic sentiment. Fears of a potential US recession this year have put significant pressure on stocks and commodities, while gold has returned 19% in Q1 alone as a hedge against these risks.</p> <p><strong>Inflation fears</strong> - Linked to the impact of the trade war, the market is fearful of a fresh surge in US inflation this year that could devalue the US dollar even more, feeding into negative economic sentiment. The first quarter of 2025 alone saw more than $21 billion flow into gold <a href="/en/etf-trading/">ETFs</a>, with US-listed funds responsible for buying more than half, according to Reuters reports.</p> <p><strong>Lower Relative Volatility</strong> - Despite its expanded price moves in 2025, gold is considered by some more predictable than many currency pairs that have experienced unpredictable swings this year. The gold price today responds more consistently to specific drivers, making technical analysis particularly effective.</p> <p>As a result of these factors, which continue to develop in real-time, gold price forecasts continue to increase this year as the safe haven demand for gold increases. Deutsche Bank sees gold prices at $3139 per ounce this year, from $2725 to $3700 next year. This trending environment offers a wealth of trade opportunities for beginner forex traders looking to diversify into gold trading strategies.</p> <p>It is worth considering that not all gold trading strategies are equal. With that in mind, let’s consider some of the more effective gold trading strategies traders can use to capitalise on gold moves in 2025.</p> <h2>The Best Gold Trading Strategies for 2025</h2> <p>Given the increasing gold demand due to the macro factors discussed above, several gold trading strategies can work well in 2025, and possibly beyond.</p> <h3>1. Macro Trading Strategies</h3> <p>Macro traders have benefitted from a relatively straightforward gold trading strategy of looking to buy gold following negative global headlines, particularly around geopolitical developments. In 2025, this approach may still work well when focused on specific triggers:</p> <ul> <li><strong>Real Yield Response:</strong> Changes in real yields explain the majority of gold price movements, according to PIMCO research. When 10-year Treasury yields (adjusted for inflation) decline, gold traders systematically buy gold with size proportional to the yield change.</li> <li><strong>Central Bank Policy Tracking:</strong> With China, a large gold buyer, completing 17 consecutive months of purchases, monitoring central bank purchases and gold reserve reports provides actionable intelligence about the future price of gold.</li> </ul> <p>Typically, macro-trading is employed by longer-term gold traders who are less focused on stop losses and targets and looking to position themselves to capture global market trends and align with broader market sentiment or hedge.</p> <h3>2. Technical Trading Strategies</h3> <p>For technical traders who <a href="/en/trading-academy/commodities/how-to-trade-gold-a-short-guide/">buy and sell gold CFDs</a>, however, a mix of momentum breakout strategies and pullback strategies is performing well this year, both on the lower time frames for day trading and the higher time frames like the 4-hour gold chart used for swing trading.</p> <h4><strong>2.1 Breakout Gold Trading</strong></h4> <p>In terms of momentum breakout trading, looking to trade above recent highs on the Daily and H4 gold charts has offered excellent opportunities for swing traders to capture potential continuation moves. Even on just the Daily gold chart, there have been four strong breakout opportunities in 2025 so far.</p> <p><img alt="Buying Gold in 2025 (ThinkMarkets)" src="/getmedia/79341378-9a73-4ff6-8c84-2fb94c085285/Commodities-Gold-Trend-in-2025-Daily-Timeframe.png" /></p> <p style="text-align: center;">Gold Trend in 2025, Daily Timeframe</p> <p>When confirmed by volume spikes, these breakouts are more reliable, especially when day trading volume exceeds 50% of the 3-period average. The most reliable gold breakouts typically occur within the first 90 minutes after the New York market opens (after 14:30 GMT).</p> <h4><strong>2.2 Trading Gold Price Pullbacks</strong></h4> <p>Trading gold bullish reversals during pullbacks has been another beneficial trading strategy employed by gold traders looking to capitalise on the bull run this year. Traders typically time buying gold using momentum indicators, entering as readings move higher from oversold on the RSI (below 30).</p> <p>In the trending environment of 2025, pullbacks to the 21-day moving average have provided decent entry points, with the price of gold trading above the 50-day moving average since 8 January.</p> <h4><strong>2.3 Using the Gold-Silver Ratio to Trade Gold</strong></h4> <p>The fluctuations of the gold-silver ratio, currently hovering around 100:1 as of 10 April ($3100 over $31), also offer opportunities for relative value. When the ratio reaches extreme levels, one can consider selling gold and going long silver, or vice versa when the ratio normalises.</p> <p>Specific trigger points for this gold trading strategy have proven effective when the ratio exceeds 80:1. In today’s environment, consider scaling into a position that buys gold when the ratio falls to around 90, then sell gold when the ratio rises to 100-105.</p> <h2>Day Trading Gold: Breakout Strategy Step-by-Step</h2> <p>Focusing on day trading, one simple yet effective gold trading strategy is breakout trading on the M30 timeframe using the Daily trend. Though not conclusive, a range of different online sources point to a win rate for this strategy of between 53% and 89%, depending on strategy parameters and market conditions.</p> <h3>1. Identify Key Support and Resistance Levels</h3> <ul> <li>Use the 15M and 30M TFs for primary gold analysis.</li> <li>Mark the previous day's high as resistance and low as support.</li> <li>Identify consolidation areas where gold has repeatedly bounced or reversed.</li> <li>Pay special attention to psychological price levels ($3050, $3100, etc.).</li> </ul> <h3>2. Wait for Gold Price Consolidation</h3> <ul> <li>Look for tight price ranges where gold is coiling ahead of a potential breakout.</li> <li>Allow at least 3-5 candles (5M or 15M) to form the consolidation.</li> <li>See a decrease in volume during the range, which typically precedes breakouts.</li> </ul> <h3>3. Perform Volume Analysis for Confirmation</h3> <ul> <li>Wait for the price of gold to establish resistance of at least two swing highs.</li> <li>Look for a volume spike during a breakout as price moves through resistance.</li> <li>Volume should be at 50% higher than the average of the previous 3 periods.</li> <li>Be cautious of breakouts with low volume, as they frequently fail (false breakouts).</li> </ul> <h3>4. Enter the XAUUSD Trade on Confirmed Breakout</h3> <ul> <li>Buy gold as the price breaks the level on the close of the breakout candle (aggressive) or wait for a pullback and retest (moderate).</li> <li>A proper breakout should exceed 0.3-0.5% of the gold's price.</li> <li>The most reliable gold breakouts typically occur after 14:30 GMT.</li> </ul> <h3>5. Set Risk Management Parameters</h3> <ul> <li>Place a stop loss below the last swing low before a breakout.</li> <li>Target 2x risk with a trailing stop methodology.</li> <li>Move stop loss to breakeven as the market hits 1x risk.</li> <li>Exit the trade before the end of day (EOD) if the target is not reached.</li> </ul> <p>In the XAUUSD chart (the symbol for gold) example from 27 to 31 March, we can observe three bullish opportunities using this method on the M30 charts with long entries alongside bullish volume spikes, all delivering. Note that the prices remained above the 21-day MA, with an exit on the third trade following a confirmed decline in gold prices within the range.</p> <p><img alt="Gold buying in 2025 (ThinkMarkets)" src="/getmedia/43e43f0c-e4c7-43c7-a4bc-49d116670d9d/Commodities-Gold-Trend-Late-March-Consecutive-Long-Trades.png" /></p> <p style="text-align: center;">Gold Trend in Late March, Consecutive Long Trades</p> <div class="article__content"> <style type="text/css">.didyouknow { display: block; background: #f1fdf0; width: 600px; border-radius: 20px; gap: 20px; padding-top: 48px; padding-right: 40px; padding-bottom: 48px; padding-left: 40px; font-family: Figtree; font-weight: 600; font-size: 22px; line-height: 140%; letter-spacing: 0%; } </style> </div> <div style="text-align: center"> <style type="text/css">.btn { font: Figtree; justify-content: center; align-items: center; text-align: center; gap: 7px; font-style: normal; font-size: 18px; line-height: 24px; padding: 13px 20px; border: 1px solid #ddd; border-radius: 38px; background: #5ee15a; } </style> </div> <div class="didyouknow">Open a ThinkTrader Demo to Test a Proven Trading Strategy!<br /> <br /> <a class="btn" href="https://portal.thinkmarkets.com/account/individual/" style=" text-decoration: none; font-weight: 500; color: #000000; background: 5EE15A; " target="_blank">Apply Here</a></div> <h2>Gold Trading Tips for 2025</h2> <p>Here are some smart, up-to-date tips for gold trading in 2025, especially considering the current economic climate:</p> <p><strong>Monitor ETF Flows as Leading Indicators for Gold Trading</strong></p> <p>Sharp increases in fund inflows often precede gold price movements. When major ETFs show consistent inflows for 3+ consecutive days, one may consider establishing or adding to long positions.</p> <p><strong>Implement Volatility-Based Position Sizing</strong></p> <p>Gold's expanded trading ranges in 2025 require more sophisticated risk management. Implement a volatility-based position sizing model - when gold's 10-day Average True Range exceeds $30, reduce your position size by 50%; when it exceeds $40, reduce by more.</p> <p><strong>Stay Geopolitically Aware</strong></p> <p>The global environment is volatile right now, and tariffs, sanctions, and geopolitical tensions may continue to drive gold price forecasts. Keep an eye on trade war updates, central bank moves, and inflation data by major economies.</p> <p><strong>Use Support/Resistance Zones with Volume</strong></p> <p>Don’t rely on gold price action alone. Price action around key levels like previous highs/lows and pivot points is more reliable when combined with volume confirmation.</p> <p><strong>Combine XAUUSD Analysis with Macro Trends</strong></p> <p>Blend XAUUSD chart patterns (flags, triangles, breakouts) with broader trends like inflation fears, central bank buying, or stock market weakness. Confluence can act as added justification for a move, providing an extra layer of strength when you trade gold.</p> <p><strong>Watch the Dollar Index (DXY)</strong></p> <p>Gold usually, but not always, moves inversely to the US dollar. If DXY drops, gold often rises and vice versa. In 2025, a weaker dollar might raise fears of inflation, contributing to the gold rally.</p> <p><strong>Trade XAUUSD at the Best Times of Day</strong></p> <p>The most reliable time for XAUUSD trading typically occurs within the first 90 minutes after the New York market opens. Secondary opportunities often appear during the London/NY overlap period, which provides the highest liquidity.</p> <p><strong>Don’t Fight the Gold Trend</strong></p> <p>In a strong uptrend like the one seen in 2025, stay cautious when trading against the trend unless technicals clearly show gold reversal signals. In that case, patience in anticipation of finding a floor can pay off. However, XAUUSD technical analysis today seems more predictive than other trading instruments.</p> <h2>Conclusion</h2> <p>The well-defined bull trend in gold prices today offers plenty of opportunities for all types of traders, beginners and those looking to start trading <a href="/en/trading-academy/cfds/how-does-cfd-trading-work/">gold CFDs</a>. Whether you're implementing a day trading breakout strategy, trading gold pullbacks, or using macros, the market is rich with potential and looks set to remain this way over the coming months.</p> <p>The gold trading strategies discussed above can become a part of your trading arsenal, with daily trading ranges and ongoing geopolitical tensions providing a directional bias for both swing and intraday trading. However, it’s worth spending some time exploring time frames to find your preferred trading horizon, as well as establishing confluent signals to improve your XAUUSD analysis.</p> <p>Remember that trading in gold in 2025 comes with opportunities but also risks from price fluctuations, which increase the inherent risk of loss when trading volatile instruments like commodities and metals. Implement proper position sizing based on current volatility metrics, use volume confirmation for entries, and stay alert to indicators of price movement.</p> <div> </div>