The value of gold fluctuates from moment to moment, as it trades on public exchanges where it has a price that is determined by supply and demand. While you don't eat it or drink it, people are attracted to gold. It's been used as a currency because it doesn't corrode, and the material allows for some absorption of light creating that yellow glow.
The reasons people buy or sell gold--creating the demand and supply flow--can be pure speculation, to acquire or distribute physical gold, and as a hedge for commercial application. For day traders, the purpose of trading gold is to profit from its daily price movements.
Futures Markets
Day trading gold is speculating on its short-term price movements. Physical gold is not actually handled or taken possession of, rather the transactions take place electronically and only profits or losses are reflected in the trading account.
There are a number of ways to trade gold. The main way is through a future contract. A futures contract is an agreement to buy or sell something--like gold--at a future date. Buying a gold futures contract doesn't mean you actually have to take possession of the physical commodity.
Day traders close out all contracts (trades) each day and make a profit based on the difference between the price they bought the contract and the price they sold it at. Gold futures trade on COMEX. There is a standard gold which represents 100 troy ounces of gold, and a micro gold, which represents 10 troy ounces.
On the futures exchange, gold moves in $0.10 increments only. This increment is called a "tick"--it is the smallest movement a futures contract can make. If you buy or sell a futures contract, how many ticks the price moves away from your entry price determines your profit or loss. To calculate your profit or loss (your trading platform will also show you, but it is good to understand how it works) you'll first need to know the tick value of the contract you are trading.
The reasons people buy or sell gold--creating the demand and supply flow--can be pure speculation, to acquire or distribute physical gold, and as a hedge for commercial application. For day traders, the purpose of trading gold is to profit from its daily price movements.
Futures Markets
Day trading gold is speculating on its short-term price movements. Physical gold is not actually handled or taken possession of, rather the transactions take place electronically and only profits or losses are reflected in the trading account.
There are a number of ways to trade gold. The main way is through a future contract. A futures contract is an agreement to buy or sell something--like gold--at a future date. Buying a gold futures contract doesn't mean you actually have to take possession of the physical commodity.
Day traders close out all contracts (trades) each day and make a profit based on the difference between the price they bought the contract and the price they sold it at. Gold futures trade on COMEX. There is a standard gold which represents 100 troy ounces of gold, and a micro gold, which represents 10 troy ounces.
On the futures exchange, gold moves in $0.10 increments only. This increment is called a "tick"--it is the smallest movement a futures contract can make. If you buy or sell a futures contract, how many ticks the price moves away from your entry price determines your profit or loss. To calculate your profit or loss (your trading platform will also show you, but it is good to understand how it works) you'll first need to know the tick value of the contract you are trading.
- For a standard contract, the tick value is $10. This is because the contract represents 100 ounces of gold, and 100 ounces multiplied by the $0.10 tick size results in $10. That means for each contract, a one tick movement will result in a profit or loss of $10. If it moves 10 ticks, you win or loss $100. If it moves 10 ticks and you are holding 3 contracts, your profit or loss is $300.1
- For a micro contract, the tick value is $1. This is because the contract represents 10 ounces of gold, and 10 ounces multiplied by the $0.10 tick size results in $1. That means for each contract, a one tick movement will result in a profit or loss of $1. If it moves 10 ticks, you win or loss $10. If it moves 10 ticks and you are holding 3 contracts, your profit or loss is $30..
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