Hi this is Tod. Let’s talk about gold trading.
Gold has been the hot trade for many years and seems to keep appreciating in value. It
is also a favorite investment for speculators and for people who think the economy is going
to crash. So, what are some of the many ways to trade gold today? Buying gold coins or
bullion is one way. A lot of people like this as you have physical possession of the asset
in case of a calamity. My own brother likes this approach but there are some problems
with this such as where do you safely store it? Do you bury it in the back yard, hide
it in the attic, buy a safe or safety deposit box? What if you need to sell quickly if the
price drops suddenly? Physical gold possession is very illiquid.
Another way to trade gold is with gold futures.
Futures are a high leverage and liquid way to trade gold. You will need an adequately
funded futures account to trade this. Right now gold is at about $1600 per ounce. One
futures contract controls 100 ounces of gold or $160,000. Your leverage or margin required
to trade this futures contract is about 15 to 1.
Gold etf’s or exchange traded funds are another
way to trade gold. Gold ETF’s trade just like stocks and are very liquid. There are 2 gold
etf tickers, IAU and GLD. IAU is the Ishares etf and trades at about 1% of the price of
gold or around $16 dollar per share at today’s prices. GLD is the SPDR, spyder etf and trades
at about 10% of the price of gold or around $160 per ounce at today’s prices. Both of
these etf’s managers buy and sell physical gold to hold value for their traded fund accounts.
You can use any of these tickers to trade gold shares, but just buying or selling futures
or stocks is very limited and more risky than a well planned option trade.
The last method for gold trading is my favorite
and that is using options to trade gold. The gold futures and both etf’s have option chains
associated with them. Futures options have low volume , are dangerous and can have extreme
levels of leverage which could be devastating in a market move against your position. One
of the secrets to option trading is to have substantial volume in the various options
contracts. Looking at the IAU and GLD tickers the most liquid or the most option volume
is with the GLD ticker. Options provide substantial leverage and with certain option trading strategies
you can better manage and control the leverage as well as the risk and returns of your positions.
GLD has become a favorite underlying asset for many options traders and will provide
the most versatile way to trade gold once you have learned the basics of option trading.
If you are interested in learning more about
trading options as well as learning about the best underlying assets to trade take the
link below to Real-World Options where we have put together an innovative course for
learning about options trading and how to evaluate option positions. After taking the
link you will find more information about the course. Bye Now.