Trade Gold & Silver On High Leverage Up to 500: 1

Throughout history, gold have been viewed as more previous than silver due to its scarcity which has resulted in its higher value. In 2019 gold’s average price was around $1,392.60 whilst silver was around $16.19 over the same period. In fact, the highest silver has ever traded was $117 in 1980 and has spent most of its time below $20 since 1950. This pales in comparison to gold’s all-time high of $1,920 in 2011.

With silver being much lighter on the pocket it enjoys a far greater industrial demand. Yet as a store of wealth it is less appealing than gold due to higher storage costs relative to its price. Over time this has seen investors favor gold as a hedge against inflation.

However, whilst silver trades at much lower prices, it is far more volatile in percentage terms which makes it appealing to traders. That is not to say gold cannot be volatile, but out of the two, silver has the edge where volatility is concerned.

Both gold and silver attract safe-haven inflows during times of uncertainty, which of course leaves them vulnerable to selling pressure when risk appetite returns. However, investors would be prudent to analyze the supply and demand and the metals sector in general to better assess their longer-term trends.

Overall, gold and silver share a positive correlation which can be partly explained by their inverse correlation with the US dollar. That said the correlation is not always tight and the metals can diverge on occasion so is not a relationship to hang one’s hat on.

Long example: Silver (XAGUSD)
A trader buys 6 contracts of silver (5,000 ounces per contract) at USD $16.45

• If the price rises to $18.00 the trader could exit for a profit around $13,500
  • (# contracts x contract size) x (exit price – entry)
  • (1 x 5,000) x ($18.00 – $16.45)

• If prices fall to $16.00 the trader could exit for a loss around -$500
  • (# contracts x contract size) x (exit price – entry)
  • (1 x 5,000) x ($16.00 – $16.45)

• A 1% margin requirement with 100:1 leverage requires $4,935 of capital
  • (# contracts x contract size x price) / leverage
  • (1 x 5,000 x $16.45) / 100

Short example: Gold (XAUUSD)
A trader sells 1 contracts of gold (100 ounces per contract) at $1,625

• If prices fall to $1,550 the trader could exit for a profit around $7,500
  • (# contracts x contract size) x (entry – exit price)
  • (3 x 100) x ($1,625 – $1,550)

• If the price rises to $1,650 the trader could exit for a loss of around -$2,500
  • (# contracts x contract size) x (exit price – entry)
  • (3 x 100) x ($1,650 – $1,625)

• A 1% margin requirement with 100:1 leverage requires $1,625 of capital
  • (# contracts x contract size x price) / leverage
  • (3 x 100 x $1,650) / 100

Costs associated With Metal CFDs

Spread:
The spread is a minimal transaction cost applied at trade entry. This means a minor balance will show initially on the floating profit and loss, as the cost has been added at the time of trade execution. The spread itself is simply the difference between the bid and ask prices.

Commission (Pro Accounts Only):
A relatively small commission of $7 per full contract is applied to gold and silver trades at entry. Therefore, mini lots (0.1) contracts are $0.70 per lot and micro contracts (0.01 lots) and just $0.07 per trade. However, it should be noted that spreads on the pro account are razor thin so do not necessarily add to the overall cost of the trade. But pro accounts do keep your stops further away from market action.

Swaps:
Swaps are applied to trades that are held overnight. Calculated daily, they are based on the interbank rate of the currency a market is traded in. Swaps can be thought of as an interest rate which can be either a minor credit or a debit to your trade. As swaps are calculated 365 per year gold and silver CFDs have a ‘triple swap’ day on Wednesdays to account for weekends when markets are closed, calculated in USD.

Trade Long and Short
CFDs do not limit your trading to one direct, as they allow traders to freely place bullish bets (go long) and bearish bets (go short). This is unlike the underlying market for gold or silver where limitations can occur. Physical metals take time to purchase and store, and futures markets can limit traders entering the market or preventing them from leaving a trade if the market hit ‘limit up’ or ‘limit down’.

Trade on margin
Lower margin requirements means less of your equity is held as collateral to open a trade. In turn this allows traders to further diversify their portfolios and seek more opportunities.

Ability to Hedge Out Risk
Hedging is the process of reducing risk from a trade, by opening a trade in the opposite direction to the first one.

For example, if an investor were long a gold futures contract or ETF and were concerned gold prices may become volatile, they could short (sell) the equivalent value of a gold CFD to lock in the profit. This way, if gold prices fall, the gold CFD trade makes money and hopefully offsets the loses sustained on the futures contract.

Diversify Your Portfolio
Gold and silver can be considered as both a form of currency and a commodity. Given they are traded against the USD and offer higher levels of volatility means metals should be on the radar of all traders.

Trade Long and Short
CFDs do not limit your trading to one direct, as they allow traders to freely place bullish bets (go long) and bearish bets (go short). This is unlike the underlying market for gold or silver where limitations can occur. Physical metals take time to purchase and store, and futures markets can limit traders entering the market or preventing them from leaving a trade if the market hit ‘limit up’ or ‘limit down’.

Trade on margin
Lower margin requirements means less of your equity is held as collateral to open a trade. In turn this allows traders to further diversify their portfolios and seek more opportunities.

Ability to Hedge Out Risk
Hedging is the process of removing risk from a trade, by opening a trade in the opposite direction to the first one.

For example, if an investor were long a gold futures contract or ETF and were concerned gold prices may become volatile, they could short (sell) the equivalent value of a gold CFD to lock in the profit. This way, if gold prices fall, the gold CFD trade makes money and hopefully offsets the loses sustained on the futures contract.

Diversify Your Portfolio
Gold and silver can be considered as both a form of currency and a commodity. Given they are traded against the USD and offer higher levels of volatility means metals should be on the radar of all traders.