Lesson 6 of 74 minchecked
How gold is quoted and traded as a CFD
GoalAfter this lesson you can read a gold quote and describe how a gold contract for difference works.
Gold is quoted in two main ways. This lesson explains those quotes and how a contract for difference tracks the gold price.
Spot gold is a price for metal traded now. It is usually quoted in United States dollars for one troy ounce.
Gold futures are agreements for a set amount of gold at a later date. Their price moves with the spot price but also reflects time and storage costs.
In Pakistan, many people meet gold as jewellery or local coins priced in rupees. That local price follows the world price and the exchange rate.
What a gold CFD is
A contract for difference is an agreement between you and a provider. You never own or store metal.
The contract pays the difference between the opening price and the closing price. If the price moves your way, the difference is positive. If it moves against you, the difference is negative.
Because no metal changes hands, the quote you follow is a reference price. Your result depends on that price and on the costs the provider sets.
Reading the quote and the costs
A gold quote has two sides. The bid is the price at which you can close a long position. The ask is the price at which you can open one. The gap between them is the spread.
The spread is a cost you pay on entry. Some providers also charge a fee for holding a position overnight. These costs reduce your result even when the price does not move.
Position size matters more than the quote itself. A small price move on a large position can create a large gain or a large loss.
Risk and practice
Gold prices can move quickly and without warning. A contract for difference carries real risk of loss, and you can lose more than you expect if you do not control size.
Decide your exit before you enter. A stop level and a position size you can afford to lose are basic parts of a plan.
Practise on a demo account first. Watch how the spread and overnight fees affect a position over several days before you use real money.
Many beginners watch only the gold price and ignore the spread and overnight fees. These costs can turn a small gain into a loss.
Words with a dotted underline open their explanation in the glossary.
Check your understanding
Answer in your head first, then open the answer.
What does a gold contract for difference track?
AnswerIt tracks the difference between the opening and closing price of gold. You do not own or store any metal.
What is the spread on a gold quote?
AnswerIt is the gap between the bid and the ask. It is a cost you pay when you enter a position.