The gold markets cause a lot of wear and tear on traders.
It’s easy to think that investors have made a lot of money over the last decade trading gold. The truth is that with the volatility found in gold — especially in the march to its all-time highs in the $1,900’s— many investors lost a lot of money, even those trading it exclusively from the long side.
Throughout the significant corrections it took for the gold market to find its current sort of balance, there were many traders who got in at the wrong time.
And since coming off of those all-time highs, gold has still been pretty volatile, margins have increased and many traders are getting stopped out before they’ve made any money.
Still, gold remains one of the most liquid and popular markets in the world. Since 2003, the price of gold has been on a consistently upward trend, rising from below $400 per ounce to more than $1,900 per ounce during 2011.
How can you still participate in this market, which is traditionally viewed as a safe haven investment to hedge against economic and political crises, without facing unlimited risk?
The answer is binary options.
The main advantage of using binary options is that you define your own risk; you have access to unique opportunities in the metals market with completely limited risk.
If you take a detailed glance at the history of commodities markets such as gold, you will find that this volatility has an average of around 30%. Therefore, in a year the prices of these commodities -especially gold - vary on average around 30%. Recent years have seen a large price increase relative to this yellow metal and one can see changes of up to 60% of its initial value.
You think investors will channel funds away from USD and into gold, a metal usually seen as a safe-haven asset.
You choose the following (examples below not inclusive of exchange fees) :
- Gold (Dec) > 1794.0 (1:30PM)
- Gold Binary Options
- You opt to buy because you think the gold futures contract will be above 1794.0 at 1:30pm.
- You select 10 contracts at the offer price of 21.00. Each contract is worth $1 per point.
Your Maximum Profit and Maximum Loss are displayed automatically.
The most you can make is $790; the most you can lose is $210.
Now, in our example it’s the first Friday of the month and you think the non-farm payrolls report will miss forecasts and the U.S. Dollar may take a hit.
You think this could have a knock-on effect on gold. In this example the underlying gold futures market is trading around 1788.
Based on Nadex's calculated expiration value for the gold future at 1:30pm, your Binary Option will settle at: 100 if this value is above 1794.0 or zero if this is value is at or below 1794.0.
Profit: At 1:30pm, Nadex’s calculated expiration value for gold is above 1794.0.
Your trade settles at 100. The difference between your opening price (21) and the settlement price (100) is 79.
Multiply 79 by the number of contracts (10) and the contract value per point ($1) to calculate your gross profit: 79 x 10 x $1 = $790.
Or, loss: At 1:30pm, Nadex’s calculated expiration value for the gold future is below 1794.0. Your Binary Option settles at 0. The difference between your opening price (21) and the settlement price (0) is 21. Multiply 21 by the number of contracts (10) and the contract value per point ($1) to calculate your gross loss: 21 x 10 x $1 = $210.
It is also important to note that gold price reacts positively to the inflation phenomena as well as periods when the market shows strong liquidity, even if gold is also used as a primary commodity in certain industries. So, gold is an excellent product to use with binary options trading, especially in difficult times for the general economy, as is the current situation.
In the coming weeks we will be showcasing different commodities markets that you can trade easily using binary options.