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KT Explains: What is gold/forex trading and how does it work?

Shajar Khan/Dubai
Filed on June 7, 2021

(Reuters)

Here's a quick course on understanding how the gold/forex market works.


What is gold/forex trading? Should you invest in bullion? What are the risks?

Khaleej Times spoke to Monte Safieddine, a market analyst at IG, a British company providing trading in financial derivatives such as contracts for difference and financial spread betting.

What is forex trading and how does it work?

Forex stands for foreign exchange. When people speak about forex, they are talking about trading currencies and trading one currency against another. For example, if you believe that the US dollar will decline to some extent, you would prepare to sell the dollar. The question is, what can you sell the dollar against? Ideally, people opt to sell it against the currency they believe will relatively outperform and vice versa. Foreign exchange is also known as FX. It is the global marketplace for exchanging national currencies against one another. Forex markets are the largest and most liquid asset markets globally because of the worldwide reach of trade, commerce and finance.

What does a market analyst do?

As a market analyst, Safieddine's job is to go through the financial markets and analyse certain products, specifically those that clients would like to trade or invest in. An example of this would be: a client is interested in trading Tesla, Apple, gold or commodities – a market analyst is responsible for pulling up reports and gathering vital information. This information is then presented to the client to assist him/her in making an informed decision.

What is gold/forex?

Gold is priced in US dollars like all commodities such as oil, silver, platinum, palladium and natural gas. However, gold falls under a different category as it is not a currency. It is a commodity and more specifically, it is a precious metal. Many times, gold gets grouped into the FX brokers sphere or the FX trading sphere because it is listed amongst the FX majors.

What are the three different types of forex markets?

Fundamental

Forex fundamentals centre around the currency's interest rate. This is because interest rates have a large effect on the forex market. Other fundamental factors include gross domestic product, inflation, manufacturing and economic growth activity.

Technical

Forex technical analysis involves looking at price history patterns to determine the higher probability time and place to enter a trade and exit a trade. FX is one of the most liquid markets. Therefore, the movements on a chart from the price action usually gives clues about hidden levels of supply and demand.

Sentiment

When you see sentiment overwhelmingly positioned in one direction, this means most traders are already committed to that position.

What does trade currencies mean?

Trading currencies means trading the euro against the US dollar, etc. However, it has been relatively range-bound but is it one of the popular currencies that people like to trade, along with the pound against the dollar. Due to Brexit, the pound became volatile, and when there is volatility, there are more trading opportunities even though there are more risks involved. The yen and Swiss franc are considered safe-haven or strong currencies. The Australian dollar, the New Zealand dollar and the Canadian dollar are referred to as commodity currencies, which means they have a commodity underlying the commodity they export. Australia has iron ore and Canada has oil. This does not necessarily mean that if oil goes up, the Canadian dollar will go up. It means that if oil strengthens, the Canadian dollar might strengthen slightly. It is important to note that this may not happen overnight.

What is the best time of the day to trade forex?

The best time of the day to trade gold or any currency or commodities is when the markets open.

What does going long in trading mean?

Going long in trading means buying gold electronically or on a platform/app and pressing a long position or buy position and closing that buy position at a certain price. This can also be done when purchasing gold in a store. You can hold it for a certain amount of time and if prices go up or down, you can go back and sell it.

What is a sell position in trading?

Initiating a sell position relates to predicting that prices of gold will go lower and initiating a sell position. The positive thing about this is you can trade or make money if the market is going up or down. However, you could lose money if it goes in the opposite direction.





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