Spread Betting on Gold

Q: For spread betting purposes, is a change in the gold price calculated in cents, or tens of cents?

Say gold is at 903.46 dollars per ounce and one was to put a spread bet on it increasing. Stake at €1 per point for simplicity. Gold rises to 905.46 say. The 'points' increase is 200 points, or 20 points? That is, for spread betting purposes, do you calculate the rise in cents, or tens of cents?

If 200 points betting €100 per $1 move is quite a big bet, gold can easily trade in a $20 /$30 range in a given day?

A: Different providers having different policies but most will quote gold trades at 0.1 per US dollar. For instance Capital Spreads, Ayondo and Spreadex quote gold to one decimal place; in other words tens of cents. In practice this means that for every dollar you move, you would either make or lose 10 times your stake. So in this case taking the Gold Rolling Daily in perspective you are trading on a 0.10 market movement. For example, if the market moves from 1016.0 to 1014.5 that would be a 15 point movement. Also your P&L will move in the same way as well, so if you buy £1 per point, for every $1 move in the underlying you will make or lose £10. Taking your example if you see the price move as 9034pts to 9054 pts or a 20 point movement up. At €1 per point, that's 20 euros.

At the time of writing Gold has reached the $1000 mark! So taking say the offer price at the moment of 10166. The movement from 10166 to 10167 would be a tenth movement and if you had a €1 stake bet, you would be making €1. The same price if you looked in the market instead of being 10166 would be 1016.6 as an example if the prices were the same.

IG Index on the other hand count the full point. Take this example: their Daily Spot Gold Spot price is currently listed at 1020.3 / 1020.80. On this basis if you were to Buy at a price of 1020.8 at €1 per point and the price moved up to 1050.8, then the market would have moved 30 points in your favour and you would have a running profit of €30. The number of whole points is classified as the figure to the left of the decimal point.

Gold can be very volatile and a change of between $20/$30 a day is not unheard of, though it is unlikely... Please keep in mind though that the range can even be more, depending on market volatility.

Q. Is that the same as quoting gold to one decimal place?

If so what if gold was trading at 905.44 to 906.78 does the 906.78 become 906.8 (i.e. rounded to the nearest decimal or do you ignore it?)

A: There is no rounding in the price...906.78 would be quoted as 9067pts, not 9068pts.

Q. Gold: Do the decimals count? That would mean £1 bet would be the equivalent of £90,000 worth of real money invested in gold!?

A: A point is 1.00

Buying Gold at £1 a point at 940, will result in a £1 move for every dollar the gold price moves. If the gold price goes up to 960, you will be £20 up.

With some of the providers' quotes they have added decimals. The real silver price, for example, is around $18 - but you ignore this. IG will quote 1800. Once again, a point is 1.00, so buying £1 a point will net you £50 profit if the price goes up to 1850.

Highly recommend guaranteed stops, such as Capital Spreads or ETX offer for trading commodities, oil or gold. You have peace of mind knowing you will never get a margin call, and you're protected in case of a sudden fall in the market.

Q. Please explain to me the technicalities of taking on a spread bet with Capital Spreads?

For gold, the "Underlying stake/unit risk" is €1 per .1 point move. That's essentially the same as 10c per .01 point move right? How do you calculate the .1 move is calculated, like does it round up/down. Or if there's a .14 move do you just end up with .14 * €1 = €1.40??

Assuming trade's are done at €1 per point;

The IMR's 100. So I need at least €100 on deposit to trade?

The CGSL is 300. As I understand it, €/$/£300 is the maximum you can lose before the computer steps in and closes you out, regardless of where you want to set your stop?

EDIT: .5 spread between buy and sell figures too, is that normal??

A: For Gold Rolling Daily, the underlying stake/unit risk indicates that the market trades per 0.1 move. This means that if you enter this market at a level of 1018.5 and exit the market at a level of 1019.0, this is considered a 5 point movement. If your stake on this trade was €1, this would have been a €5 profit or loss. With an IMR of 100, this indicates that you will need at least €100 available in your trading resources to place a €1 per point bet in this market.

The Capital Spreads system will set you an automated stop level for any trade which you can amend in your order book should you wish to do so. The system will first divide your trading resources by your stake and then:

- if this figure is under the CGSL for the market, your stop will be placed at 80% of what is available per €1 part of this trade.

- if this figure is over the CGSL for the market, your stop will be placed at 80% of the CGSL for the market.

Capital Spreads does not guarantee any orders, therefore if a market gaps through your requested order level, your order will be filled at the next available possible price, therefore there is no maximum amount you can lose. The spread for Gold Rolling Daily is 5.

Q. Can you trade spread bets on Gold? If so what is the deposit needed to cover the worst adverse case scenario?

A: Yes, of course and not only that; gold is a 24-hour market since its traded like foreign exchange. First a warning, however; be careful spread betting gold prices - the spread isn't the narrowest and prices can move substantially from one hour to the next. For instance, one one particular day not so long ago gold reached $1,192 a troy ounce only for it to plunge back to $1,137.5 (which equals 545 points).

The deposit needed to cover the worst case scenario? Whatever your losses would be if they started giving away gold free of charge. Of course they could potentially start paying you to take the metal, in which case, your potential losses are unlimited. This did happen for gas at one point, but probably won't happen for gold!

I don't suggest you to trade spread bets on gold however if you really have to I can tell you that Finspreads offer a 12 point spread, bet per 0.1 movement of the metal with margin 200. Suppose you put the minimum bet of £0.50 per point you would need to maintain a balance of £100 in your account at all times, the market maker will ask for a margin call whenever this amount is breached and if this is not made immediately they will close your trade and ask you to make good the loss.

 ...Continues here - Pairs Trading

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