Precious Metal > Choosing product

Choosing precious metal

At present, there are many kinds of gold investment products in the world. According to the classification of direct and indirect investment gold, the former is mainly related to physical gold, paper gold, gold futures and gold spot margin trading (London gold), the latter is represented by gold fund.

Making reference to the following important factors, it may be helpful to decide which product is the suitable choice for the direct gold investment.

Margin of Spot Gold Physical Gold Paper Gold Gold Futures Gold Fund
Flexibility High High Medium Low Medium
Binary Trading Yes No No Yes No
Minimum Standard Low Medium Low Medium  Medium

* Flexibility refers to level of circulation, liquidity and storage.

From the table, the flexibility of the gold spot margin can be seen because of the 24 hours of real-time trading with high liquidity. The cash flow of physical gold is low due to the time cost for the procedures including visiting the bank or physical gold commercial firm. Investors also need to deal with their own storage security issues. Gold fund transactions need to be specified in the daily trading hours because there is only one price in every single day. Two-direction trading is also an important consideration as market go through the bull market and bear market cycle. Compared to physical gold, paper gold and gold fund investors can only “buy low sell high” and leave the market when it rises in price. Gold spot Margin trading allows investors to build long or short position at any time, no matter gold price rise and fall, profit can still be made. For the time being, gold spot margin trading and gold futures are 24-hour two-direction trading, but the threshold of the gold futures are quite high, each lot margin cost 5,000 US dollars or above, not the average investors can afford. On the contrary, the gold spot margin trading threshold is very low, each lot margin only 1,000 US dollars, leverage up to 100 times.

Gold spot margin trading risk

In summary, gold spot margin trading is better than the other four investment products in comparison of the above factors. However, many investors have doubts about gold margin products because of having the misunderstanding of the word “leverage” which is often mistakenly interpreted to “high risk”. Investors do not need to pay the full amount of fund to deal with the transfer, by paying a certain percentage of the total amount of margin, 100 times of leverage and a great return can be achieved. Undeniably, this is indeed a very risky investment, even just small changes in market price could also have a great impact on investors. However, the leverage depends on how much margin you put in. Investors may increase the amount of margin to reduce the leverage ratio, which can greatly reduce the risk of market volatility. For example, when the gold price is $ 1,000 per ounce, if the deposit is $ 10,000, there is 0.1 lot and the leverage ratio is 1: 1. In addition, the gold spot margin products are equipped with a stop loss system to reduce investment risk.