What’s Different about Trading with Gold and Silver on the Forex Market?

While most people think of gold and silver as commodities, the markets consider them a form of currency and one that is traded on Forex. There are some differences about trading precious metals as currency versus commodity that are important to understand to mitigate risk and be able to competently analyze market data and make informed choices. The first important difference is to know that these metals are only valued against is USD (United States Dollar) value and no other currency. Silver is handled in much the same way, although there can be some minor variation depending on the quality listed. For an environment that is so heavily influenced by the immediate, this is one area of it that remains bound by a historical precedent that is no longer valid.

Why are Gold and the USD Paired for Trading

The main reason that gold, silver and the dollar are put together for price comparison stems from something called the Bretton Woods System. This system was devised by the United Nations and accepted internationally in 1944 as a means of stabilizing currency value after World War II. At the time, gold was considered the most reliable determiner of solvency when backing currency and the United States was the best country to provide the standard as it has the most proven gold reserve. The Bretton Woods System is no longer in use, but the historical precedent of comparing gold to the dollar value remains. The comparison, however, is always oppositional. The stronger the dollar, the less valued the precious metal. The weaker the dollar, the more value the precious metals will have on the market. Today, the Euro exerts significant influences over the value of the dollar and therefore, also the value of gold. Paying attention to what influences the market on both sides of the Atlantic is the only way to be trading successfully with little risk.

What determines the movements of the value?

The value of precious metals, which are treated as currency on the market, moves opposite to the currency that it is paired with. On Forex, silver and gold are paired with the USD but heavily influenced by the Euro/GDP comparison as well. All of the paired units are subject to the same influences on their value. Before you trade, you have to analyze the performance history of the currency, the current economic and performance reports and also, learn to gauge the sentiment for or against the policies and decisions of the country the currency is associated with. The last is most difficult because sentiment is rarely a rational thing and gold prices can plummet should sentiment for the United States increase based on a suggestion of a policy, rather than an implemented one. This is why staying aware of the global political climate is so important for trading on the market Forex represents.

Mitigating Risk

Mitigating the risk to your Forex account is one of the goals of every trader. Each trade should have a clearly defined stop limit for the trade to be ceased, a profit goal and not be leveraged to the extent that it jeopardizes account solvency. The best way to do this is to practice trading precious metals like silver using any one of the many demo trade programs available. This will allow you to put into practice your analytic judgment against the real time behavior of the market to see where your weak spots are before committing real money. Another means of mitigating risk to is only trading with small leveraged fund amounts so the potential for loss is lessened. While this also lowers the profit potential, the ability to work fast and 24 hours a day on Forex will make up for it.

Using Robots to Your Advantage

With the right stops and binary trading options set, you can use robots to your advantage when trading because it will allow you 24 hour action on the market. This is not something to engage in unless you have a good understanding of how stops and binary options work. Stops are set to definite value limits and expiration frameworks, but the variability of the price ranges throughout the course of the day may make the percentage point options available with a binary setting preferable. Try both forms of parameters out in a demo program so that you understand how they work before deciding to let a robot do the work for you. It is a good idea to work out a tracking and recording system as well. The market fluctuates hourly with precious metal valuation, rather than react to a sudden drop and miss an opportunity; you need to build a sense of history of the potential behavior to make the right judgment call for your account.