BILLION FROM BULLION
“Gold is money; everything else is credit!”
Many of you might have heard this quote that emphasizes the value and significance of bullion trading. The fact that this comes from none other than Mr. J. P. Morgan himself, makes it all the more relevant and interesting.
Bullion can make you billionaire. It has the potential to help smart traders step up their game. You only need to have these three things with you:
1. Right Knowledge
First and foremost, you should have a good knowledge about bullion trading to earn steady profits. So, let us take a quick look at what is bullion and how it is traded.
2. Right Strategy
Right execution is what converts knowledge into money. Right execution needs right strategy. One of the most effective bullion trading strategies is hedging is. Let us get to know the basics of hedging.
Hedging is a method adopted by traders to protect themselves from incurring huge losses in the market. In hedging, the trader will open a trade in order to offset another trade that he has already opened earlier. By opening this second trade, the trader counterbalances the risk involved in his first trade. Thus, there is a negative correlation between the first and second trade.
What is the difference between hedging and stop loss? Though both strategies are used to limit the risks involved, hedging also gives you the option to make money from the second trade, provided you take that second trade carefully.
Now, let us take an example to understand this strategy. A trader has a physical possession of gold worth $1,000 USD. Now, he carries with him the risk of gold price going down in the market, which would not fetch him the same $1,000 if he plans to sell it in future. In other words, he’ll suffer a loss of value, better termed as virtual loss. Consequently, he goes for hedging to mitigate this loss. He will sell short in his trading account. This would give him a profit in the event of gold price going down. This profit sets off the loss of value that he incurs when price goes down.
Hedging strategies are usually adopted when there is high volatility in the market.
3. Right Instruments
Your strategies become fruitful only when they are used with the right instruments. The way you use your strategies for currency pairs will make a difference from the way you use them for bullion. Therefore, you have to choose your instruments wisely.
With respect to bullion trading, there is still a lack of convenient instruments that traders can use in hedging. Realizing this limitation, brokers have now started offering specific contracts to hedge physical gold positions. SmartFX is one such broker who have launched an innovative instrument with the prime objective of helping jewellers and wholesale dealers in bullion. The striking advantage of this innovative instrument is that it mitigates the risk element to a far extent compared to the conventional method of trading spot gold.
Now to develop a clear understanding, let us take a look at some trading figures:
As you can see from the image above, new instruments in gold are traded in the market. Usually traders have to convert gold into tonnes, grams, kilograms, etc. by themselves. In order to avoid this difficulty, instruments like TTBar gold, KG are developed which can be bought or sold, making it very for bullion traders.
Smart traders keep their eyes and ears open to identify and capitalize on such innovative solutions that transcend the limitations. Be smart and use your resources wisely to make a billion out of bullion!