How to Start Day Trading in Gold

Trading gold bars
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The value of gold fluctuates from moment to moment, as it trades on public exchanges where it has a price that is determined by supply and demand. While people don't eat it or drink it, they are attracted to gold. It's been used as a currency, because it doesn't corrode, and the material allows for some absorption of light, creating that yellow glow.

The reasons people buy or sell gold—creating the demand and supply flow—can be pure speculation, to acquire or distribute physical gold, and as a hedge for commercial application. For day traders, the purpose of trading gold is to profit from its daily price movements.

Key Takeaways

  • Day-trading gold is speculating on short-term price movements, and it all takes place electronically.
  • Futures contracts are a way to trade gold without ever taking possession.
  • The United States requires a minimum $25,000 account balance to day trade gold funds or ETFs.

Futures Markets

Day trading gold is speculating on its short-term price movements. Physical gold is not actually handled, and possession is not taken. Rather, the transactions take place electronically, and only profits or losses are reflected in the trading account.

There are a number of ways to trade gold. The main way is through a futures contract, which is an agreement to buy or sell something—like gold—at a future date. Buying a gold futures contract doesn't mean that you actually have to take possession of the physical commodity.

Day traders close out all contracts (trades) each day and make a profit based on the difference between the price where they bought the contract and the price where they sold it. Gold futures trade on COMEX. There is a standard gold future (GC), which represents 100 troy ounces of gold, and a micro gold future (MGC), which represents 10 troy ounces. 

On the futures exchange, gold moves in $0.10 increments only. This increment is called a "tick"—it is the smallest movement a futures contract can make. If you buy or sell a futures contract, how many ticks the price moves away from your entry price determines your profit or loss. To calculate your profit or loss, you'll first need to know the tick value of the contract you are trading. Your trading platform will also show you, but it is good to understand how it works.

  • For a standard contract, the tick value is $10. That is because the contract represents 100 ounces of gold, and 100 ounces multiplied by the $0.10 tick size results in $10. That means for each contract, a one-tick movement will result in a profit or loss of $10. If it moves 10 ticks, you gain or lose $100. If it moves 10 ticks, and you are holding three contracts, your profit or loss is $300.
  • For a micro contract, the tick value is $1. That is because the contract represents 10 ounces of gold, and 10 ounces multiplied by the $0.10 tick size results in $1. That means for each contract, a one-tick movement will result in a gain or loss of $1. If it moves 10 ticks, you gain or lose $10. If it moves 10 ticks, and you are holding three contracts, your profit or loss is $30.

Gold Futures

The amount you need in your account to day trade a gold futures contract will depend on your futures broker. NinjaTrader for example requires you have $1,000 in your account to open a position for one E-Mini Gold Futures contract. You also need enough in the account to accommodate potential losses. 

For a day trade of a standard Gold Futures (GC) contract, you need $2,000 in your account, plus additional funds to accommodate potential losses. The amount required by your broker to open a day trading position is called "intra-day margin." It varies by the broker and is subject to change. 

These figures assume that you are day trading and closing out positions before the market closes each day. If you hold positions overnight, you are subject to Initial Margin and Maintenance Margin requirements, which will require you have more money in your account. 

Day Trading Gold, ETFs and/or Stock

Another way to day trade gold is through a fund that trades on a stock exchange, like the SPDR Gold Trust (GLD). If you have a stock-trading account, you can trade the price movements in gold.

The trust holds gold in reserve, and therefore its value is reflective of the price of gold. The price of the SPDR Gold Trust is approximately 1/10 of the price of gold. So if gold futures are trading at $1,500, then the Gold Trust will trade at approximately $150.

The trust trades like any stock. The minimum price movement is $0.01, therefore you gain or lose $0.01 for each share you own each time the price changes by a penny. Stocks and ETFs are typically traded in 100-share blocks (called "round lots"), so if the price moves a penny, and you are holding 100 shares, you gain or lose $1.

If the price moves $1, from $120 to $121, you gain or lose $100 on your 100-share position. If you are holding 500 shares, you gain or lose $500 on that same price move. The amount you need in your account to day trade a gold ETF depends on the price of the ETF, your leverage, and your position size. 

For a day trade of stocks or ETFs in the United States, you're required to have a $25,000 minimum balance in your account. Depending on how much income you want to generate and your leverage, you may wish to have more than $25,000 available to you.