Education Forex

Metals Market

1- A two way market place in which investors can sell or buy both gold and silver. Market makers mainly quote prices in US dollars per troy ounce for spot and forward delivery. Forward prices and options quoted by market makers enable producers and industrial consumers to hedge their future commitments and provide access for investors and speculators.

2-The metals market is one of the most growing financial markets, investors seeks opportunities to gain some return of investment from the volatility of prices of this market, in addition to the fact that gold and silver is the only safe way out when the currencies are facing economical risks, investors tend to enter the precious metals market when the value of the currencies seems to be declining.

3-Investing in precious metals can be done either by purchasing the physical asset, or by trading on the spot market quoted by market makers. And when we say precious metals we refer to the valuable metals such as gold, iridium, palladium, platinum and silver.

4-One important term you should know about that metals market and especially on the most traded product in this market…gold, this term is the Gold fix is the process of setting gold prices, twice a day, by the five members of the London gold pool. This rate is used as a benchmark for pricing the majority of global gold products and derivatives.

5-The London gold pool sets the price of gold based upon basic economics of supply and demand. The world then uses these prices to determine the price of bullion and gold related products.

Trading Techniques

- Trading on Margin

Trading on margin is considered to be one of the most widely used strategies in the financial investment world, as this system increases the purchasing power and reduces the financial burden that is required to trade in the financial markets.

The margin system depends directly on the leverage of the investor's account.

- Example

If an investor opened a margin account with $5000 deposit with a leverage of 1:100, this means that the purchasing power for this investor will be multiplied from $5000 to $500,000.

In other words, if the investor wants to buy/sell 100,000 euro for example, he will only need $1000 as a required margin to make such a deal.

- Example in Figures

John will use $1500 from his own margin account to be able to buy 150,000 British pound on the price of 1.8645.

Two days later the price of GBP/USD moved up to the level 1.8733 so decided to sell the 150,000 pound.

What is the result of this deal?

- Profit/loss

= (sell price-buy price) × traded volume = (1.8733-1.8645 × 150,000)
= $1320

We can notice from the examples above that the margin system gave the investor the opportunity to make large trades and gain the whole benefit from the size by using relatively small amounts of money.

This system has the advantage to reduce the financial burden necessary, and it maximizes the purchasing power of his trading account.

We have to also note that the increasing expected profits resulting from this strategy are accompanied by an increased level of risks for the same investment in case the market moves in the opposite direction.

In order to minimize the level of risk, we always recommend strategies such as the stop loss, when engaging in any market trade.

- Over the Counter Markets (OTC)

The technological revolution in the media, communications, and computer networks has made the world a global village, affecting our lives in different ways.

The investment sector has gained the biggest share from all these expansions and technological revolutions, as it increased the speed and flexibility of trading.

Nowadays, all investors all around the world can buy or sell any financial instrument of their choice, whether it is over the phone, mobile phones or through internet. All they have to do is to contact any of the brokerage firms around the world to perform their orders based on current market prices, without having actually to be in the exchange location.

A major element is that brokerage firms have their own diversified inventories which fit all investors’ demands.

Trading over the counter is a widely used method of trading in the Financial Markets all around the world because the process of buying and selling financial instruments takes place between the investor and the broker directly, without having to go over all the complications accompanying this type of operations.

One of the biggest computer networks for trading over the counter in the world is NASDAQ. There are numerous companies in the world that have become eligible to be listed in the primary and the secondary markets.

However, they still prefer to be traded in over the counter market because of its high level of flexibility and liquidity.

Risk Management

		Studying all market indicators
		In order to be able to minimize the risks surrounding trading in the financial markets, the investor has to go over and study all economic indicators carefully.

		The economic indicators are of two types
		Fundamentals analysis: specialized in following news forecast and the surprise effect that is the difference between what was forecasted and the actual reading which will affect the markets in both ways Technical analysis: the study and the analysis of the charts.

		Specifying the entry point to make a deal
		Specifying the entry point in a certain investment is an important element for the success of your investment. In order to specify this point, the investor should go over all the available reports and analysis in the market and study them carefully before taking the decision to buy or sell at a certain point. When the market reaches that point, the investor can make the trade through the electronic trading system directly, using all types of trading orders.

		Specifying the closing point to make a deal
		As in the case of specifying the entry point, the closing point refers to specifying the exit point and has the same degree of importance. To specify this point, the investor should go over all the available reports and analysis in the market and study them carefully, before taking the decision to get out of the market at a certain point. The result of this process will be either profit or loss. In both cases, the investor should stick to the pre-specified point to close the deal,read more

		Stop loss orders
		Stop loss orders is a important technique in risk management in the financial markets. The investor can place a limit to his loss on a certain position when the market reaches a certain price (the pre-specified closing point).

		Take profit orders
		Take profit orders is a successful technique in investment, where the investor can take the profit of a certain position when the market price reaches a certain level (the pre-specified closing point),read more

		Invested capital
		The process of trading on margin is considered a high risk because much more than the original investment is used. That is why it is recommended not to use more than 30% of the balance for trading on margin.


		1- What is the margin level (ML) It is the percentage of the net equity to the required margin. In other words, it refers to how many times the equity can cover the required margin.
		2- How to calculate the margin level (ML)
		Margin level is automatically calculated through the trading system as follows: It is also possible to do it manually by dividing the equity with the required margin: ML = Equity ÷ Margin, To calculate (ML) in the previous example: ML = 17790.18 ÷ 14500 ML = 1.2269 To get the result as a percentage ML = 1.2269 x 100 ML = 122.7 %
		Warning and When It Appears
		Warning (as you can see in the table) appears in the account when the Margin Level drops below 100 %, which means that the account's equity can not cover the required margin.
		When will the open positions be closed?
		The trading system will automatically start closing the open positions when the Margin Level drops below 30 % as in the table below:
		Will the system close all open positions at a 30 % margin level?
		Yes, in case the ML drops below 30 %, the trading system will automatically close all open position
		Is it possible that the equity can drop below zero?
		In some cases when the market is hectic, the equity may go down below the zero level $ 0.00. In this case, the client will not be responsible for the deficit in the account and it will be covered up to the zero level.

Education Forex

Metals Market

Trading Techniques

Risk Management

Profit/loss calculations

Closing Position