Field Guide to Trading Terms

Cfd on gold


Family I · Instruments

Not to be confused with cfd, cfd trading, cfd analysis.

A CFD on gold is a derivative contract whose value is tied to the price of gold, typically quoted per troy ounce in US dollars. The position is settled in cash for the difference between the opening and closing price, so no bullion is delivered and no storage is required. Because it is a contract with a counterparty rather than a claim on metal, the terms — size, margin, financing and trading hours — are set by the provider and vary by jurisdiction.

How the contract works

A gold CFD is quoted in the same units as the underlying market, usually US dollars per troy ounce, and one contract typically represents a fixed quantity such as 1 ounce, 10 ounces or 100 ounces depending on the provider. Positions can be long or short, and profit or loss is the price change multiplied by the contract size.

Two costs are normally embedded in the position: the spread between the bid and ask, and a daily financing charge applied to the notional value of the position. Long positions generally pay financing; short positions may receive or pay it depending on prevailing interest rates and the provider's terms. Margin requirements are set by the provider and by local regulation, and they differ between retail and professional classifications.

Worked example

A trader buys one gold CFD at a quoted price of 2,400.00 USD per ounce, with a contract size of 10 ounces and a margin requirement of 5%.

LONG 10 OUNCES AT 2,400.00
Notional value2,400.00 × 1024,000.00 USD
Margin required24,000.00 × 5%1,200.00 USD
Exit price2,418.00—
Gross profit(2,418.00 − 2,400.00) × 10180.00 USD

Financing and spread costs are deducted from this figure, so the net result is lower than the gross profit shown.

What determines the price

The reference price for a gold CFD is drawn from the spot or futures gold market, most commonly the London over-the-counter market or a regulated exchange contract. Providers may reference the spot price, a near-dated futures price, or their own synthetic quote, and the choice affects both the level and the financing applied.

Because the contract is bilateral, the provider's quote can differ slightly from the underlying market, particularly outside the most liquid hours.

Regulatory treatment

Rules on gold CFDs vary by country and regulator. Some jurisdictions restrict the marketing of CFDs to retail clients, cap leverage, require negative balance protection, or ban the products for retail investors altogether. Margin levels, hedging rules and the availability of short positions therefore differ between providers and regions, and the same contract may be offered under different terms to retail and professional clients.

Often confused with

cfd
A CFD is the general class of cash-settled derivative contracts across any underlying, whereas a CFD on gold is one specific instance of that class; the visible sign is the named underlying, gold, in the contract specification.
cfd trading
CFD trading is the activity of buying and selling CFD contracts, while a CFD on gold is the instrument being traded; the visible sign is that one names an action and the other names a product.
cfd analysis
CFD analysis is the study of price behaviour or contract terms for trading decisions, not the contract itself; the visible sign is that analysis produces commentary or charts rather than a position.

See also