- PPF Points
- 2,039
Gold arbitrage trading can return your investment and also prove to be extremely profitable if executed properly, although it might seem that simple or easy. However, it is actually not that simple. The fundamental principle here is to utilize the gold price difference in different financial markets or trading platforms – buy low in one place and then sell high in a different place. By doing so, you are capitalizing the price discrepancy of gold and consequently having a financial gain while you still do not have full market exposure to the direction. That’s the theory everyone loves, isn’t it? However, things happen to unfold differently in reality. The chances for simple arbitrage are normally really scarce and transient as the gold market is not only quite efficient, but also heavily monitored. This means that the prices on the major exchanges are usually close and the opportunity for a real price gap to occur is only if you act quickly and are in the position to use multiple trading venues. You also need to take with you the transaction costs such as commissions, spreads, and transfer fees, which are not just your profits but can also move toward a loss. Timing is of the utmost importance - any kind of delay, either in carrying out transactions or transferring gold, could immediately cancel out any gains that are in reach. Moreover, the market’s volatility and the different country regulations may cause additional damage. The individual trader, competing with large institutions who have faster technology and better access can be quite daunting. But for those who employ the proper tools, can trade fast, and have a good understanding of the market rules, arbitrage can still be a profitable approach to trading in the gold market, especially if they see it as a precise, short-term game rather than a sure-money one. This is a field that requires discipline, experience, and constant monitoring, and that’s why it is not everybody’s game – but if you manage to get it right, the effort will pay off in the long run.