Do You Know What Spread Is? For those who have been investing for a long time, the term “spread” is likely familiar. Interestingly, spread is also a common term in gold investment!
Gold investment is a long-established method used by many to protect wealth from inflation and economic uncertainty. Whether in physical or digital gold investment, spread is a factor in both.
If you’re new to investing and haven’t encountered the term spread, let’s explore it in detail below!
- Definition of Spread in Gold Investment
What is spread? Simply put, spread is the difference between the buying price and the selling price of an asset. In the context of gold investment, spread refers to the difference between the price at which you can buy gold and the price at which you can sell it in the market.
For example, if you buy gold at IDR 1,400,000 per gram and the selling price at the same time is IDR 1,360,000 per gram, the spread is IDR 40,000. This spread becomes a cost you need to consider when buying or selling gold.
It’s important to understand the spread offered by each gold trading service provider, as you need to account for this difference to make a profit from rising gold prices.
- Factors Influencing the Size of Spread
- Market Liquidity: More liquid markets typically have lower spreads due to higher trading volumes, making it easier to find matching buyers or sellers. Markets with lower liquidity tend to have higher spreads.
- Market Volatility: During volatile or unstable markets, spreads tend to widen due to increased risk. Understanding spread during periods of volatility can help you manage risk better.
- Type of Gold: The spread can also vary depending on the type of gold being traded, such as gold bars, gold coins, or digital gold. The purity of the gold also affects the spread. Gold with higher purity and standards generally has a larger spread.
- Impact of Spread on Gold Investment Profits
Understanding spread is crucial as it directly affects your potential profit from gold investment. The larger the spread, the greater the investment risk, as the price increase required to break even becomes larger before you can profit.
For short-term investors, knowing what spread is becomes critical, as even small price movements can greatly impact the final outcome. However, for long-term investors, the size of the spread may be less significant, as they focus on long-term gold price appreciation.
- Pros and Cons of Spread in Gold Investment
After understanding what spread is, it’s also essential to recognize the pros and cons associated with the spread offered by various gold trading service providers:
- Pros: Spread allows investors to buy and sell gold efficiently in an organized market. Spreads generally include other costs, so you don’t need to pay additional fees, and profits from buybacks go directly to the investor.
- Cons: Spread reduces your net profit, especially if you’re investing in the short term. A large spread can make it difficult to break even between the buying and selling price of gold, particularly if gold prices do not move significantly.
- Managing Spread to Maximize Profits
Spread doesn’t have to be a barrier to profitable investing if you manage it well. Here are some tips for managing spread in gold investment to maximize your returns:
- Choose a Platform with a Low Spread: Before starting a gold investment, research to find a platform or service provider with competitive spreads. Some platforms may offer lower spreads due to higher market liquidity or lower operational costs.
- Invest for the Long Term: If you’re investing in gold with a long-term goal, spread will have less impact than in short-term trading. This is because long-term gold price increases tend to be greater than the spread.
- Pay Attention to Transaction Timing: Spreads can widen during periods of high market volatility, such as during economic crises or major news events that affect gold prices. If possible, avoid transacting during these times to minimize spread costs.
- Avoid Frequent Transactions: If you frequently buy and sell gold, spread can become a significant cost. Consider investing for the long term to reduce the impact of spread.
Understanding spread is a key factor every investor, especially gold investors, must possess. Spread affects transaction costs and potential profits in both physical and digital gold investments.
By understanding what spread is, how it works, and how to manage it, you can make smarter decisions and maximize your gold investment profits.
Treasury, as one of the first licensed digital gold trading platforms in Indonesia by BAPPEBTI, offers low spreads to reduce the risk of digital gold investment.
So, don’t hesitate to start investing in digital gold with Treasury!
