Is gold trading better via CFDs or ETFs?
Verdict
- For short-term or two-way gold trading a CFD is usually the better tool, and Pepperstone is our pick for it; for holding gold for years, an exchange-traded gold fund bought through a stockbroker usually suits better.
- A CFD gives you leverage (1:20 on gold for Australian retail clients at Pepperstone) and lets you go short easily, but you pay overnight financing for every night you hold.
- An ETF has no leverage and no overnight financing; you pay brokerage to buy and sell and the fund's management fee while you hold.
- With a CFD you own nothing but a contract with the provider; with an ETF you own units in a fund.
The deciding factor is how long you plan to hold. A CFD's costs are front-loaded into the spread and then accrue nightly, while an ETF's are mostly an annual fee, so the cheaper route changes with your time frame.
Our answer, and where Pepperstone fits
If you trade gold in and out over hours, days or a few weeks, or want to profit when gold falls, use a CFD. Pepperstone quotes XAU/USD at a published average of 0.12 on Razor and 0.19 on its commission-free Standard account, under ASIC licence AFSL 414530, with negative balance protection for retail clients and a $10 minimum. If you want gold as a long-term part of your savings, a CFD's nightly financing works against you; buy an ETF instead.
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Gold CFD vs gold ETF, feature by feature
| Gold CFD (e.g. Pepperstone XAU/USD) | Exchange-traded gold ETF | |
|---|---|---|
| What you hold | A contract with the CFD provider | Units in a fund |
| Leverage | Up to 1:20 for retail clients | None, unless you borrow separately |
| Going short | Simple: sell to open | Usually impractical for retail investors |
| Entry and exit cost | Spread, plus commission on Razor | Brokerage and the exchange spread |
| Holding cost | Overnight financing each night | The fund's annual management fee |
| Trading hours | Most of the day on weekdays (check the symbol's hours) | Exchange hours only |
| Can you lose more than you put in? | No for retail clients, thanks to negative balance protection | No, unless you used borrowed money |
The holding period decides the cost
Take A$10,000 of gold exposure. With a CFD you post about A$500 of margin and pay a spread on entry and exit, then financing for every night the position stays open, at a rate the platform shows daily. Over a few days that financing is small next to the spread; over many months it can exceed what an ETF's management fee would have cost. With an ETF you pay the full A$10,000, brokerage on the way in and out, and the fund's fee spread across the year. The longer you hold, the more the ETF tends to win on cost.
A middle route: ETF CFDs
Pepperstone also lists ETF CFDs, 95 in its account table (its markets page says 80+), with up to 5x leverage and US ETF commission of $0.02 per share per side. These carry the CFD's leverage and financing on an ETF's price. Our data doesn't say which gold ETFs are in that list, so search the platform before planning around one.
Where to buy a gold ETF outright
Pepperstone's Australian products are CFDs, so owning ETF units means opening an account with a stockbroker. CMC Markets, for example, runs a separate stockbroking company under its own licence (AFSL 246381) alongside its CFD business. Compare brokerage per trade and the ETF's management fee, and check what each fund holds: physical bullion, futures or gold-mining shares behave quite differently.
Sources
Product terms as published.
Is a gold CFD riskier than a gold ETF?
Yes, mainly because of leverage. At 1:20, a 5% fall in gold can wipe out the margin on a position; the same fall costs an unleveraged ETF holder 5%.
Can I hold a gold CFD for years?
You can, but overnight financing accrues every night, so CFDs are usually more expensive than an ETF for long holds.
Which is better for tax?
Our data doesn't cover tax treatment. Ask a registered tax agent how gains on CFDs and ETF units are treated in your situation.
Gold CFDs are complex leveraged products, and you can lose money rapidly. ETFs also fall in value. Read the PDS and TMD for any CFD, and an ETF's product documents, before investing. This page is general information, not personal financial advice.