What XAU/USD means
XAU is the market code for one troy ounce of gold, and USD is the US dollar. When your platform shows XAU/USD at a certain level, that number is the price of one ounce in dollars. Gold is one of the most traded instruments among retail clients at forex brokers, because it moves a lot during the day and it reacts to world events. It is also one of the easiest ways to lose money fast if you do not control your position size.
You do not buy physical bars when you trade gold with a broker. You open a CFD, a contract that follows the price. You can sell as well as buy, so you can try to profit from a fall in price, but that works both ways: a wrong guess is a loss.
Contract size, pip and tick: check your specification
Gold contracts are not the same at every broker. A common set-up is that 1.00 lot equals 100 ounces, and a price move of 1 US dollar then equals 100 USD of profit or loss per lot. Always verify the contract size, the minimum lot, the tick size and the swap in the instrument specification of your own account. The example numbers below assume 1.00 lot is 100 ounces and are not quotes.
| Lot size | Ounces | Profit/loss per 1 USD move |
|---|---|---|
| 1.00 | 100 | 100 USD |
| 0.10 | 10 | 10 USD |
| 0.01 | 1 | 1 USD |
Compare this with EUR/USD, described in the guide to major pairs. A normal daily range in gold can be many dollars, so a lot size that seems small in forex may be big in gold.
What moves the price of gold
- US dollar: gold is priced in dollars, so a stronger dollar often (not always) puts pressure on gold, and a weaker dollar often supports it.
- Interest rates and bond yields: gold pays no interest. When real interest rates rise, holding gold becomes less attractive relative to bonds, and the reverse is often true when rates fall.
- Inflation expectations: some investors buy gold as protection against inflation, which can support the price when inflation fears rise.
- Safe-haven demand: during wars, crises or stock market panics, money may flow into gold.
- Central bank buying and selling: large official purchases can influence the long-term trend.
- Physical demand: jewellery demand in countries such as India and China has seasonal effects.
These relationships are tendencies and not laws. The price of gold sometimes falls when the news looks supportive, because the market had already priced it in. Treat any simple "when X happens gold goes up" rule with scepticism.
When gold is active
Gold is traded nearly 24 hours on weekdays. Volatility is usually highest when London and New York overlap, and around major US economic data such as employment and inflation reports, and central bank decisions. During these releases spreads widen and slippage is common. Beginners often lose money by opening a trade a minute before the news. If you trade from Pakistan, India, Bangladesh, Nigeria or Egypt, convert market hours into your local time zone and set alerts for the events calendar.
Worked example: size a gold trade by risk
Invented numbers, for the arithmetic only. Account: 1,000 USD. You risk 1%, so 10 USD. Your stop-loss is 5 USD away from the entry (500 points at two decimals). With 100 ounces per lot:
lot size = 10 / (5 x 100) = 0.02 lot
If the stop is hit, the loss is about 10 USD plus costs. If you had traded 0.20 lot instead, the same 5 USD move would cost 100 USD, which is 10% of the account on one trade. Leverage on gold is often high at offshore brokers, so the platform will happily let you open far more than you should. The size must come from your stop and your risk percent, as explained in risk management.
Margin on gold
Margin equals the position value divided by leverage. At a made-up price of 2,000 USD per ounce, 0.10 lot is 10 ounces worth 20,000 USD, and with 1:100 leverage the margin is 200 USD. On a 500 USD account, that single small trade uses 40% of the money, and a 20 USD move against you (200 USD loss) takes more than a third of your equity. Read lots, pips, leverage and margin to understand margin calls on volatile instruments.
Costs of trading gold
Gold has a wider spread than the major forex pairs, and the spread widens strongly around news. Overnight swap can also be significant for longer holdings. Check the cost on a demo account at the times you plan to trade, and read spread, commission and swap.
Common beginner mistakes
- Using forex lot sizes on gold without checking the contract size.
- Trading right into or out of a major news release.
- Moving the stop-loss away from the price when a trade goes wrong.
- Chasing a big candle after it has already moved.
- Following "gold signal" groups that promise guaranteed profit.
How to practise
- Open a demo account and find XAU/USD in the market watch. Read its specification.
- Watch the price for a week and note when it moves most.
- Place small demo trades with a stop-loss and a position size from the formula above.
- Record each trade in a journal with the reason for the entry.
- Move to a real account only if the demo process was consistent, and start with the smallest size.
Our Exness review explains the account types and the warnings you should know before you pick this broker.
Gold and the US dollar: a relationship, not a rule
Many traders watch the dollar index and US bond yields when they trade gold. When yields rise sharply, gold often comes under pressure, and when yields fall, gold is often supported. But in times of fear gold and the dollar can rise together, because both are seen as safe places for money. This is why you should never base a trade on a single relationship. Use it as background and let your chart, your stop-loss and your risk plan decide the actual entry and size.
Gaps, weekends and news risk
Gold trades almost around the clock on weekdays, but it still closes for the weekend. If news appears over the weekend, the price on Monday can open far from Friday's close, and your stop-loss will then be filled at the first available price, which may be much worse than planned. For this reason many careful traders close or reduce positions before the weekend and before major scheduled events. If you decide to hold, use a smaller size.
Also be careful with the minutes around central bank announcements and US employment data. Spreads can multiply for a short time and orders can slip. If you are new, the safest policy is to watch such events from the sideline until you have practised on a demo account.
Physical gold, gold funds and gold CFDs
These are different things. Physical gold means coins or bars that you keep and that have storage and dealer costs. A gold fund holds gold on behalf of investors and trades like a share. A gold CFD is a short-term contract with a broker that follows the price and has leverage, spread and swap. Each has its own risks, and a CFD is the one most likely to cause a fast loss for a beginner.
Risk warning
Gold CFDs are leveraged and volatile. Prices can move many dollars within minutes, spreads can widen suddenly and a stop-loss may not execute at the chosen price. Most retail traders lose money on CFDs. All prices and numbers in this article are examples and not forecasts. Trade only with money you can afford to lose entirely, and only if you are 18 or older. This article is education, not personal investment advice.