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Every financial market has an instrument of its own. Mention the stock market, for instance, and shares come to mind straight away; mention the foreign exchange market and you think of currency pairs. Shares, though, are not the only instrument on the stock market, and currency pairs are not the only instrument on the forex market.
On the foreign exchange market, gold is the instrument that draws the most attention after the major forex pairs. Gold has a number of qualities that suit the way traders want to trade, and the nature of the asset suits every method of analysis. That is why there are a good many courses and signal groups on the market devoted to trading gold; be careful with the ones that promise profits or show off gains that cannot be verified.
And as with forex, before you trade gold you need a firm grasp of how gold lots are worked out, what a gold pip is, and how profit and loss on a gold trade are calculated.
Trading conditions for gold at forex brokers
On the forex market gold carries the symbol XAU/USD, which means gold is quoted in USD. Many brokers also offer XAU/EUR, XAU/GBP and so on, but when we speak of gold we take it for granted that we mean the XAU/USD pair.
As with forex pairs, gold has a set of trading conditions of its own: the spread, commission, the maximum leverage, the swap, the minimum and maximum position size, margin call, stop out and so on. Traders use these conditions to decide which broker suits their needs, their capital and their own strategy, because all of them bear on the trader’s profit and loss on the forex market.
Usually, when you first start looking into a broker, the broker’s website is the first place to look for information about the firm and for the trading conditions of every product it offers. You can also see the trading conditions for gold directly in the trading platform.
In MT4, in the Market Watch area, right-click on the XAU/USD pair and then choose Specification.
The Specification window appears as below:
Here, take note of the following:
- Spread: floating, the spread floats with the interbank market
- Contract size: the size of the contract. 100 means 1 lot = 100 ounces.
- Margin currency: the currency used as the basis for working out margin. XAU means the required margin is worked out from the value of the gold in the trade, then converted into the account currency; you do not need to hold gold as margin.
- Profit/Margin calculation mode: the method used to work out profit and loss and margin for gold: the method used on the foreign exchange market
Some important information about position size requirements and the overnight swap:
- Minimal volume: 0.01, the smallest position size for an order is 0.01 lots
- Maximal volume: 100, the largest position size for an order is 100 lots
- Volume step: 0.01, position size moves in steps of 0.01 lots
- Swap type: in points, the overnight swap is charged in points
- Swap long: the swap rate charged on a Buy order
- Swap short: the swap rate charged on a Sell order
The figures above are those of one particular broker at the moment the screen was captured; every broker and every account type can differ.
Other trading conditions, such as the minimum spread on gold, the commission or the maximum leverage for trading gold, you can look up on the broker’s website.
How to work out gold lots. What is 1 lot of XAU/USD?
A lot is the unit of position size in forex, and it applies to every kind of asset, but each kind is worked out differently.
A quick reminder of what a lot means on currency pairs and on other kinds of product:
- Forex pairs: 1 lot = 100,000 units of the base currency, the currency that comes first in the pair. For example: 1 lot of EUR/USD = 100,000 EUR, 1 lot of USD/JPY = 100,000 USD.
- Crude oil: 1 lot = 1,000 barrels
- Indices: 1 lot = 1 CFD
- Shares: 1 lot = 1 share
The contract size for assets such as crude oil and shares, however, usually differs from broker to broker. At one broker 1 lot of crude oil may be 100 barrels, 1 lot of a share 10 shares, and so on.
For forex pairs and for gold, most brokers use the same contract size (100,000 units of currency and 100 ounces), while for indices the rules differ a good deal from one broker to another. The surest way is to look at Contract size in the Specification, as described above.
What is 1 lot of XAU/USD?
At most brokers, 1 lot of gold, that is 1 lot of XAU/USD, = 100 ounces.
The ounce here (a troy ounce, to be exact, about 31.1 grams) is the international standard unit of weight for gold. In Vietnam, 1 luong (also called 1 cay) of gold = 37.5 grams, which is about 1.2 ounces.
For example: Buy 2 lots of XAU/USD means buying 200 ounces of gold. Sell 0.5 lots of XAU/USD means selling 50 ounces of gold.
So how much is 1 ounce of gold in USD?
The rate of the XAU/USD pair is simply the price of gold in USD for 1 ounce.
Suppose the gold rate, XAU/USD, is 1859.53/1859.59, which means:
- 1 ounce of gold costs 1859.59 USD to buy (the Ask price)
- 1 ounce of gold fetches 1859.53 USD to sell (the Bid price)
Working out the required margin for a gold trade.
You work out the required margin in order to know the smallest amount of money you need in order to open a gold position.
Working out margin on a gold trade is in fact very simple. We will go through it with the examples below (the gold prices in the examples are 2023 levels; since 2025 the gold price has been above 3,000 USD an ounce, so the margin for the same position size today is correspondingly larger):
Example 1:
Your account has a balance of 5,000 USD and suppose the leverage applied to the XAU/USD pair is 1:200 (many brokers set lower leverage on gold than on currency pairs).
You place a Buy order for 1 lot of gold at an XAU/USD rate of 1859.59. How much margin does this order require?
1 lot of XAU/USD = 100 ounces. And 1 ounce of gold = 1859.59 USD, so 100 ounces of gold = 185,959 USD. Without leverage you would have to put up 185,959 USD as margin for this order → the account balance is not enough.
At leverage of 1:200 the margin comes to: 185,959 : 200 = 929.795 USD
Note: the margin is only about 930 USD, but profit and loss are worked out on all 100 ounces. If gold moves 1 USD against you the account loses 100 USD; if it moves 50 USD against you, which is quite ordinary on a day when gold is moving hard, you lose 5,000 USD, that is the whole account.
Example 2:
The account has a balance of 1,000 USD and the leverage applied to gold trading is 1:100. You place a Sell order for 0.02 lots of the XAU/USD pair at a Bid rate of 1859.53. How much margin does this order require?
1 lot of XAU/USD = 100 ounces, so 0.02 lots = 2 ounces. And 1 ounce = 1859.53 USD, so 2 ounces = 3719.06 USD.
At leverage of 1:100, the margin for this order is 3719.06 : 100 = 37.19 USD.
If your account currency is not USD, you use the exchange rate to convert from USD into the account currency.
What is 1 pip of XAU/USD worth?
Working out the value of 1 gold pip is the first basic step towards working out the profit or the loss on each of your trades. The platform does this calculation automatically, but having a firm grasp of it yourself will help you plan a trading strategy more clearly and more effectively.
Before we work out how much 1 pip of XAU/USD is in USD, let us go over how the number of gold pips is counted.
As a general idea, a pip is the unit used to measure the movement in the price of an asset. For gold, a pip measures the change in the value of gold against the US dollar, or to put it more plainly, the change in the rate of the XAU/USD pair.
In forex, gold, that is the XAU/USD pair, is usually quoted with 2 decimal places. This article counts pips from the position of the first decimal place (1 pip = 0.1 USD an ounce), but there is no common standard: many brokers and platforms treat 1 gold pip as 0.01 USD. Check your broker’s convention before you work out profit and loss in pips.
For example: if the rate of the XAU/USD pair moves from 1859.23 up to 1859.58, we say the gold price rose by 3.5 pips rather than saying the gold price rose by 0.35 USD an ounce.
What is 1 pip of XAU/USD?
To work out the value of 1 pip on the XAU/USD pair, we reason as follows:
Suppose the gold rate XAU/USD is 1859.23, which means 1 ounce of gold = 1859.23 USD. If we say the XAU/USD rate rises by 1 pip, the rate becomes 1859.33 and 1 ounce of gold is now 1859.33 USD. So when the rate rises by 1 pip the gold price rises by 1859.33 – 1859.23 = 0.1 USD an ounce, and therefore 1 pip of XAU/USD is worth 0.1 USD.
Working out the value of a gold pip from the position size.
By the calculation above, 0.1 USD is the value of 1 pip on 1 XAU/USD pair, or more precisely on 1 unit of gold, that is 1 ounce of gold. In practice, though, when people speak of the value of a pip they mean its value when you trade 1 standard lot.
- Trade 1 lot of gold = 100 ounces, and 1 pip of XAU/USD = 100*0.1 = 10 USD
- Trade 0.1 lots of gold = 10 ounces, and 1 pip of XAU/USD = 10*0.1 = 1 USD
- Trade 0.01 lots of gold = 1 ounce, and 1 pip of XAU/USD = 1*0.1 = 0.1 USD
Working out profit and loss on a gold trade
Profit or loss in forex trading is worked out from the difference in price between the moment the order is opened and the moment it is closed (leaving trading costs aside). And that difference in price is measured in pips, the unit that measures price movement. So profit or loss in forex is worked out from the number of pips won or lost on each order. If you want profit and loss in money, you simply convert the value of those pips won or lost into currency.
The general formula for profit and loss on a gold trade:
Profit/loss = position size (number of lots) * number of pips won or lost * the value of 1 pip of XAU/USD when trading 1 lot of gold (10 USD).
For example: you intend to place a trade on the XAU/USD pair. The platform gives you the following figures:
- Order type Buy
- Position size 0.02 lots
- Entry price 1859.56
- Stop loss at 1855.23
- Take profit at 1875.89
Work out the potential profit and the maximum loss on this order.
The potential profit is measured by the distance from the entry point to the take profit point.
Potential pips won = 1875.89 – 1859.56 = 16.33 USD = 163.3 pips
So the potential profit on the order = 0.02 * 163.3 * 10 = 32.66 USD
The maximum loss is measured by the distance from the entry point to the stop loss point.
Maximum pips lost = 1859.56 – 1855.23 = 4.33 USD = 43.3 pips
So the maximum loss on the order = 0.02 * 43.3 * 10 = 8.66 USD
The figures above leave out the spread, commission, swap and slippage. A Buy order is closed at the Bid price, so when the market is moving hard the actual loss can be larger than the figure you worked out.
Conclusion
Gold moves far more violently than many of the major currency pairs, so if you want to try your hand at XAU/USD, a new trader should start on a demo account or with a very small position size. A firm grasp of how gold lots are worked out, how gold pips are counted, what a gold pip is worth and how profit and loss on a gold trade are calculated will help you plan and place your stop loss more accurately, instead of depending entirely on the platform, and that matters a great deal in a market as risky as forex.
