Gold trading · Lesson 1 of 4
Gold as a market
4 min read
Draft lesson — under editorial review
Gold is one of the most widely traded instruments on retail forex and CFD platforms, and it often sits alongside currency pairs in the same watchlist. It behaves differently from those pairs, though, and the arithmetic of a "lot" works differently too. This lesson covers the basics you need before looking at what moves the price.
Reading the XAU/USD quote
Gold is usually quoted as XAU/USD. XAU is the international code for one troy ounce of gold, and the quote tells you how many US dollars one troy ounce costs.
A troy ounce is about 31.1 grams, slightly heavier than the ordinary (avoirdupois) ounce of about 28.3 grams used for everyday goods. Precious metals are traditionally weighed in troy ounces.
If XAU/USD is quoted at an example price of 2,000.00, one troy ounce costs 2,000 US dollars. Prices are usually shown to two decimal places, so the smallest common price step is 0.01 USD.
Like currency pairs, gold has a bid (the price you can sell at) and an ask (the price you can buy at). The difference is the spread, which is a trading cost.
Contract sizes vary by broker
With currency pairs, a standard lot is almost always 100,000 units of the base currency. Gold has no single universal convention on CFD platforms. A common contract size is 100 troy ounces per lot, but some providers use other sizes, so always check your platform's contract specification before trading.
On a 100-ounce contract:
- A 1.00 USD move in the gold price changes the value of 1 lot by 100 × 1.00 = 100 USD.
- A 0.01 USD move changes it by 100 × 0.01 = 1 USD.
The word "pip" is used inconsistently for gold. Some platforms call 0.01 a pip, others call 0.10 a pip, and some talk in "points". To avoid confusion, this course measures gold moves in US dollars per ounce, for example "a 5.00 USD move".
Worked example: notional value and margin
You buy 1 lot of XAU/USD at an example price of 2,000.00, with a contract size of 100 oz.
- Notional value = 1 lot × 100 oz × 2,000 USD = 200,000 USD.
- If your account allows 20:1 leverage on gold, the required margin is 200,000 ÷ 20 = 10,000 USD.
Now suppose gold rises to 2,015.00. The move is 15.00 USD per ounce.
- Profit = 15.00 × 100 oz × 1 lot = 1,500 USD, before costs.
Had gold fallen by 15.00 instead, you would have lost the same amount. With 1 lot, every 1.00 USD move is worth 100 USD, so even an ordinary day's movement can produce large swings in your account. The next lessons show how to size positions so that this is controlled.
Leverage limits differ by regulator, jurisdiction and client category. Some regulators set lower maximum leverage for gold than for major currency pairs. Check what applies to your own account.
How gold differs from currency pairs
| Feature | Major currency pair, e.g. EUR/USD | Gold, XAU/USD |
|---|---|---|
| What you trade | One currency against another | A commodity priced in US dollars |
| Interest | Each currency has its own interest rate | Gold pays no interest or dividend |
| Contract size | Standard lot = 100,000 base units | Often 100 oz per lot, but varies by broker |
| Price step | Pip = 0.0001 | Usually quoted to 0.01 USD |
| Typical volatility | Lower in percentage terms | Usually higher in percentage terms |
| Typical spread | Often tighter | Often wider, especially in quiet hours |
Two of these differences matter a great deal later in the course:
- Because gold pays no interest, its appeal changes when interest rates and inflation change.
- Because gold is priced in dollars, changes in the US dollar's value feed directly into its price.
Costs to be aware of
- Spread. Often wider than on major currency pairs, and it can widen sharply around news and in thin trading hours.
- Overnight financing (swap). CFD positions held overnight are usually charged or credited a financing amount. For gold, this is often a charge on both long and short positions, depending on your provider.
- Commission. Some account types charge a commission per lot instead of, or in addition to, the spread.
Gold CFDs are leveraged products, and most retail CFD accounts lose money. Make sure you understand the contract details before placing a trade.
Key takeaways
- XAU/USD shows the price of one troy ounce of gold, about 31.1 grams, in US dollars.
- Contract sizes vary by broker; 100 oz per lot is common, but always check your platform's specification.
- On a 100 oz contract, each 1.00 USD move is worth 100 USD per lot.
- Gold pays no interest and is priced in dollars, which shapes what moves it.
- Spreads, swaps and higher volatility make gold more demanding to trade than many currency pairs.
Educational content only — not financial advice. Trading leveraged products such as forex and CFDs carries a high risk of losing money.