How to trade gold as a CFD is simpler than it sounds: you speculate on the price of gold in US dollars, quoted as XAU/USD, without owning any metal. You can open a position that gains if the price rises or if it falls, and you pay a spread to do it. The sums are easy, but the risks are real, so this guide walks through them.
How to trade gold: what XAU/USD means
XAU is the market's code for one troy ounce of gold, and USD is the dollar. A quote of XAU/USD at 2,000.00 means one ounce is priced at $2,000. That is an illustrative figure, not a forecast.
A CFD, or contract for difference, is an agreement to exchange the difference in price between opening and closing a trade. You never take delivery of gold. If you buy and the price rises, you gain the difference. If it falls, you lose it. Selling works in the opposite direction. You can see how metals are offered on the precious metals page.
What affects the price you see
Gold moves on interest rates, the dollar, inflation worries and global uncertainty. We cover these in What Moves the Gold Price?. You can also see scheduled releases that often move it on the economic calendar.
Gold is quoted in dollars, so the dollar's strength matters, and its moves can be quick. A daily range of several dollars, or several tens of dollars, is common, so position size needs care.
Contract size, lots and a worked example
Contract sizes vary by broker and instrument, so always read the specification on the platform. For this example, assume one lot of gold equals 100 ounces, and each $1 move in the price is worth $100 per lot. These numbers are illustrative.
Suppose gold is at 2,000.00 and you buy 0.10 lot, which is 10 ounces.
- If gold rises to 2,010.00, you gain $10 × 10 ounces = $100
- If gold falls to 1,990.00, you lose $100
- If gold falls to 1,980.00, you lose $200
A relatively small percentage move creates sizeable dollar swings. If you used a full lot instead, each of those moves would be ten times larger. Our guide to lot size in forex applies to metals in the same spirit: choose the size from your stop, not the other way round.
Margin and leverage
At leverage up to 1:500, the margin needed for 0.10 lot would be a fraction of the position's value. The position is worth about $20,000 (10 ounces at $2,000), and 1:500 would set aside about $40. The exact figure for your account is shown in the margin calculator.
That small margin is exactly why gold can hurt. The profit and loss follow the full $20,000 position, not the $40. For more on this, see Leverage in Forex and What Is a Margin Call?.
A simple plan for a first gold trade
- Decide the money you will risk, for example 1% of the account.
- Choose a stop distance from the chart, such as $8 from entry.
- Work out the size: with $20 at risk and an $8 stop, the position is $20 ÷ $8 = 2.5 ounces, or 0.025 lot, rounded down to what the platform allows.
- Check the spread, and the news calendar for the next few hours.
- Place the order with the stop attached.
The risk calculator can handle the sizing, and our guide on setting a stop loss helps with step two.
Gold can move fast. Size small, use a stop and check the calendar first.
Costs to keep in mind
The spread is the main cost of a gold trade. If the spread on gold is $0.30, then on 0.10 lot (10 ounces) you pay about $3 the moment the trade opens, and the price has to move that far in your favour just to break even. That is an illustrative figure, and real spreads change through the day and widen around big news. Positions held overnight may also carry a financing charge, so check the account terms before holding a trade for several days. Compare the cost of a trade with the size of the move you expect, and skip setups where the cost eats most of the potential gain.
Common mistakes
- Trading a lot size copied from a forex trade, without checking the contract size
- Holding through major data releases without a stop
- Ignoring the spread, which is wider than on major currency pairs at quiet times
- Adding to a losing position because it "must come back"
What to do next
Try the process on a demo account with virtual money, using the plan above for a dozen trades. Note how large the typical swings are and how the spread behaves in different sessions. Leveraged trading carries a high risk of loss, so read the risk warning.
This article is general education, not investment advice. CFDs are leveraged products and you can lose more than you expect; read our risk warning.