Gold (XAU/USD): how it differs from currencies
What you learn in 3 minutesGold (XAU/USD) is not a currency pair, and that changes the arithmetic of every trade you place. On a standard lot, one pip on gold is worth about ten times what one pip is worth on a currency pair such as EUR/USD, and gold's daily range is often several times wider. This lesson shows how the cost of a stop loss in rand changes when you move from EUR/USD to gold, so you can size a position before you open it rather than after.
20 pips on gold against 20 pips on EUR/USD
| Step | Amount | Note |
|---|---|---|
| Gold pip value on 0.10 lots | R18.41 | 0.10 lots × 100 oz = 10 oz; a 0.01 move in XAU/USD is 10 × 0.01 = USD 0.10, converted at USD/ZAR 18.4100 = R1.84; a 10-pip (0.10) move is R18.41 |
| Gold stop: 20 pips on 0.10 lots | R36.82 | 20 pips × R1.84 per pip = R36.82 |
| EUR/USD pip value on 0.10 lots | R1.84 | 0.10 lots × 10,000 units = 10,000; one pip (0.0001) = USD 1.00, converted at 18.4100 = R1.84 |
| EUR/USD stop: 20 pips on 0.10 lots | R18.41 | 20 pips × R1.84 per pip = R18.41 |
| Difference in risk | R18.41 | R36.82 − R18.41 = R18.41; the same 20-pip stop costs twice as much on gold |
Your broker may round the pip value, charge a spread on entry and exit, and apply swap or commission. The rand conversion also moves with USD/ZAR, so the rand figure is only exact at the rate shown.
The mistake people make here
The common mistake is to carry a currency-pair lot size straight onto gold. A 0.10-lot gold position is not the same risk as a 0.10-lot EUR/USD position; at the figures above it is twice the rand risk for the same 20-pip stop. People also use the same stop distance in pips on both instruments, when gold's wider range means 20 pips is a much smaller slice of a normal day. Before you trade gold, work out the rand value of one pip on your chosen lot size, then set the stop so the total loss fits your plan. If the rand risk is too large, reduce the lot size rather than widening the stop.Check yourself
On 0.10 lots of XAU/USD, what is the rand risk of a 30-pip stop at USD/ZAR 18.4100?
One pip is R1.84, so 30 pips × R1.84 = R55.20.
You want to risk R50 on gold with a 20-pip stop. What lot size is closest?
R50 ÷ (20 × R1.84) = R50 ÷ R36.82 = 1.36, so about 0.14 lots. Check with your broker's own pip value before trading.
In South Africa
- Regulator
- The Financial Sector Conduct Authority (FSCA) licenses financial services providers. Check a provider's licence before depositing.
- Money
- Your account may be funded in rand (R), but gold is quoted in US dollars, so the rand value of a pip moves with USD/ZAR.
- Payment methods
- Common funding methods include EFT, instant EFT and bank cards. Fees and processing times vary between providers.
- Tax
- Tax treatment of trading gains and losses depends on your circumstances. There is no single rate to quote here; speak to a registered tax practitioner.
- Reference rate
- USD/ZAR moves through the day. The rate 18.4100 used in this lesson is an example, not a live quote.