Gold (XAU/USD): how it differs from currencies
What you learn in 3 minutesGold (XAU/USD) is quoted in US dollars per troy ounce, but its contract size and pip value are very different from currency pairs. One standard lot of gold is 100 ounces, and a one-dollar move in the gold price equals 100 US dollars per lot. That is a much larger number than the 10 US dollars per pip on a standard lot of EUR/USD. In this lesson you will work out the pip value for 0.10 lots of gold, and see how the same stop distance in dollars produces a very different risk in shillings. All money figures are in KSh.
Gold pip value and stop size on 0.10 lots
| Step | Amount | Note |
|---|---|---|
| Contract size for gold | 100 ounces | Standard lot definition for XAU/USD at most brokers. |
| Price move | 1.00 US dollar | Gold is quoted in dollars per ounce, so a move of 1.00 is one full dollar. |
| Value of that move on 0.10 lots | 10 US dollars | 0.10 lots = 10 ounces. 10 ounces x 1.00 dollar = 10 dollars. |
| Stop distance | 5.00 US dollars | A stop 5 dollars away from entry, which is a common distance for gold. |
| Risk on 0.10 lots with that stop | 50 US dollars | 10 ounces x 5.00 dollars = 50 dollars. |
| Same 5-dollar stop on EUR/USD (0.10 lots) | About 50 US dollars | On EUR/USD, 0.10 lots gives 1 dollar per pip. A 5-dollar move is 500 pips, which is not realistic. This row shows why the comparison is not direct. |
| Risk in KSh at an example rate of 130 KES per USD | KSh 6,500 | 50 US dollars x 130 = 6,500 shillings. The rate varies. |
Your broker may round the pip value, charge a spread on gold that is wider than on EUR/USD, and apply swap or commission. The exchange rate used here is an example only; the actual rate varies.
The mistake people make here
Many beginners treat gold like a currency pair and use the same lot size they use for EUR/USD. Gold moves in dollars, not pips, and its daily range is often several times larger. A stop that looks small in dollars can be a large loss in shillings. Before you trade gold, calculate the pip value for your exact lot size and check the stop distance in dollars, not in pips. If the risk in KSh is more than you planned, reduce the lot size.Check yourself
You buy 0.10 lots of gold at 2,300.00 and your stop is at 2,295.00. What is your risk in US dollars?
The stop is 5.00 dollars away. 0.10 lots = 10 ounces. 10 x 5.00 = 50 US dollars.
If the exchange rate is 130 KES per USD, what is that risk in KSh?
50 US dollars x 130 = KSh 6,500.
On EUR/USD, one pip on 0.10 lots is 1 US dollar. How many pips would a 50-dollar loss be?
50 pips. That is a normal stop on EUR/USD, but on gold the same 50 dollars came from a 5-dollar move, which is much smaller in price terms.
In Kenya
- Regulator
- The Capital Markets Authority (CMA) regulates online trading in Kenya.
- Money
- The shilling is written KSh (KES).
- Payment methods
- M-Pesa and bank transfer are common ways to deposit and withdraw.
- Exchange rate
- The KES rate against the US dollar changes daily, so your risk in shillings changes even if the gold price does not move.
- Contract size check
- Always check the contract size for gold at your broker. It may not be 100 ounces.