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Gold (XAU) is traded in a variety of ways, with the most basic being buying physical gold. However, as technology advances, there are now different ways to trade gold.
Unlike opening an electronic gold trading position, buying physical gold is usually more expensive. This is because of additional costs such as manufacturing, storage and converting physical gold to cash. [1] Gold is one of the most popular commodities in the forex market to trade due to its high liquidity and volatility.
And as with any forex trading strategy, understanding the basics of counting gold pips is essential.
In this article, we’ll explain all you need to know about gold pips are and calculating their value using a gold pips calculator.
Key Points
- Gold pips or “Percentage in Point” are the smallest unit of measurement used to quantify the price movement in gold trading.
- In gold forex trading, pips refer to the fourth decimal place in the price quote, signifying that 1 pip equals a price movement of 0.0001.
- The pip value of gold fluctuates based on the trade’s lot size, with a standard lot size for gold being 100 ounces and a mini-lot size being 10 ounces.
What are Pips in Gold Forex?
Pips or “Percentage in Point” are the smallest unit of measurement that represent the change in value between two currencies. However, when it comes to trading gold, the pip value can be different due to the unique characteristics of gold.
The gold pip value varies depending on the lot size of the trade. A standard lot size for gold is 100 ounces, while a mini-lot size is 10 ounces. The pip value for a standard lot size is $10 per pip, while the pip value for a mini-lot size is $1 per pip.
In the case of gold forex, pips specifically refer to the fourth decimal place in the price quote. Therefore, 1 pip translates to a price movement of 0.0001. Most forex brokers offer a $0.01 gold pip which means that gold traders will either lose or gain 0.01 for every pip the gold price moves. This basically means that contract size of 100 pips is equal to 1 dollar.
How to Calculate Gold Pips
To count gold pips, you first need to determine the direction of the trade. If you are going long on gold, that means buying it at a lower price and selling it at a higher price. Whereas going short on gold means selling it at a higher price and buying it back at a lower price.
Once the direction of the trade is determined, you need to calculate the difference between the entry price and the exit price. For example, if you enter a long trade on gold at $1,800.25 and exit at $1,802.25, the difference is 20 pips (1.80225 – 1.80025 = 0.002).
How to Calculate Pips on Gold
To calculate the value of gold pips, multiply the pip value by the number of pips gained or lost in the trade. For example, if you gained 20 pips in the trade, and the pip value of gold is 0.01, the profit would be $2 (20 x 0.01 = 0.20).
Now that you’ve learned how to calculate pips on gold, why not put your knowledge to the test? Consider opening a live trading account with Vantage to start trading gold and other financial instruments.
Gold Pips Calculator
Using a gold pips calculator can be helpful in assessing potential profits or losses. It can also help determine the value of pips in different currency pairs and commodities. Typically it requires input of the currency trade size, the price of gold, and the number of pips gained or lost. Once the information is entered, the calculator will show the potential profit or loss.
Beginner traders should focus avoiding high risks and use risk management strategies such as setting stop-loss orders to minimize potential losses.
Gold ETFs
Trading the financial markets can be daunting, especially for new traders. With the help of forex, commodity and equity index signals available on various platforms, you don’t have to do the in-depth analysis.
Trading gold electronically can be done in various ways, such as trading future contracts on gold, gold ETFs (exchange traded funds) and gold contracts for difference (CFDs).
Learn all about the top 10 best gold ETFs and how you can trade them at Vantage academy!
Trading Pips for Gold CFDs
When trading gold via CFDs, buying or selling gold entails participating in the gold market without owning it physically. It’s just like trading currency pairs with the only difference being that traders buy or sell gold against the USD.
The gold CFD is represented by XAU/USD. USD is the dollar component and the XAU the gold component. When the gold price is projected to fall, traders can sell this pair and buy it when prices are projected to rise.
Interested in learning more about gold trading strategies and day trading gold? Check out the following articles.
Calculating Profit and Loss from Trading Gold Pips
If you purchased one ounce of gold, a 100 pip movement will make a difference of $1 in your gold trading account. You can calculate your potential profit by simply multiplying the distance to your target by your trade size.
For instance, if you buy 20 ounces of gold at $1,250 with a take profit of $1,251.12, it simply means that you’ve targeted a gain of 112 pips. Then this should be multiplied by the number of ounces: 112 pips x 20 ounces = 2,240 pips.
This can be converted to dollars by simply multiplying the number of pips by the cost of $0.01. Therefore, 2,240 pips x $0.01 = $22.40. This is the profit on 20 ounces if a profit target of 112 pips ($1.12) is attained.
Keep in mind that there’s a huge difference between a pip in forex and a gold trading pip. The pip value on the EUR/USD is $0.01, which is ten times the value of a gold pip. This means that a 100 pip move in the value of gold can be compared to a 10 pip move in the EUR/USD.
Economic Events That Influence CFDs on Gold Trading
There are numerous economic factors that impact gold prices, including gold demand and supply, the value of the USD, inflation, interest rates, and large central bank transactions.
Economic events that impact gold prices abruptly are usually events that cause significant moves in the dollar. When the trading price of gold increases, the dollar usually decreases, and vice versa.[2]
Some economic indicators also tend to impact the gold trading price. For example, if China were to release economic statistics which show a huge decrease in the overall demand for production raw materials, gold trading prices could make a significant move lower.
Although factors that determine the price of gold CFDs may differ from those that impact typical forex currencies, most of the rules for assessing forex currencies apply.
Conclusion
Calculating gold pips can seem complicated at first, but it is essential to understand the basics for a better foundation as a successful forex trader.
Whether you choose to calculate gold pips yourself or use a gold pips calculator, knowing the pip value of gold can help you make more informed trading decisions.
Open a live account with Vantage today and get started with trading gold CFDs.
References
- “Nama Building Guidebook – UNEP DTU Partnership.” https://unepdtu.org/wp-content/uploads/2018/11/nama-building-guidebook.pdf Accessed 15 Apr 2022.
- “9 Tips for Trading Gold (XAU/USD) – Valutrades.” https://www.valutrades.com/en/blog/5-tips-for-trading-gold-xau-usd?hs_amp=true Accessed 15 Apr 2022.
