Gold (XAU/USD): how it differs from currencies
Compare the contract sizes before you trade
A standard lot of EUR/USD controls 100,000 euros. A standard lot of gold controls 100 troy ounces. The two sizes are not close. At 1.0850, one standard lot of EUR/USD is worth about 108,500 US dollars in notional terms. At 2,300 US dollars per ounce, one standard lot of gold is worth 230,000 US dollars. The gold contract is more than twice the size, so every price move carries more weight.
That difference is why the same lot number means different risk. If you trade 0.10 lots on both, you control 10,000 euros on EUR/USD and 10 ounces on gold. The gold position is still smaller in notional terms than the currency position at these prices, but its price moves in larger steps. One dollar of gold is a big move. One pip of EUR/USD is a tiny move. The contract size and the price step work together.
Many beginners copy the lot size from their currency trades. They see 0.10 lots and assume the risk is similar. It is not. The gold contract is quoted in dollars per ounce, and a one-dollar change is 100 US dollars per standard lot. On EUR/USD, a one-pip change is 10 US dollars per standard lot. The same one-unit move in price is ten times larger on gold. Check the contract size first, then the price step.
Calculate the pip value for your exact lot size
Gold does not have pips in the same way as currencies. Brokers often quote gold in dollars and cents. A move from 2,300.00 to 2,301.00 is a one-dollar move. For one standard lot of 100 ounces, that is 100 US dollars. For 0.10 lots, it is 10 US dollars. For 0.01 lots, it is 1 US dollar. The arithmetic is ounces multiplied by the dollar move. Write that number down before you place an order.
The pip value changes with your lot size. If you trade 0.05 lots, you control 5 ounces. A one-dollar move is 5 US dollars. If you trade 0.20 lots, you control 20 ounces. A one-dollar move is 20 US dollars. There is no fixed pip value for gold across all lot sizes. You must calculate it for the exact size you are using. A calculator or a broker's tool can do it, but you should understand the formula: ounces times dollar move equals US dollars.
The exchange rate adds another step. Your account may be in shillings. If the rate is 130 KES per USD, then a 10 US dollar move is KSh 1,300. A 100 US dollar move is KSh 13,000. The rate varies between brokers and changes during the day. Use the rate your broker applies at the time, or a recent market rate, and state it clearly in your plan. Do not assume a fixed rate for every trade. The shilling value of your risk moves with the exchange rate.
Measure the stop distance in dollars, not in pips
On EUR/USD, a stop of 50 pips is common for a swing trade. On gold, a stop of 5 dollars is not the same thing. Five dollars on gold is a small price move. It can be hit by normal market noise. If you use the same 50-dollar risk on gold as on EUR/USD, you are using a much tighter stop in price terms. That stop is more likely to be triggered before the market moves your way. The risk in dollars may be the same, but the probability of being stopped out is different.
Gold's daily range is often several times larger than EUR/USD's. A day when EUR/USD moves 60 pips is active. A day when gold moves 30 dollars is also active. Thirty dollars on 0.10 lots is 300 US dollars, or KSh 39,000 at 130 KES per USD. That is a large move for a small lot. If your stop is only 5 dollars away, a normal day can take you out. You need to check the average range before you set the stop distance.
The stop distance in dollars must match your risk plan. If you plan to risk KSh 6,500 on a trade, and the exchange rate is 130, that is 50 US dollars. On 0.10 lots of gold, a 5-dollar stop gives that 50 US dollar risk. On 0.05 lots, you would need a 10-dollar stop to risk the same 50 US dollars. On 0.20 lots, a 2.50-dollar stop gives the same risk. The smaller the lot, the wider the stop can be for the same money at risk. Choose the lot size after you decide the stop distance, not before.
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.
Doing it once, step by step
Work through these steps to compare gold and currency risk using your own numbers. Do the arithmetic on paper or in a spreadsheet before you open any position.
- 01
Write down the contract size
For gold, one standard lot is 100 troy ounces. For EUR/USD, one standard lot is 100,000 euros. Write both numbers at the top of your page. This is the first difference that changes every calculation.
- 02
Convert your lot size to ounces
If you trade 0.10 lots of gold, multiply 0.10 by 100 ounces. That gives 10 ounces. If you trade 0.05 lots, you get 5 ounces. Do the same for EUR/USD by multiplying your lot size by 100,000 euros. Keep the two results separate.
- 03
Calculate the dollar value of a one-unit move
For gold, one unit is one US dollar per ounce. Multiply your ounces by 1. For 10 ounces, a one-dollar move is 10 US dollars. For EUR/USD, one pip is 0.0001. On 0.10 lots, one pip is about 1 US dollar. Write both values down.
- 04
Convert the dollar risk to shillings
Use the exchange rate your broker shows, or a recent market rate. Multiply the US dollar risk by that rate. If the rate is 130 KES per USD, a 50 US dollar risk is KSh 6,500. Check the rate on the day you trade, because it changes.
- 05
Check the stop distance against the daily range
Look at the average daily range for gold and for EUR/USD over the last few weeks. If your stop is much smaller than the average range, it may be hit by normal movement. Adjust the lot size or the stop distance so the risk in shillings stays within your plan.
- 06
Reduce the lot size if the risk is too high
If the calculated risk in KSh is more than you planned to risk on one trade, lower the lot size. Do not widen the stop to avoid a smaller lot. A smaller lot with the same stop distance reduces the money at risk. Recalculate until the number fits your plan.
The mistake most 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.
Questions that come up next
Why does the same stop distance in dollars cost more on gold than on EUR/USD?
On gold, one dollar of price movement equals 100 US dollars per standard lot, because a standard lot is 100 ounces. On EUR/USD, one pip equals 10 US dollars per standard lot, and one pip is a far smaller price step than one dollar. So a stop placed five dollars away on gold is five large steps, while a stop placed five pips away on EUR/USD is five tiny steps. The dollar figure looks the same on the screen, but the ounces behind it make the loss larger. This is why the stop must be measured in dollars on gold, not in pips.
How do I convert a gold loss in US dollars into shillings?
Multiply the US dollar loss by the exchange rate your broker is using at that moment. If the rate is 130 KES per USD and the loss is 50 US dollars, the loss is KSh 6,500. The rate moves during the day and differs between brokers, so the shilling figure is only an estimate until the position closes. Your broker app shows the rate it applies. Check it before you size the trade, because a weaker shilling makes the same dollar loss cost more.
Does gold have pips like EUR/USD?
Most brokers quote gold in dollars and cents rather than in pips, so the pip language does not carry over cleanly. A move from 2,300.00 to 2,301.00 is a one-dollar move, and the value of that move depends on your lot size. Some platforms still label a small gold increment as a pip, and the label varies between brokers. Treat the dollar move as the real unit and calculate from ounces. That way the label on the platform does not change your arithmetic.
What lot size should a beginner use on gold?
There is no single correct size, because it depends on the stop distance and the amount you are willing to lose. Work backwards: decide the loss in shillings you can accept, convert it to US dollars at the current rate, then divide by the dollar stop distance to get the ounces. Convert the ounces to lots by dividing by 100. If the answer is below the minimum your broker allows, the trade is too large for your plan and should be skipped.
Why is the spread on gold often wider than on EUR/USD?
Gold is less liquid than the major currency pairs at some hours, and its price moves in larger steps, so brokers widen the spread to cover that risk. The spread is a cost you pay on entry, and it is separate from any commission or swap charge. It varies between brokers and can widen further around news releases or when the market is quiet. Add the spread to your stop distance when you estimate the total cost of a trade.
Can I hold a gold position overnight?
Yes, but most brokers apply a swap or financing charge for positions held past the daily cut-off. The charge depends on your broker, your lot size and the direction of the trade, and it can be positive or negative. It is not part of the pip value, so it does not appear in the arithmetic on this page. Check your broker's contract specifications for the swap rates before you plan a longer hold.
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.
The words used on this page
- troy ounce
- The unit used to weigh gold in the wholesale market. One troy ounce is about 31.1 grams, slightly heavier than the ounce used for groceries. A standard gold contract covers 100 of them.
- contract size
- The amount of the underlying asset that one lot controls. On EUR/USD a standard lot controls 100,000 euros, while on gold a standard lot controls 100 troy ounces. The two numbers are not comparable, which is why the same lot size carries different risk.
- notional value
- The full value of the position you control, before any borrowing or leverage is applied. At 2,300 US dollars per ounce, one standard lot of gold has a notional value of 230,000 US dollars. It is a measure of size, not of the money you have at risk.
- pip value
- The money gained or lost when the price moves by one pip, for the lot size you are using. On EUR/USD it is fixed per lot, but on gold it changes with the lot size because gold is quoted in dollars. Calculate it for your exact size before you trade.
- swap
- A financing charge applied when a position is held overnight. It depends on your broker, the lot size and the direction of the trade, and it can add to or subtract from your balance. It sits outside the pip value arithmetic.
- spread
- The gap between the price at which you can buy and the price at which you can sell. It is a cost paid on entry, and on gold it is often wider than on the major currency pairs. It varies between brokers and can widen around news.
What to take away
- Gold is quoted in dollars per ounce, so measure the stop in dollars and convert the loss to shillings at your broker's rate.
- One standard lot is 100 ounces, which makes a one-dollar move worth 100 US dollars and a five-dollar stop worth 500 US dollars per lot.
- Pip value on gold changes with lot size, so calculate it for the exact size you are using rather than copying your EUR/USD lot.
- Spread, swap and commission sit outside the pip value and vary between brokers, so add them when you estimate the total cost.