How to Make a Spot Gold Trade Step by Step?
It can seem complicated at first, but the following step-by-step guidelines will guide you through the process.
Let’s say you believe the price of spot gold will rise. In this case, you would buy (or go long) the XAU/USD, which means buying gold and selling the U.S. dollar. Here’s what you do:
1. Look at the bid price and ask price: There is a price at which participants are willing buy spot gold (called the ask) and a price at which they are willing to sell spot gold (called the bid). In the formula 800 / 801, 801 is the bid and 800 is the ask. The difference is called the spread. Spot gold trading on forex, however, is a fast-moving market, and changes quickly throughout the day.
2. Decide whether you want to be short vs. long: A trade is short when you sell XAU/USD and long when you buy XAU/USD. In the example above, since you believe spot gold prices will rise, you would buy XAU/USD at 801.
3. Determine a trade size: Selecting the correct trade size is critical to effective risk management. Although different online forex trading systems have different margin requirements for different pairs, 50:1 is standard. If you can trade spot gold on a margin of 50:1, it means a $5,000 account can trade up to $250,000.
4. Review the spread: As in any financial market, the spread is the difference between the bid price and the ask price. So, in the example above, you could buy spot gold at 801 and sell spot gold at 800, there is a 100-point (or pip) spread. The spread, of course, will fluctuate.
5. Make the trade: So now let’s assume you are long a single lot of XAU/USD—a lot equaling 10 ounces—at $800 per ounce, so $8,000 total. The spot gold market rallies, and a few hours later you sell the spot gold at $805 per ounce, or $8,050 total. You made $50, or 500 pips.
6. Make the trade again. Finally, note that spot gold on forex can be traded both long and short multiple times throughout the day, given that the market moves so quickly