Gold (XAU/USD): how it differs from currencies
Pip value and stop risk on 0.10 lots
| Step | Amount | Note |
|---|---|---|
| Gold contract size | 100 ounces | the standard size for one lot of XAU/USD at most brokers; some brokers offer smaller lots |
| Gold price used | USD 2,300.00 per ounce | an assumed price for the arithmetic only |
| One lot of gold, notional | USD 230,000 | 100 ounces x USD 2,300.00 |
| Lot size traded | 0.10 | one tenth of a standard lot |
| Notional traded | USD 23,000 | USD 230,000 x 0.10 |
| Gold move of USD 1.00 per ounce | USD 10 | 100 ounces x USD 1.00 x 0.10 lots |
| Stop of USD 10.00 per ounce | USD 100 | USD 10 x 10 dollars of movement |
| Same USD 100 in rupees | ₹8,325 | USD 100 x 83.2500, the USD/INR rate used in this course |
| USD/INR, one standard lot | ₹10 per pip | 100,000 x 0.0001, as covered in the earlier lesson |
| USD/INR stop of 20 pips, one standard lot | ₹200 | 20 x ₹10 |
| USD/INR stop of 20 pips, 0.10 lots | ₹20 | ₹200 x 0.10 |
The pip value above is a calculation, not a quote. The broker's own contract size, minimum lot, spread, commission and conversion rate all vary between brokers and can change the final rupee figure. The USD/INR rate also moves, so the rupee value of a dollar loss is only fixed at the moment of conversion.
The mistake people make here
The common mistake is to carry over the currency habit of counting pips in the fourth decimal place and to assume a small lot keeps the risk small. On gold, a one dollar move in the price is a large move in money, because the contract is 100 ounces. A stop that looks like a few pips on a currency chart can be several times larger in rupees on gold at the same lot size. Before placing the order, work out the stop in rupees using the contract size you actually have, and check whether that number fits the risk you set for the trade. If it does not, reduce the lot size rather than the stop distance.Check yourself
Gold is at USD 2,300.00 per ounce. You trade 0.10 lots and your stop is USD 5.00 per ounce away. What is the loss in rupees at USD/INR 83.2500?
0.10 lots is 10 ounces. A USD 5.00 move is 10 x 5 = USD 50. In rupees, USD 50 x 83.2500 = ₹4,162.50.
On USD/INR at 0.10 lots, a 20 pip stop costs ₹20. If the same ₹20 were your whole risk on gold at 0.10 lots, how many dollars of gold movement would that allow?
₹20 divided by 83.2500 is about USD 0.24. At 10 ounces that is a gold move of about USD 0.024 per ounce, which is far smaller than a normal gold range. The point is that the same rupee risk buys much less room on gold.
Why is one pip not a useful unit for gold in the way it is for USD/INR?
A pip on USD/INR is a fixed 0.0001 of the quote, worth ₹10 per standard lot. Gold is quoted in dollars per ounce, so a one dollar move is the natural unit, and its value depends on the contract size, here 100 ounces per lot.
In India
- Regulator
- SEBI regulates securities markets in India; the rules that apply to a specific product can differ, so check the current position before trading.
- Money
- The rupee, written ₹ (INR).
- Payment methods
- UPI and bank transfer are commonly used to move money to and from trading accounts.
- Reference rate used here
- USD/INR around 83.2500; this rate moves and is not fixed.
- Pip value on USD/INR
- One pip on one standard lot is ₹10 (100,000 x 0.0001).