Gold, indices and CFDs
Lesson 24 of 31 in the course “Forex”. Free, with animations and a quiz.
XAU/USD: gold in dollars
XAU/USD is the price of one troy ounce of gold (≈ 31.1 g) in dollars. Gold usually moves more than currencies. Guide from the picture: a calm EUR/USD day ≈ 0.5%, a normal gold day 1–2%. That is a typical pattern, not a rule: it can be quieter or wilder. Takeaway: on gold the stop goes wider so normal swings do not hit it, and the lot gets smaller so your risk in $ stays the same.
Example: gold and a small account
0.01 lots of gold = 1 ounce (100 × 0.01), so a $1 price move means $1 of profit or loss. Example: on EUR/USD a 20-pip stop at 0.05 lots costs 20 × 0.5 = $10. On gold a stop $15 below entry costs $15 even at the minimum 0.01 lot. On a $1,000 account that is already 1.5%. The trap: on a small account gold easily eats your whole risk limit.
Indices and oil
Besides currencies, brokers offer CFDs on indices and oil. A CFD, a contract for difference, means you do not own the asset: you receive or pay the difference between your entry and exit price. An index is one number that shows how the prices of a basket of big companies are doing overall. US500 tracks the S&P 500 (500 large US companies), NAS100 tracks the Nasdaq 100, GER40 tracks Germany's DAX of 40 companies.
CFDs: leverage and forced close
CFDs are traded with leverage, like currencies. But at regulated brokers in the EU and UK it is lower for retail traders: up to 1:20 on gold and major indices, up to 1:10 on oil. So the deposit is bigger. The rule is the same: if your funds run short, the position is force-closed, as in the picture. CFDs also have a swap, the fee for holding a trade overnight. Sounds familiar: it is the same margin and stop-out.
Each has its own contract
Every instrument has its own contract size, meaning how much of the asset is in 1 lot, and its own price per step. Compare in the picture: 1 lot of EUR/USD = 100,000 euros and $10 per pip, while 1 lot of XAU/USD = 100 ounces and $10 per $0.10 move. For indices and oil the lot size even differs from broker to broker. Rule: before your first trade, open the instrument spec in the terminal and work out what your stop costs.
Check yourself
- Why is the stop usually wider on gold than on EUR/USD?
Correct answer: Gold usually moves more. A normal gold day is 1–2% versus ≈ 0.5% for EUR/USD. Normal noise would knock out a tight stop, so the stop is wider and the lot smaller. - A CFD on an index means...
Correct answer: You trade the price without owning the asset. A CFD is a contract for difference. You receive or pay the gap between entry and exit, but you never own the shares. - Where do you find an instrument's contract size?
Correct answer: In the instrument spec. Usually in the terminal: right-click the symbol in the list and choose “Specification”. It shows contract size, step value, swaps and trading hours.