Gold, oil and currencies at a broker
Lesson 15 of 16 in the course “Futures from Zero”. Free, with animations and a quiz.
Futures or CFD
On a big exchange one gold futures contract is 100 ounces, hundreds of thousands of dollars, with an expiry date. That’s why retail traders more often trade gold, oil and currencies through a broker as CFDs. A CFD is a contract with the broker on the price difference. The logic is the same as futures: long, short, margin, leverage, stop. Only you can trade tiny sizes, from 0.01 lot, and you trade in the MetaTrader app.
What a lot is
In MetaTrader size is counted in lots. 1 lot of gold is 100 ounces, and 0.01 lot is 1 ounce: the price moves $1 and you’re up or down $1. For EUR/USD 1 lot is €100,000, and at 0.01 lot each pip (0.0001) is worth about 10 cents. For oil the lot size differs by broker, so open the instrument spec before your first trade. Without it you can’t work out risk or position size.
How to read the bottom of the terminal
At the bottom of MetaTrader there are four numbers. Balance is money not counting open trades. Equity is balance plus whatever is up or down right now. Margin is the deposit tied up in trades. Margin level is Equity ÷ Margin in percent. If it falls to 50%, for EU retail clients the broker starts closing trades itself. That’s a stop-out, the broker version of liquidation. On the plus side, licensed brokers in the EU and UK have protection: the account can’t go below zero.
How to pick a broker
A broker holds your money, so choose it like a bank. A licence from a strong regulator: for example the FCA in the UK, CySEC in Cyprus, ASIC in Australia. Negative balance protection. Client money in separate accounts. A free MT4 or MT5 demo to practise on their platform. And check the broker accepts clients from your country: different companies in one group often hold different licences for different regions.
Check yourself
- Nika bought 0.01 lot of gold and the price rose $8. What’s the result?
Correct answer: +$8. 0.01 lot of gold is 1 ounce. A $1 price move = $1 of result, so +$8 (before the spread). - What is a stop-out in MetaTrader?
Correct answer: The broker closes trades itself when margin level hits the threshold. A stop-out is the broker’s version of liquidation. For EU retail the threshold is a 50% margin level. - What should you check first about a broker?
Correct answer: A strong regulator’s licence and that it serves your country. A broker holds your money. A licence, separate accounts and negative balance protection matter more than bonuses and leverage.