Gold Leverage & Margin Tutorial
The definition of Gold Leverage is having the ability to control a big amount of money using very little of your own money and borrowing the rest - this is what makes the xauusd market to attract many investors.
We shall explain gold leverage first & then explain gold margin in this learn how to calculate xauusd leverage and margin guide.
Example:
We shall us this example to explain what gold trading leverage is? If your gold broker gives you gold leverage of 100:1 (this is the best option to choose as the maximum gold leverage for any gold trading account)
This means you borrow 100 dollars for every dollar you have in your xauusd trading account.
To put in another way your gold broker gives you 100 dollars for every 1 dollar in your account. This is what's known as xauusd trading leverage.
This means if you open an account with $1,000 and your gold leverage is 100:1, then you get $100 for every $1 you that you've in your account, the total amount that you'll control is:
If for 1 dollar the broker gives you 100
Then if you have 1,000 you'll get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of Investment
Most new gold traders ask what gold leverage is best gold leverage for 1,000 dollars, or 2,000 dollars, or 5,000 dollars gold account? - The best gold leverage option to select when opening a live xauusd trading account is always 100:1 and not 400:1.
What is XAUUSD Trading Margin?
Gold Trading Margin is the amount of money required by your gold broker so that as to allow you to continue trading with borrowed amount.
In other words the question what is margin in Gold Trading? can be described as money required to cover open xauusd trades and is expressed in percent. For 100:1, the amount you'll control is 100,000 dollars as described in above example.
Now can you compare a investing $1,000 with another one that is investing $100,000? Obviously Not. This is how it works: it takes you from that retail investing $1,000 to that investing $100,000. Where does this extra cash come from? - You borrow it from your gold broker in what is simply referred to as Gold Leverage. This money that you borrow, you borrow it against the $1,000 dollar of your own money which you deposit with your xauusd trading broker. If you were to explain what this gold leverage means - then it's the ability to control a big amount of money using very little of your own money and borrowing the rest. Otherwise, if you were trade Gold Trading without this gold leverage it would not be as profitable as it is, in fact you can still select not to use xauusd trading leverage, using 1:1 leverage option but you would not make money and it would take too long to make any profit.
Example of how to calculate xauusd leverage & margin:
Gold Trading Margin required in this case is 1,000 dollars (your money) if it is expressed as a percentage of 100,000 dollars in your gold trading account which you control it is:
If gold trading leverage = 100:1
1,000 / 100,000 * 100= 1%
Margin required = 1%
(1/100 *100= 1%)
"Trade Forex Trading - Please simplify because I am Beginner"
(Simplify - your capital is $1,000 after gold leverage you control $100,000 - $1,000 is what percent of $100,000 - it's 1%) that is your margin requirement for your xauusd trading account.
The gold trading margin example illustrated and explained below, the set gold leverage ratio is 100:1, margin which is 1% is $2683.07, therefore the total amount controlled by gold trader is: $268,307 - this is because with this leverage the trader has used little of his money and borrowed the rest, with this set at 100:1, the trader is using 1% of their capital, this 1% equals to $2683.07, if 1% is equal to $2683.07 then 100% is equal to $268,307
MetaTrader 4 Transactions Panel - Gold Leverage and Margin Guide
- If = 50:1 Gold Trading Leverage
Then margin requirement = 1/50 *100= 2 %
If you have $1,000,
1,000* 50 = $50,000.
1,000 / 50,000 * 100= 2%
(Simplify - your capital is $1,000 after gold leverage you now control $50,000 - $1,000 is what percentage of $50,000 - it's 2 %) that is your gold trading margin requirement
- If = 20:1 Gold Trading Leverage
Then the requirement = 1/20 *100= 5%
If you have $1,000,
1,000* 20 = $20,000.
1,000 / 20,000 * 100= 5%
(Simplify - your trading capital is $1,000 after gold leverage you now control $20,000 - $1,000 is what percent of $20,000 - it is 5 %) that is your gold trading margin requirement
- If = 10:1 Gold Trading Leverage
Then the requirement is = 1/10 *100= 10%
If you have $1,000,
1,000* 10 = $10,000.
1,000 / 10,000 * 100= 10%
(Simplify - your trading capital is $1,000 after gold leverage you now control $10,000 - $1,000 is what percent of $10,000 - it is 10 %) that's your gold trading margin requirement
What's Difference Between Maximum Gold Trading Leverage & Used XAUUSD Trading Leverage?
However, you should note that there's a difference between maximum gold trading leverage ( gold trading leverage given by your xauusd trading broker which is the highest gold leverage you can trade with if you choose to) and used gold trading leverage ( gold trading leverage depending on the lots you have opened/open trades). One is the broker's (Maximum Gold Leverage) & the other is trader's (Used Gold Trading Leverage). To explain this gold trading leverage concept we shall use xauusd trading example above:
If your gold broker has given you 100:1 Maximum Gold Leverage, but you only open a trade of 10,000 dollars then Used Gold Trading Leverage is:
10,000 dollars: 1,000 dollars (your money)
10:1
Your have used 10:1 Gold Trading Leverage, but your maximum is still 100:1 Gold Leverage. This means that even if you're given 100:1 Maximum Gold Trading Leverage or 400:1 Maximum Gold Leverage, you do not have to use all of it. It is best to keep your used gold leverage to a maximum of 10:1 but you'll still select 100:1 maximum gold leverage option for your trading account. The extra gold trading leverage will give you what we call Free Gold Margin, As long as you have some Free margin on your gold trading account then your trades will not get closed by your xauusd trading broker because this margin requirement will remain above the required level.
When it comes to gold trading one of your rules: gold trading money management guidelines on your trading plan should be to use gold trading leverage below 5:1.
In the above image example, the trader is using $2683.07, total controlled amount is $268,307, but account equity is $16,116.55, therefore used gold leverage is ($268,307 divide by 16,116.55) = 16.64 : 1
16.64 : 1 Used Gold Trading Leverage
Gold Trading Margin accounts allows traders to control a large amount of gold trading units using little of their own capital while borrowing the rest
Obtaining this gold trading account will enable you to borrow money from the broker to trade xauusd trading lots with.
The amount of borrowing power your account gives you what is called " gold trading leverage", and is usually expressed as a ratio - a ratio of 100:1 trading leverage means you can control resources worth 100 times your deposit amount.
What this means in Gold Trading terms is that with 1% margin in your gold trading account you can control a trade worth $100,000 with a $1,000 deposit.
However, Trading this gold account increases both potential for profits as well as losses. In Gold Trading you can never lose more than you deposit, losses are limited to your deposits and usually brokers will close-out a trade which extends beyond your deposit amount by executing a margin call. Gold traders must therefore try to keep their margin requirement level above that required. By using gold trading money management guide-lines & keeping your used gold leverage below 5:1.
