XAUUSD Basics Concepts

Learning to trade the market is much simpler for those who are new when they begin by learning the basics. In this way, other advanced ideas and lessons are easier to learn because the new trader will have already learned the basic concepts before moving on to the other learning concepts.

The basics that traders should learn first before starting trading are:

What's Gold?

Trading gold involves buying and selling a financial item at the same time for another one. Market participants buy and sell either to guess where prices are going or to try and make some money. Market participants will buy gold that they believe will increase in price and sell gold they think will go down.

Within the XAUUSD market, traders adhere to the principle of purchasing gold when its value is perceived as low (undervalued) and selling it when its value is high (overvalued). This constitutes the fundamental concept of gold trading. For a beginner aspiring to achieve success, mastering the art of buying undervalued and selling overvalued gold is crucial. Many traders erroneously execute the opposite, buying gold when it appears to be rapidly appreciating (overvalued) and selling it when it seems poised for further declines (undervalued).

Just like in stock market successful trader buy stock when the stock price is low & sell stock when the stock price is high. This is the same concept which traders should follow & adhere to when trading gold.

What's a XAUUSD?

Gold trading involves the simultaneous exchange of one financial instrument for another: thus, gold is associated with trade symbols.

What's a Quote?

Because gold is traded in symbols, the price at which these gold are exchanged is determined by the trading quote.

Gold is quoted in the format of decimal places.

What is a Pip?

Gold prices use decimal quotes. The second-to-last digit marks a pip, the smallest unit for profit and loss.

Pip means Price Interest Point: it's a one point move in the trading quote.

What is a Lot?

Gold trades in lots. Mini lots are parts of standard lots. Micro lots are parts of mini lots.

What is Leverage?

Due to the high capital investment required for standard lots, Gold trading incorporates leverage, allowing traders to borrow funds and employ that borrowed capital for their transactions. As an example, leverage of 100:1 means a trader with $10,000 in capital can borrow up to 100 times their amount using the 100:1 leverage option. Consequently, after borrowing via this trading leverage, the trader gains control over a total value of $10,000 multiplied by 100, resulting in a total trading capacity of $1,000,000. This leverage mechanism democratizes access for retail traders, as they can initiate trading with minimal personal capital and use leverage to secure the necessary borrowed funds. The capital the trader commits is known as the trader's margin, and a gold trader can continue to access borrowed funds through this leverage as long as the requisite margin is maintained in their account. Therefore, Gold traders must ensure they possess the necessary account balance to open the specific trade positions they intend to enter.

What's Margin?

Margin is the specified amount of money a trader must set aside in order to keep an already completed leveraged trading trade held. Margin can alternatively be shown as the amount a gold trader is obliged to hold to keep their open positions. A percent of account equity that has to be set apart and assigned as margin for the open positions held by a xauusd trader is this margin.

Discover More Training & Subject Areas:

Trade Gold Trading