How Leverage Increases Gold Trading Profits & Losses

If you have a 1,200 dollars trading account with leverage 100:1 you can buy a maximum of 1 lot which is equal to 120,000 dollars Gold contract (1 Standard lot).

Let us calculate trading profits & losses based on three examples of used leverage, based on $1,200 XAUUSD trading account:

1 lot (100:1)
0.5 lots (50:1)
0.2 lots (20:1)

NB: This is the Leverage used not the Maximum leverage, If an online Gold broker gives you 100:1 leverage, but you only trade 0.1 lot the used leverage you are using is 10:1, But if you trade 1 contract then the you'll use is 100:1 which's equal to Maximum leverage(100:1).

So the example referred in example below is talking of the leverage used based on the volume of the trade that you have opened.

Example 1: (100:1 Leverage or 1 Lot)

For 1 lot 1 pip equals $1

If you earn a profit of 100 pips the calculation of profit in dollars is:

1 lot

1 pip = $1

100 pips = 100 * 10 = $100 dollars

Total= balance + profit

= 1000+ 100

= $1,100 you have just made 10% profit in your equity balance.

If you make a loss of 100 pips the loss in dollars is:

1 lot

1 pip = $1 dollars

100 pips = 100 * 10 = $100

Total= trading account balance - loss

Total= 1000 - 100

Total = $ 900 you have just lost 10% of your trading account balance

Example 2 :(50:1 Leverage or 0.5 Lots)

For 0.5 lots 1 pip equals $0.5

If you earn a profit of 100 pips the profit in dollars is:

0.5 lots

1 pip = $0.5

100 pips = 100 * 0.5 = $50 dollars

Total= balance + profit

= 1000+ 50

= $1,050 you have just made 5% profit of & added it to your trading account balance

If you accrue a loss of 100 pips the loss in dollars is:

0.5 lots

1 pip = $0.5 dollars

100 pips = 100 * 0.5 = $50

Total= trading account balance - loss

Total= 1000 - 50

Total= $950 you have just lost 5% of your account balance

Example 3: (Leverage 20:1 or 0.2 Lots)

For 0.2 lots 1 pip equals $ 0.2 dollars

If you make a profit of 100 pips the profit in dollars is:

0.2 lots

1 pip = $0.2 dollars

100 pips = 100 * 0.2 = $20

Total=balance + profit

= 1000+ 20

= $1,020 you have made lost 2% of your trading account balance

If you make a loss of 100 pips the loss in dollars is:

0.2 lots

1 pip = $0.2

100 pips = 100 * 2 = $20 dollars

Total= account balance - loss

Total= 1000 - 20

Total= $980 you have just lost 2% of your account balance

From the above example you can see that the more leverage you use the greater the profit or loss and the less leverage you use the lesser the profit or loss.

It is hence better to use less leverage so as to minimize the risks involved in online trading of Gold metal. The greater the leverage ratio used the higher the risks. This is one of equity money management leverage rules not to trade with more than 5:1 leverage at any given time.

In leverage guidelines: It's recommended to stay below 10:1 leverage ratio which's also still high, most professional money managers use 2:1 leverage meaning they trade only 2 lots for every $120,000 in their XAUUSD trading account. Hence, to trade one lot these money managers will have $60,000 dollars as their equity balance.

As a xauusd trader the minimum you should open a XAUUSD account with is $10,000 if you will be trading Gold Standard lots. If you will be trading XAUUSD Mini Lots then the minimum you should open a Gold trading account with is $1,000 dollars or $2,000.

Learn More Topics and Courses:

Trade Gold Trading

How Leverage Increases Gold Trading Profits & Losses

Example 1: (100:1 Leverage or 1 Lot)

Example 2 :(50:1 Leverage or 0.5 Lots)

Example 3: (Leverage 20:1 or 0.2 Lots)