Do You Have to Use Leverage in XAUUSD?

The meaning of Leverage is having the ability to control a big amount of money using very little of your own money & borrowing the rest - this is what makes the market to attract many traders.

We shall explain leverage first and then explain gold margin in this learning how to calculate xauusd leverage & margin gold tutorial.

Gold Example:

We shall us this examples to explain what leverage is? If your online broker gives you leverage ratio of 100:1 (this is the best option to choose as the maximum leverage for any account)

This means you borrow $100 dollars for each 1 dollar you have in your xauusd account.

In other terms your online broker gives you $100 dollars for each one dollar in your trading account. This is what's known as leverage.

This means if you open a trading account with $1,000 & your leverage option is 100:1, then you get $100 for every $1 you that you have in your trading account, the total amount which you'll control is:

If for 1 dollar the broker gives you 100

Then if you have 1,000 in your trading account you will get a total of:

$1,000 * 100 = $100,000

Now you control $100,000 of Capital after leverage

Most new traders ask what leverage is best for 2,000 dollars, or $5,000 dollars, or $10,000 account? - Best leverage ratio to choose when opening a live account is 100:1 & not 500:1.

What's XAUUSD Margin?

XAUUSD Margin is the amount of money required by your broker so as to allow you to continue gold trading with the borrowed amount - leveraged amount.

In other words the question what's margin in Gold Trading? can be explained as the money required by your online broker to cover open trades & is expressed as a percentage. For 100:1 leverage, the amount you will control is $100,000 as explained in the above example.

Now can you compare an investor investing $1,000 with another investor investing $100,000? Obviously Not. This is how leverage works in gold trading, it takes you from that guy investing $1,000 to that one investing $100,000. Where does this extra money originate from? You borrow from your broker in what's simply referred to as XAUUSD Leverage. This money that you borrow from your broker, you as a trader borrow it against the $1,000 of your own funds that you deposit with your broker in your account. If you were to define what this leverage means - then leverage is 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 without this leverage it would not be as profitable as it is, in fact you can still choose not to use leverage, using the 1:1 leverage ratio but you would not make money it would take too long to make any gold profit.

Example of how to calculate xauusd leverage and margin:

Gold Margin required in this case is $1,000 dollars (your money) if it is expressed as a percentage of $100,000 dollars in your trading account which you control it is:

If leverage ratio = 100:1

1,000 / 100,000 * 100= 1 %

XAUUSD Margin required = 1 %

(1/100 *100= 1%)

"Trade FX - Please simplify because I am a Beginner"

(Simplify - your gold capital is $1,000 - after leverage you control $100,000 - $1,000 is what percent of $100,000 - it is 1%) that is your gold margin requirement for your trading account.

The gold margin example shown and described below, the set leverage ratio option is 100:1, the gold margin which is 1% is $2683.07, therefore the total amount controlled by the trader is: $268,307 - this is because with this leverage the trader has used little of his money & borrowed the rest of the amount, with this leverage ratio option set at 100:1, the trader is using 1% of their capital, this 1% equals to $2683.07, if 1 % is equivalent to $2683.07 then 100% is equivalent to $268,307

MT4 Transactions Panel - What is Gold Leverage for Gold Beginners? - Do You Have to Use Leverage in Gold?

• If = 50:1 Leverage Ratio

Then xauusd margin requirement = 1/50 *100= 2 percent

If you have $1,000,

1,000* 50 = $50,000.

1,000 / 50,000 * 100= 2 percent

(Simplify - your gold equity is $1,000 after leverage you now control $50,000 - $1,000 is what percentage of $50,000 - it is 2 %) that's your gold margin requirement

• If = 20:1 Leverage Ratio

Then the gold margin requirement = 1/20 *100= 5%

If you have $1,000,

1,000* 20 = $20,000.

1,000 / 20,000 * 100= 5 %

(Simplify - your gold equity is $1,000 after leverage you now control $20,000 - $1,000 is what percentage of $20,000 - it's 5 %) that is your trading margin requirement

• If = 10:1 Leverage Ratio

Then the gold margin requirement is = 1/10 *100= 10 %

If you have $1,000,

1,000* 10 = $10,000.

1,000 / 10,000 * 100= 10 %

(Simplify - your funds is $1,000 after leverage you now control $10,000 - $1,000 is what percentage of $10,000 - it's 10 %) that is your gold margin requirement

What's Difference Between Maximum Leverage & Used Gold Leverage?

However, you should note that there's a difference between maximum leverage (trading leverage given by your xauusd broker which is the highest leverage ratio you can trade with if you choose to) and used leverage ( leverage depending on the gold lot size you have opened - open trade lots positions). One is the broker's (Maximum Gold Leverage Ratio) & the other is trader's (Used Leverage Ratio). To explain this leverage concept we will use the example above:

If your online broker has given you 100:1 Max Gold Leverage Ratio, but you only open a trade of $10,000 dollars then Used Gold Leverage is:

$10,000: $1,000 dollars (your money)

10:1

You've used 10:1 Leverage Ratio, but your maximum leverage ratio is still 100:1 Leverage. This means that even if you're given 100:1 Maximum Leverage Ratio or 500:1 Maximum Gold Leverage Ratio, you do not have to use all of it. It is best to keep your used leverage ratio to a maximum of 10:1 leverage but you will still choose 100:1 maximum leverage ratio for your trading account. The extra leverage will give you what we call Free Gold Margin, As long as you have Free margin on your trading account then your trades won't get closed by your xauusd broker because this margin requirement will remain above the required level based on the free margin in your account.

When it comes to xauusd trading - one of your rules: money management rules on your trade plan should be to use leverage ratio of below 5:1.

In example above, the trader is using $2683.07, total controlled sum is $268,307, but trading account equity is $16,116.55, therefore used leverage is ($268,307 divide by 16,116.55) = 16.64 : 1

16.64 : 1 Used Gold Leverage Ratio

XAUUSD margin accounts allow traders to control a big amount of currency using little of their own money while borrowing the rest

Obtaining this gold margin account will enable you to borrow money from the broker to trade xauusd lots with.

The amount of borrowing power your margin account gives you what's called "leverage", and is usually expressed as a ratio - a leverage ratio of 100:1 means you can control resources worth 100 times your deposit.

What it means in gold terms is that with 1% margin in your trading account you can control one standard gold lot or 1 contract worth $100,000 with a $1,000 deposit.

However, trading on this margin account increases both potential for gold profits as well as gold losses. In gold trading you can never lose more than what you invest, losses are limited to your deposits and usually brokers will close a trade transaction that extends beyond your deposit amount by executing a xauusd margin call. Traders must therefore try to keep their gold margin level above that required by their broker. By using equity management principles & keeping your used leverage ratio below 5:1.

What is Gold Leverage for Gold Beginners? - Do You Have to Use Leverage in Gold? - Leverage in Gold - Leverage Example - Leverage & Margin Explained - Leverage Calculator