Do You Have to Use Leverage in Gold?
The definition of Gold Leverage is having the ability to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the gold market to attract many traders.
We shall explain gold trading leverage first and then explain gold margin in this learn how to calculate xauusd trading leverage and margin gold tutorial.
Gold Example:
We shall us this xauusd trading example to explain what gold trading leverage is? If your gold broker gives you gold leverage ratio 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 xauusd trading account. This is what is known as xauusd trading leverage.
This means if you open a gold trading account with $1,000 and your gold leverage ratio is 100:1, then you get $100 for every $1 you that you have in your trading account, the total amount that you will control is:
If for 1 dollar the xauusd broker gives you 100
Then if you have 1,000 in your xauusd trading account you will get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of Capital after gold leverage
Most new gold traders ask what gold leverage is best for 2,000 dollars, or 5,000 dollars, or 10,000 dollars gold account? - The best gold leverage ratio to choose when opening a live Gold account is always 100:1 and not 500:1.
What is Gold Margin?
XAUUSD Margin is the amount of money required by your gold broker so as to allow you to continue gold trading with the borrowed amount - leveraged amount.
In other words the question what is margin in Gold Trading? can be explained as the money required by your gold broker to cover open xauusd trades and is expressed as a percentage. For 100:1 leverage, the amount you will control is 100,000 dollars as explained in the gold example above.
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 come from? You borrow from your gold broker in what is simply known as Gold Leverage. This money that you borrow from your gold broker, you borrow it against the $1,000 dollar of your own money that you deposit with your gold broker in your gold account. If you were to define what this gold leverage means - then leverage is the ability to control a large amount of money using very little of your own money and borrowing the rest. Otherwise, if you were trade gold without this gold leverage it would not be as profitable as it is, in fact you can still choose not to use gold 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 trading leverage and gold trading margin:
Gold Trading Margin required in this case is 1,000 dollars (your money) if it is expressed as a percent of 100,000 dollars in your gold trading account which you control it is:
If gold leverage ratio = 100:1
1,000 / 100,000 * 100= 1%
XAUUSD Margin required = 1%
(1/100 *100= 1%)
"Trade Forex Trading - Please simplify because I am a Gold Beginner"
(Simplify - your gold capital is $1,000 - after gold leverage you control $100,000 - $1,000 is what percent of $100,000 - it is 1%) that is your gold margin requirement for your xauusd trading account.
The gold trading margin example illustrated and explained below, the set gold leverage ratio is 100:1, the gold margin which is 1% is $2683.07, therefore the total amount controlled by the gold trader is: $268,307 - this is because with this gold trading leverage the trader has used little of his money and borrowed the rest, with this leverage ratio 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
MT4 Transactions Window - What is Gold Leverage for Gold Trading Beginners? - Do You Have to Use Leverage in Gold?
- If = 50:1 Gold Leverage Ratio
Then xauusd trading margin requirement = 1/50 *100= 2%
if you have $1,000,
1,000* 50 = $50,000.
1,000 / 50,000 * 100= 2%
(Simplify - your gold trading capital is $1,000 after gold leverage you control $50,000 - $1,000 is what percent of $50,000 - it is 2%) that is your gold trading margin requirement
- If = 20:1 XAUUSD 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 trading capital is $1,000 after gold leverage you control $20,000 - $1,000 is what percent of $20,000 - it is 5%) that is your trading gold margin requirement
- If = 10:1 XAUUSD Leverage Ratio
Then the xauusd 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 trading gold capital is $1,000 after gold leverage you control $10,000 - $1,000 is what percent of $10,000 - it is 10%) that is your gold margin requirement
What is the Difference Between Maximum XAUUSD Leverage and Used Gold Leverage?
However, you should note that there is a difference between maximum xauusd trading leverage (trading gold leverage given by your xauusd trading broker which is the highest gold leverage ratio you can trade with if you choose to) and used xauusd trading leverage ( gold leverage depending on the gold lot size you have opened - open trade lots positions). One is the gold broker's (Maximum Gold Trading Leverage Ratio) and the other is gold trader's (Used Leverage Ratio). To explain this trading gold leverage concept we shall use the gold example above:
If your gold broker has given you 100:1 Maximum Gold Trading Leverage Ratio, but you only open a trade of 10,000 dollars then Used Gold Leverage is:
10,000 dollars: 1,000 dollars (your money)
10:1
Your have used 10:1 XAUUSD Leverage Ratio, but your maximum leverage ratio is still 100:1 Leverage. This means that even if you are given 100:1 Maximum XAUUSD Leverage Ratio or 500:1 Maximum Gold Trading Leverage Ratio, you do not have to use all of it. It is best to keep your used gold leverage ratio to a maximum of 10:1 gold leverage but you will still select 100:1 maximum gold leverage ratio for your gold trading account. The extra gold leverage will give you what we call Free Gold Trading Margin, As long as you have some Free margin on your gold trading account then your xauusd trades will not get closed by your xauusd trading broker because this margin requirement will remain above the required level based on the free margin in your xauusd trading account.
When it comes to xauusd trading - one of your rules: gold money management guidelines on your gold trading plan should be to use gold leverage ratio of below 5:1.
In the above gold example, the trader is using $2683.07, the total controlled amount is $268,307, but gold trading account equity is $16,116.55, therefore used gold trading leverage is ($268,307 divide by 16,116.55) = 16.64 : 1
16.64 : 1 Used Gold Leverage Ratio
XAUUSD margin accounts allow xauusd traders to control a large amount of currency using little of their own money while borrowing the rest
Obtaining this gold margin trading account will enable you to borrow money from the gold broker to trade xauusd trading lots with.
The amount of borrowing power your margin gold trading account gives you what is 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 this means in gold trading terms is that with 1% margin in your xauusd trading account you can control one standard gold lot or 1 gold contract worth $100,000 with a $1,000 deposit.
However, trading on this margin gold trading account increases both potential for gold profits as well as gold losses. In gold trading you can never lose more than you invest, gold losses are limited to your deposits and usually gold brokers will close a gold trade transaction that extends beyond your deposit amount by executing a xauusd trading margin call. Gold traders must therefore try to keep their gold margin level above that required by their gold broker. By using gold money management guidelines and keeping your used gold leverage ratio below 5:1.
What is Gold Leverage for Gold Trading Beginners? - Do You Have to Use Leverage in Gold? - Leverage in Gold Trading - Gold Leverage Example - Gold Leverage and Margin Explained - Gold Leverage Calculator
