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Trading Spot Gold and Silver
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How to read a spot gold quote
Reading a spot gold or silver quote is very similar to reading a forex quote. It is even represented the same way (for example, spot gold traded against the US dollar is XAU/USD).
In this example, it's simple if you remember three things:
XAU/USD 900.25
- The first symbol listed is 1 troy ounce of gold
- The value of gold is always 1.
- The price literally translates to; 1 ounce of gold is equal to 900.25 U.S. dollars.
When the price or quote for gold goes up, gold has strengthened in value and is now worth more dollars than before. If the price of gold goes down, it takes fewer dollars to purchase 1 ounce of gold, and the value of the dollar has increased when compared to the value of gold.
Bids, asks and the spread
Just like other markets, spot gold and silver quotes consist of two sides, the bid and the ask:
The BID is the price at which you can SELL.
The ASK is the price at which you can BUY.
The difference between the bid and ask prices is called the spread.
What does it all mean?
Spot gold and silver prices are quoted internationally in U.S. dollars per troy ounce. In this example, a quote of XAU/USD 900.25 means that 1 oz gold is equal to $900.25. If you buy a single lot of gold (1 lot = 10 oz) at this price and sell it at a higher price, your profit would be the difference between these two prices. In this way, trading spot gold on FOREX.com's trading platforms is nearly identical to trading currencies.
A typical quote you might receive for spot gold is 900.25/75. This means that you could sell one or more lot(s) of gold at 900.25, or buy at 900.75. The spread you would pay in this example would be the difference between these two prices (900.75-900.25) or 0.50.
The dollar amount represented by the change in price will depend upon the size of the trade you have placed. The smallest amount you can trade with FOREX.com is 1 lot, which represents 10 troy oz. At 1 lot, the smallest price change possible (0.01) is equivalent to $0.10.
Let's look at an example:
Let's say you decided to buy 1 lot of XAU/USD (spot gold) at 900.25.
A few minutes later, the bid (or sell) price has risen to 900.95, and you decide to exit your trade. You bought 1 lot at 900.25 and sold at 900.95, making 70 pips in the process. 70 pips, at $0.10 per pip, equal $7.00.
Now, let's say that we once again buy 1 lot of XAU/USD at 900.25.
A few minutes later, the bid (or sell) price has weakened to 899.60 and you decide to minimize your losses and sell the 1 lot of XAU/USD. The difference between buying 1 lot at 900.25 and selling 1 lot at 899.60 is 65 pips. 65 pips, at $.10 per pip, equals $6.50.
Pips or points, what's the difference?
Like forex prices, spot gold prices are quoted in tiny increments called pips ("percentage in point"). Located at the second decimal place for a spot gold quote, or 0.01, each pip represents 1 cent in dollar value.
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