Spot Gold Leverage & Margin
How leverage for spot metals works+
Leverage trading, or trading on margin, means that you are not required to put up the full value of a position. As a result you can open a significantly larger position than you would be able to if you needed to fund your trade in full. Trading on leverage increases the potential for profit, and allows traders to participate in markets that would otherwise be cost prohibitive, but also increases the risks, and so the potential for losses.
Leverage for spot gold and silver trading is set at 100:1. This means that for every $1 you have in your account balance, you can trade $100 worth of a position.
Margin
Margin is the amount of money you must have in your account to open and maintain a position.. At 100:1 leverage, your margin factor is 0.01 (1%), which means that you are required to have a minimum cash balance of 1% of the total value of the positions you hold in your account at any one time.
As an example:
The current gold price is quoted as XAU/USD $920.55
You buy 1 lot (10 oz) of gold at $920.55.
Your margin requirement is 1% of your trade size, and is calculated as follows:
Trade size x price x margin factor
10 (oz) x $920.55 x 0.01 = $92.06.
Another way to look at this example is to say that 100:1 leverage gives you the ability to trade 10 ounces of gold, at 920.55, with $92.06.
Next: Calculating P&L
+ Increasing leverage increases risk
