If you want to trade Gold on Forex, make sure that you have sufficient funds.
Many newbie traders think that 100$, 200$, 500$ trading account is more than enough to start trading Gold. And that is completely wrong!
In this article, I will explain to you what is the minimum amount you need to trade Gold and why you should stay away from trading that with a small account.
1 PIP MOVEMENT IN GOLD TRADING
In order to understand, why you should not trade gold with a small account, let's discuss some theory first.
In Gold trading, 1 cent movement of price is 1 pip.
For example, if the price moves from 2000.00$ to 2000.01$, it means that it moved one pip.
Above is how 1 pip movement looks on XAUUSD 1 minute time frame.
And here is how it looks on the XAUUSD second time frame.
Once you open a trading position, and the price is moving in the opposite direction, each pip movement against you will cost you a certain amount of money.
This amount will depend on your lot size.
With 1.00 Standard Lot, 1 pip will cost you 1$.
With 0.1 Mini Lot, 1 pip will cost you 10 cents.
With 0.01 Micro Lot, 1 pip will cost you 1 cents.
There is also a nano lot, but most of the legit forex brokers do not offer that.
That means, if you open a short position with minimal 0.01 lot from 2400 level and the price will go against you and reach 2410,
such a price deviation will cost you 10$.
RISK MANAGEMENT IN GOLD TRADING
Why these numbers are so important?
Because, risk management plays a crucial role in trading,
and when you plan your trade, you should know the exact portion of your trading account that you are willing to risk.
It is highly recommendable to not risk more than 1% of your trading account per trade.
It means that if you open a short position from 2400 and your stop loss is 2410, that is 10$ potential risk.
You need at least 1000$ trading account to take such a trade to risk 1%.
HOW MUCH MONEY YOU NEED?
What is the minimum amount you need to trade gold on Forex?
It will primarily depend on your trading style and time frame that you trade.
If you are a scalper, and you trade on 5/15 minutes time frame, take at least 5 last trading setups that you identified and measure the biggest stop loss in pips.
In the example above, the biggest stop loss among the last 5 trades is 500 pips.
It will be 5$ risk with minimal 0.01 lot.
You will need at least 500$ deposit for Gold scalping on 5/15 minutes time frame to not exceed 1% risk per trade.
Swing trading Gold on a 4H time frame, find the biggest stop loss in pips among at least 5 last trades.
In our example, the biggest stop loss is 4160 pips.
It will be 41.6$ risk with minimal lot.
In order to not exceed 1% risk of your account per trade,
your minimum deposit should be 4160$.
Before you start trading Gold, back test your strategy and strictly measure your risk per trade in pips. Find the trade with the biggest stop loss. Your minimum deposit should let you risk 1% for such a trade.
