Spot metal quotes are represented in the markets in similar fashion to currency pairs, for instance the pairing of spot gold and the US dollar is shown in the markets as XAU/USD.
The price of spot metals are written across the globe in ounces per US dollar which means when you come across a gold quote of XAU/ 830.46 then it means the price of an ounce of gold is valued at 830.46. An increase in the market price of gold means gold has become more valuable and equivalent to higher amounts of dollars. On the other hand a decrease in gold price means that gold has lost its value and now equivalent to fewer amounts of dollars.
Similar to the currency markets, there is always a BID and ASK price for spot metals such as gold and silver. The amount of money that is generated when the metal is put up for sale is known as the BID price while the purchasing price is known as the ASK price. The ask price minus the bid price or vice versa is known as the spread and makes up for the expenses made while engaging in transactions.
Traders can only engage in the buying and selling of spot metals in lots, which represents 10 ounces for gold and 500 ounces for silver. An example of a gold quote is 900.25/75 meaning you would generate $900.25 for each ounce of your gold stock you put up for sale at that particular point in time or you have to pay $900.75 to purchase a lot of gold.
When you trade in spot metals, your profits or losses are calculated as follows:
Let's say you purchase a lot of gold at XAU/USD 900.25 and a couple of minutes later, the bid price surges to 900.95, you can just put up your stock for sale at that price. This means you will generate profits of 0.70 or 70 pips i.e. (900.95-900.25=70) for your sale. Since 1 lot represents 10 ounces, you will generate total profits of $7.00 per lot i.e. 70 pips x $0.10= $7.
On the other hand let's say the price of gold declines to 899.60, your losses will be calculated as follows:
Since you purchased 1 lot at 900.25 and sold at 899.60, there will be a loss of 65 pips per sale. 65 pips x$0.10= $6.50, meaning you will generate a loss of $6.50 per lot of gold sold.
Always keep in mind that 1 pip= $0.10
0 comments:
Post a Comment