In the world of forex trading, pip count is an essential factor that plays a significant role in determining the value of a trade. Pip count, also known as pip value, refers to the smallest price change that a currency pair can make. It is a unit of measurement that helps traders calculate their profits or losses. In the case of gold, pip count can be a little more complicated due to the way gold is quoted in the forex market. In this article, we will explain how to do a pip count for gold in forex.
Gold is quoted in the forex market as XAU/USD, where XAU is the symbol for gold and USD is the symbol for the US dollar. The price of gold is quoted in US dollars per ounce. However, in forex trading, the standard lot size for gold is 100 ounces. Therefore, when trading gold, the pip count is calculated based on the value of 1 ounce of gold in US dollars.
To calculate the pip count for gold in forex, you need to understand the concept of pipettes. A pipette is a fractional pip, which means it represents a smaller price movement than a pip. In the case of gold, one pipette is equal to 0.1 pip. So, if the price of gold moves by 10 cents, it is equal to one pipette or 0.1 pip.
Let’s take an example to understand this better. Suppose the current price of gold is $1,800 per ounce, and you want to buy one lot of gold. The value of one lot of gold would be 100 ounces multiplied by the current price of gold, which is $1,800. Therefore, the value of one lot of gold would be $180,000.
Now, let’s assume that the price of gold increases by 50 cents to $1,800.50 per ounce. To calculate the pip count, you need to calculate the difference in the value of one lot of gold between the two prices. The value of one lot of gold at the new price would be 100 ounces multiplied by $1,800.50, which is equal to $180,050. Therefore, the difference in the value of one lot of gold between the two prices is $50.
Since one pipette is equal to 0.1 pip, you need to divide $50 by 10 to get the pip count, which is $5. So, in this example, the pip count for gold is $5.
It’s important to note that pip count can also vary depending on the currency pair you are trading. If you are trading gold against a currency other than the US dollar, you will need to convert the value of gold from US dollars to the currency you are trading. This can be done using the exchange rate between the two currencies.
In conclusion, pip count is an essential factor in forex trading that helps traders calculate their profits or losses. When trading gold, the pip count is calculated based on the value of 1 ounce of gold in US dollars. Understanding pipettes and how to calculate pip count for gold can help traders make informed trading decisions and manage their risk effectively.