What you are actually trading

XAU/USD is the price of one troy ounce of gold in US dollars. When the chart shows 3,900.00, one ounce costs $3,900.

Gold you own and gold you trade

Most retail traders do not buy physical gold. They trade a CFD, or contract for difference. You and your broker agree to exchange the change in price between when you open and when you close. You never own any metal.

CFDs usually use leverage, so you control a large position with a small deposit. Leverage makes both gains and losses bigger compared with your deposit. A small move against you can wipe out a large part of your account, which is why most retail CFD traders lose money.

Buying and selling

• Buy (long): you make money if the price rises and lose money if it falls.
• Sell (short): you make money if the price falls and lose money if it rises.

Costs to know

• Spread: the gap between the buy and sell price. You pay it on every trade.
• Swap: a charge or credit for holding a trade overnight.
• Commission: charged on some account types.

Key point

A CFD is a leveraged agreement about price. It is not the same as owning a gold coin, and gold's reputation as a safe haven does not make a leveraged gold CFD safe.