For many years, gold has been used as a currency in different parts of the world. It ranks pretty well in the list of precious metals. To date, gold still holds its value. The fact that it has a rich history in the world of business is one of the many reasons why any forex trader should give it full attention. This is where XAUUDSD comes in.
Whether you are an experienced trader or new to the game, it is vital to have a clear understanding of XAUUSD. In this guide, we are going to cover the basics of XAUUSD and give you any essential information that you should know about it.
What Is XAUUSD?
XAUUSD is a form of currency usually used in the forex market to represent the price of gold (XAU) against the US dollar. Using XAUUSD, traders can know how many US dollars are needed to be exchanged for one troy ounce of gold.
The name XAUUSD was formed from a combination of gold (XAU) and the US dollar (USD). Avid traders use XAUUSD to monitor the price movements of gold against the US dollar. As long as you have the right trading platform, you can monitor these movements even if you don’t own physical gold.
What Is the Difference Between XAUUSD and Physical Gold?
From the definition, it is easy to confuse XAUUSD and physical gold. What is the difference between the two?
As we have defined, XAUUSD is an exchange that pairs the price of gold with the US dollar. It just represents the price of gold, meaning it does not exist as a physical object.
On the other hand, you can see, feel, and touch physical gold, which comes in different shapes and sizes.
Another key difference is the mode of exchange. Trading XAUUSD means that you will be trading the value of gold and not the actual gold. Conversely, trading physical gold means that you will be giving or taking the actual gold.
Features of XAUUSD
Before you even think of trading with XAUUSD, you should know its features. They will determine your expectations and the outcome that you will get from trading. Some of the key features of XAUUSD include:
- Liquidity: XAUUSD ranks quite well on the list of the most liquid forms of exchanges in the forex market. This means that it supports high volumes of trade without recording major changes in its price. This is an advantage to traders as they can enter and exit the market at their volition.
- Availability: XAUUSD is always available to be traded with gold. It follows the Forex Market trading sessions, which are 24 hours long, from Monday to Friday. This means that you can trade it at any time of the day, regardless of your location.
- Volatility: As a trading pair of gold, XAUUSD can serve as a safe investment option, especially during days of economic instability. It shields traders from the adverse impact of volatility.
Factors That Determine The Value Of XAUUSD
What is the price of XAUUSD today? The value of this exchange rate keeps fluctuating depending on various factors. Some of the key factors include:
- Geopolitical factors: This refers to the state of global politics. How different countries and governments relate with each other will define the behavior of investors, hence the exchange rate of XAUUSD.
- Interest rates in the US: Rising and falling interest rates have a direct impact on the strength of the US dollar in relation to other global currencies. This, in turn, affects the price of gold, hence its exchange rate (XAUUSD).
- State of the economy: What is the current economic situation? Economic instability will push investors to hold onto gold, hence increasing its price.
How to Trade XAUUSD?
Armed with the right information about XAUUSD, you are now ready to trade it. Before doing so, you have to consider various factors and risks. Proceed to trade only after conducting a deep analysis, and you are sure.
1. Risk Analysis And Management
Analyze the risks associated with trading XAUUSD and determine your ability to manage them. How much are you ready to lose in the trade? Risk management and analysis will minimize massive losses from your investment.
2. Conduct Market Research
Carry out comprehensive market research and analysis. Focus on the factors that are likely to influence the value of XAUUSD, such as political and economic factors. You should also observe emerging trends in the market and their impact on the value of gold.
Data on the market will give you insights into the direction of the trade.
3. Start Trading and Keep Improving Your Strategies
Armed with adequate information, you can proceed to trade XAUUSD. Choose a reliable trading platform that you will be using to trade. Ensure that it has the best features to support and optimize the trading process. Now, all you have to do is keep refining your trading strategies to develop your skills and increase profitability.
Conclusion
Having a proper understanding of XAUUSD is essential for any trader who wants to trade with gold in the forex market. You will have to establish the relationship between gold and currency and the factors that affect the value of this exchange rate. Having a deep understanding of XAUUSD will guarantee a smooth time when it comes to executing the actual trading.
