L4.1 — Position Sizing for Gold: Accounting for Pip Value

On XAUUSD, one standard lot is 100 ounces of gold. With gold priced at $2,000/oz, one standard lot represents $200,000 of notional value. One pip ($0.01) on a standard lot equals $1.00 in P&L. A 100-pip ($1.00) stop on a standard lot risks $100. At a 1% risk on a $10,000 account ($100 risk), a 100-pip stop allows exactly one standard lot — which is very high leverage for a $10,000 account.

The practical implication: gold positions should typically be in mini-lots (0.1 lot = $0.10/pip) or micro-lots (0.01 lot = $0.01/pip) for accounts under $10,000. A 200-pip structural stop on a $5,000 account at 1% risk ($50) allows 0.25 standard lots or 2.5 mini-lots. Calculate this before every trade — do not estimate.

The most common gold sizing error: transferring a pip-count-based lot size rule from forex. "I always use 0.1 lot on a 20-pip stop" produces wildly different dollar risk on EURUSD versus XAUUSD. Always start from the dollar risk amount, derive the pip value, then calculate the lot size. The method must be consistent regardless of instrument.