XAU/USD - Definition & Meaning

XAU/USD is the trading symbol for the price of one troy ounce of gold quoted in US dollars. "XAU" is the ISO 4217 code for gold, while "USD" stands for the US dollar. The pair is one of the most actively traded instruments in CFD trading and reacts strongly to interest rates, inflation data and demand for safe-haven assets.

A trader expects gold to rise after weaker-than-expected US inflation data and opens a long position of 1 lot on XAU/USD. With a standard contract size of 100 ounces, every $1 move in the gold price changes the position value by $100. If gold climbs $15, the trade gains $1,500. A drop of the same size results in a loss of $1,500.

In a prop firm challenge, this volatility makes position sizing essential. On a $100,000 account with a 1% risk rule, the maximum risk per trade is $1,000. With a stop-loss $20 away, the trader would trade 0.5 lots instead of 1 lot.

Gold often moves sharply around US economic releases and central bank decisions. Traders who respect their daily drawdown limit and plan entries around these events can use the liquidity of XAU/USD without putting their account at risk.