Welcome to part two of our trading dictionary. These are four more words you will hear constantly once you start trading gold, and each one affects your account directly. In this article we explain spread, leverage, margin and drawdown in plain English so the jargon never gets in your way.
Spread: the cost of each trade
The spread is the small gap between the buy price and the sell price you see on XAUUSD. It is effectively the broker's fee on each trade, built into the price rather than charged separately. When you open a position you start a tiny bit behind by the size of the spread, which is why it pays to understand it before you trade.
Leverage and margin
Leverage lets you trade a bigger position than your account balance would otherwise allow. That sounds attractive, but remember it makes both gains and losses bigger in equal measure. Handle it with care, and keep your lot sizes small enough that a stop-loss hit never hurts.
Margin is the part of your balance set aside to keep a trade open. While a position is running, that amount is locked and cannot be used for anything else. The more positions you have open, or the larger they are, the more margin is tied up, so it is worth checking in MT5 before adding a trade.
Drawdown: the one every trader has
Drawdown is how far your account drops from its high point. Every trader experiences drawdowns, including the professionals, so having one is not a sign of failure. Keeping drawdowns small is the real skill, and it comes from stop-losses and sensible position sizes. We cover more words like these in every live training session.
Key takeaways
- Spread is the gap between buy and sell price, the broker's fee per trade.
- Leverage magnifies gains and losses equally; margin is balance locked for open trades.
- Drawdown happens to everyone; keeping it small is the skill.
Common questions
What is the spread in gold trading?
The spread is the difference between the buy and sell price on XAUUSD. It acts as the broker's fee on each trade and is built into the price.
What is drawdown in trading?
Drawdown is the drop in your account from its highest point. Every trader has drawdowns; the aim is to keep them small with stop-losses and careful sizing.
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