Path A · Spot XAU/USD · Module A1
The ticker says gold against the US dollar. Almost everything that phrase implies is wrong — and the gap between what it looks like and what it is decides how you trade it.
What you'll learn
The instrument
XAU/USD is a cash-settled contract for difference — an agreement with your broker to exchange the dollar difference in gold's price between when you open a position and when you close it.
That sentence rules out a lot. No metal changes hands. There is no vault, no allocation, no ownership claim. When you close a winning trade you receive dollars, not gold. When you close a losing one you pay dollars, not gold. The instrument is built to track gold's price movement — and it tracks it well — but what you hold is a position in a private agreement, not a holding of the underlying thing.
Everything else in this module is an elaboration on that sentence: where the price comes from, what the instrument is not, and what happens when you click.
The chain
XAU/USD doesn't have a single source. You trade the spot price of gold — but that spot price takes its cue from the futures market, and the number that finally reaches your screen has passed through a chain of institutions in between. When you click, your order travels back up that same chain. Reading the diagram in order tells you most of what you need to know about this instrument.
How the price is built
COMEX gold futures (GC)
The deepest gold futures market and where most price discovery happens. Spot tracks it closely.
Spot OTC interbank market
Tier-1 banks quote wholesale spot, anchored to COMEX.
Aggregated pool · Prime-of-prime
Bundles bank quotes into a feed and pipes it to retail brokers.
You
Your screen
The wholesale price plus your broker's spread. Never the wholesale price itself.
Where your order goes
Your broker
Routes your order one of two ways.
Your order goes one way or the other
B-book
Broker warehouses the risk internally. Your order never leaves the firm.
Order stops here
A-book
Broker passes your order outward to a liquidity provider in the wider market.
Order passes through
The price originates in the futures market and travels down through the wholesale chain, picking up your broker's spread before it reaches your screen. Your order travels back up the same chain — and forks at the broker.
The detail to hold from the price-formation half: the spot price isn't its own independent number — it tracks COMEX futures, kept in line because any gap between them is an arbitrage opportunity that traders close almost instantly. Futures is where most of the price discovery happens; spot follows it closely. By the time a quote reaches your screen, it has been tracked, aggregated, and marked up — the number you click is the last link in that chain, not the market's own.
The detail to hold from the order-flow half: your order forks at the broker. A2 traces that journey in full; A4 deals with what the fork actually means for you. For now, the key point is simply that there is no exchange between you and your trade. There is a broker, making a decision.
Four myths
Four assumptions ride along with the ticker. Each is wrong, and each wrong assumption hides something you need to understand to trade the instrument well. Read each row left to right: what the ticker makes it look like, and what it actually is.
Ownership
You're buying gold — a stake in the metal itself.
A cash-settled contract for difference. You close for the price difference in dollars — no bar, no allocation, no claim on metal. The 995 Good Delivery bar from F1 sits at the bottom of the chain; you never touch it.
"The" gold price
One true number, the same gold price everyone trades.
A retail-derived quote — wholesale spot plus your broker's spread, as F3 set out. The broker down the road shows a different number. Both are real; neither is "the" price.
Exchange-traded
A central market with a public order book you join.
Over the counter — OTC. No exchange, no public book, no queue. You trade bilaterally, you against your broker. This one fact reshapes how your orders work, a thread A2 picks up in full.
A currency pair
Two currencies, like EUR/USD — the ticker says so.
A commodity in forex clothing. XAU is the ISO 4217 code for gold, quoted per troy ounce, and it's margined and platformed like a pair. But the pair-like dress is a convention of the forex plumbing it rides on, not a statement about what gold is.
Read the right column top to bottom and you have the instrument in four lines: a contract for difference, on a broker-specific quote, traded over the counter, on gold dressed as a currency pair. Every myth on the left is the version the ticker sells you; every truth on the right is what you're actually holding.
Why OTC changes everything
On an exchange, you and thousands of other participants meet in one central order book. Your order joins a public queue. The price is the same for everyone, and the venue is neutral — it matches buyers to sellers and takes no side.
XAU/USD has none of that. There is no shared book, no neutral venue. When you trade, your counterparty is your broker. The price is the one your broker shows you. The execution is the one your broker provides. This is what "over the counter" means in practice: the market you are trading against is, quite literally, the firm you opened an account with.
That is not sinister on its own — it is simply the structure of the instrument, and most of the gold-trading world operates this way. But it has consequences that ripple through everything else in this path: how your orders actually execute, where your costs come from, and the much-misunderstood question of whether your broker profits when you lose. Each gets its own module. The groundwork is this single fact — there is no exchange between you and your trade. There is a broker.
Carry this into A2