GBP stands for the British pound sterling, which is sometimes also known as the Pound. It is the 4th most traded currency in the Foreign Exchange market after USD, EURO and YEN. Whereas, BGN is the abbreviation of the Bulgarian lev, and it is the official currency of Bulgaria.
In Forex, the currencies are traded in pairs. In this case, GBP is the base currency, and BGN is the quote currency. Generally, if the value of the base currency goes up, the value of the quote currency goes down and vice versa. The market value of GBP/BGN determines the strength of BGN against GBP. It can be easily comprehended as 1GBP is equal to how much of BGN. So, if the exchange rate of GBP/BGN is 2.2409, to buy 1GBP, we need 2.2409 BGN.
Spread is the athematic difference between the bid and ask prices. Here, the bid is the selling price, whereas ask is the buying price of the currency pair. So basically, the spread is a type of commission brokers make for the services they provide. Below are the ECN and STP spread values for the pair GBP/BGN.
ECN: 19 pips | STP: 22 pips
It is obvious that we need to pay some commission to the broker every time we place a trade. A Fee is simply that commission we pay to the broker for opening a particular position. This fee varies from the type of broker we use. For example, there is no fee charged for STP account models, whereas a few pips are charged by ECN brokers.
Slippage is referred to as the difference between the expected price at which the trader wants to buy/sell a currency pair and the price at which the trade is executed in real-time. It is important to know that slippage can occur at any time. However, it mostly happens when the market is extremely volatile.
Trading Range in GBP/BGN
Whether we make a profit or loss in a given time period depends on the movement of a currency pair. This can be assessed using the trading range table that is given below. It is basically a representation of the min, avg, and the maximum pip movement in a Forex currency pair. Evaluating the volatility of the market before taking the trade is the most important thing to do. The trading range here is to measure the volatility of the GBP/BGN pair.
Procedure to assess Pip Ranges
- Add the ATR indicator to your chart
- Set the period to 1
- Add a 200-period SMA to this indicator
- Shrink the chart so you can assess a significant period
- Select your desired timeframe
- Measure the floor level and set this value as the min
- Measure the level of the 200-period SMA and set this as the average
- Measure the peak levels and set this as Max.
GBP/BGN Cost as a Percent of the Trading Range
Most of the time, the cost of trade depends on the type of broker we choose. This varies based on the market’s volatility. The total cost involves the costs incurred from slippage and spreads along with the trading fee. Below we have discussed the cost variation in terms of percentages. Let’s look into both the ECN and the STP models.
ECN Model Account
Spread = 19 | Slippage = 3 |Trading fee = 5
Total cost = Slippage + Spread + Trading Fee = 3 + 19 + 5 = 27
STP Model Account
Spread = 22| Slippage = 3 | Trading fee = 0
Total cost = Slippage + Spread + Trading Fee = 3 + 22 + 0 = 25
Trading the GBP/BGN
The GBP/BGN is an exotic-cross currency pair and is a low volatile market. As seen in the Range table, the average pip movement on the 1-hour time frame is only 36. This clearly shows that if we trade this pair, we will have to wait for a more extended period to get some good profit as the pip movement is very less.
On any given day, if the market volatility is high, the cost of the trade is lower and vice-versa. However, this shouldn’t be considered as an advantage always because more the volatility, the riskier is our trade.
For instance, in the 1M time frame, the maximum pip range value is 1559, and the minimum is 336. When we compare the fees for both the pip movements, we find that 8.04% is the fee for the former, and it is only 1.73% for the latter. Hence we can infer that the prices are higher for low volatile markets and low for highly volatile markets.