Introduction to GBP/TWD
GBP stands for British pound sterling, and it is typically known as Pound. It is the official currency of the United Kingdom and some other countries like Jersey, South Georgia, and Guernsey. The pound is also the 4th most traded currency in the foreign exchange after USD, EUR & YEN. Whereas TWD is the abbreviation of The New Taiwan dollar. The central bank of Taiwan issues this currency.
Currency pairs are the national currencies from two countries coupled for being exchanged in reference to each other. In the Forex market, one currency is always quoted against the other. GBP/TWD is the abbreviation for the Pound sterling against the New Taiwan dollar. In this case, the first currency(GBP) is the base currency, and the second(TWD) is the quote currency.
In Forex, to find out the relative value of one currency, we need another currency to compare. If the value of the base currency goes down, the value of the quote currency goes up and vice versa. The market value of GBP/TWD determines the strength of TWD against the GBP. This can be easily understood as 1GBP is equal to how much of TWD. So if the exchange rate for the pair GBP/TWD is 37.093, it means we need 37.093 TWD to buy 1 GBP.
Forex brokers have two different prices for currency pairs: the bid and ask price. The bid price is the selling price, and ask is the buy price. The difference between the ask and the bid price is called the spread. Spread is basically a type of commission by which brokers make their money. Below are the ECN and STP for the pair GBP/TWD.
ECN: 49 pips | STP: 52 pips
Each time we place a trade, we need to pay some commission on it. A Fee is simply that commission we pay to the broker for opening a particular position. The fee also varies from the type of broker we use; for example, there is no fee on STP account models, but a few pips on ECN accounts.
Slippage refers to the difference between the trader’s expected price and the actual price at which the trade is executed. It can occur at any time but mostly happens when the market is fast-moving and volatile. Also, sometimes when we place a large number of orders at the same time.
Ranges in GBP/TWD
The Range is a measure of volatility. It tells how much the currency pair has moved in a determined period. Whether a trader makes a profit or loss in a given time period depends on the movement of a currency pair and can be determined using the trading range table. It is a representation of the minimum, average, and maximum pip movement in a currency pair. This can be evaluated simply by using the ATR indicator combined with 200-period SMA.
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/TWD Cost as a Percent of the Trading Range
The cost of trade mostly depends on the broker and varies based on the volatility of the market. This is because the total cost involves slippage and spreads apart from the trading fee. Below is the representation of the cost variation in terms of percentages. The comprehension of it is discussed in the following sections. We will look into both the ECN model and the STP model.
ECN Model Account
Spread = 49 | Slippage = 3 |Trading fee = 5
Total cost = Slippage + Spread + Trading Fee = 3 + 49 + 5 = 57
STP Model Account
Spread = 52| Slippage = 3 | Trading fee = 0
Total cost = Slippage + Spread + Trading Fee = 3 + 52 + 0 = 55
Trading the GBP/TWD Forex Pair
The GBP/TWD is an exotic-cross currency pair and is a ranging market. A market is said to be ranging when the price hits the support and resistance at least three times. As seen in the Range table, the average pip movement on the 1-hour time frame is only 47. This clearly shows that if we trade in this pair, we will have to wait for a more extended period of time to get some good profit because of such a less movement in the pips.
Here in GBP/TWD, TWD is considered to be an emerging currency. Note that the higher the volatility, the lower is the cost of the trade. However, this is not an advantage as it is risky to trade highly volatile markets.
For example, in the 1M time frame, the maximum pip range value is 3009 and in minimum pip range, the value is 687. When we compare the fees for both the pip movements, we find that for 687 pip movement fees is 8.30%, and for 3009pip movement, fess is only 1.89%.
So, we can infer that the cost of trade is higher in the low volatile markets and high in the highly volatile markets. It is recommended to trade when the volatility is around the minimum values. The volatility here is low, and the costs are a little high compared to the average and the maximum values. But, if our priority is not towards reducing costs, we may trade when the volatility of the market is around the maximum values.