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What Everyone is Saying About Palladium Is Dead Wrong and Here’s Why…

Uncommon sight among brokers’ product offers, palladium is a newcomer in traders opportunity scanners. Even rarer is to see some educational material on key aspects of trading palladium. This article is following the series devoted to precious metal trading for traders that come from forex. The system we have devised follows a structure and can be applied to the precious metals market too, although you would need to be familiar with it as this article is just an add-on.

In the precious metals article, we have talked about the general fundamental and technical adjustments from forex trading so you can refer for more details. Spot palladium or XPD/USD if traded against the US dollar is one of the most lucrative assets counting all the 28 major forex currency pairs, and it has its own price action detached from other markets correlations. We will address the fundamental aspects of palladium and technical facts that can help all traders but understand the principles of supply and demand apply to precious metals more than in forex, a key difference that can also cause a change in our algorithms. 

Palladium became the most expensive out of the 4 precious metals we focus on. XPD took charge over gold just a few years back, rallying multiple times over and over. Today it is more precious although this is not the important part nor why it is a lucrative asset to trade if done the right way. The price jump attracted the views of many traders causing the brokers’ reaction and add it to the asset range. Nowadays you can even buy physical palladium coins and bars. Since 2016 palladium quadrupled in value, it had a bull rally spanning over 3 years and is still going despite all. Of course, there is a fundamental reason for this bullish sentiment and a lot of similarities with platinum. The main difference is that platinum is used for purification filters used on diesel engines whereas palladium is for gas engines.

It is also not mined explicitly, only South Africa and Russia have palladium specialized mines, mostly palladium is a by-product from other resources such as nickel and silver. So, the supply structure of palladium is almost the same as with platinum, the fundamental driver for the demand comes from one country – China. This industrial giant with an overwhelming factory building progression drives pollution and also consequently giving cars a priority over the more affordable vehicles such as motorcycles and bicycles – the ones with lesser pollution impact. Heavy polluters like China are about to have a serious problem with the ecology if this pace is going to continue in the next decade, and palladium is going to follow, sharply. Is it going to quadruple in value again is hard to say but the bullish outlook is almost for sure. 

Supply is flat however, keep an eye on the China equities market. This country is the main demand driver but nowadays can be influenced by trade wars, blocks, and other measures by countries that see this progress as a threat. Even though the effect of these measures is not strong, just the news of them could shake trends we follow in the shorter term. 

Aside from the supply and demand fundamentals, palladium is also moving independently from the other metals. The picture below depicts similarly looking charts but a completely different trend direction from August to October 2020. Gold (orange line) has lower highs after a bull run from July, silver too (sky blue line) but with different price action shapes. Palladium (black line) remained bullish and kept the momentum from July with higher highs and higher lows. 

When you go to a weekly chart, palladium is also moving independently giving you another great asset capable of hedging. The weekly palladium chart is going to show 3 steep bullish runs from mid-2018 till now, with two brief corrections in march 2019 and 2020 once COVID-19 started spreading globally. It even seems like the bull runs resumed in June this year since China got rid of the COVID-19. Long term investment overlook in the picture below shows palladium is one of the best choices since 2010, it almost never ceased to rise to today’s price of $2375 in October 2020.

Palladium trends are great for trend following strategies, the momentum keeps it flowing even they are not as smooth as with gold. Followthrough happens often triggering our Take Profit levels. Our algorithm sets the Take Profit level at 1xATR (14), however, you can set the factor to your liking. If you are not familiar with the structure we follow check our previous articles. 

Trade palladium independently what other metals are doing. Whatsmore, you can even ignore interest rates decisions that could shake platinum and other metals trends, according to experience by professional prop traders. Volatility has increased in 2020 after all events involving China, which is probably the country in focus starting from the COVID-19 outbreak to trade wars and economic blocks of some of China’s biggest companies. Palladium reached an all-time high right before the pandemic close to the $2900 level. Is this a good time to buy after a correction? The answer is leaning more to yes than to a no since July palladium resumed its bullish trend with increased volatility and the same momentum. 

To conclude, palladium is the honey badger, does not care what is going on and it needs a pandemic to stop it, but it seems just or a short while. It is hard to discern when it is a good buying point for the long term holding, the bullish trend continues. Also, it is hard to really know if it is going to crash during the pandemic and other fundamental events on the China equities market, right now price action does not imply a correction. Palladium is just a great hedge even for precious metals, the risk-off and risk-on sentiment in the equities and even interest rates do not affect It much. This is an anomaly that reminds of Bitcoin although the hype is with the China GDP and China’s strong progress. Unlike crypto, palladium is physical and will never come a zero in value whatever happens. Palladium is also getting popular, a good choice for buy and hold strategies. This metal is still new to the scene for some investors, a conservative view will still stick to the good ol’ gold and silver.

As a precaution, traders need to keep an eye if palladium is changing its independent nature, in the meanwhile, they are free to reap the mega trends rewards. Whatsmore, from a technical standpoint, indicators you have used in forex are probably not going to like trends like this. The system elements for trade exits and trend confirmations need to be changed. Volatility filters also need to change for weekly chart trading strategies if you plan to use a kind of long-term swing trading – an alternative if buy-and-hold for years is too boring and you also want more out of corrections. Volatility indicators simply need to cope with weekly timeframe price action movements that are not strong enough for most volatility/volume filters to trigger a signal. All this may require you to build and test a completely new set of indicators as our traders recommend, but this is a job professional traders enjoy doing.

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Forex Assets

What’s Really Happening With Oil?

Oil price action in the past 5 years has been a headline, especially once the pandemic hit the world. The global activity shrank causing oil futures to plummet to zero. A rare occurrence like this is a fortune for some and misery to others. The steep decline attracted a lot of reversal traders picking the dips, unfortunately for them, the price kept going down to some would say impossible levels. Trend-following strategies enjoyed this plummet. A few years before, the price reached very high levels, you could see a lot of complainers about the price of gas and other derivatives, something they do not have control over. In every situation, there is someone who is not happy, however, you can be the one who just reaps the rewards when the oil goes up and down. There is a choice to be the one who is taking the hit or be the one who is hitting. 

Trading oil will likely take a lot of trial and error when making a transition from forex trading. Oil, like precious metals, is a commodity, it is physical with real supply and demand. Whatsmore, oil can be a political tool, and it is also connected to world economic activity. It has been and still is one of the global primary energy sources. Consequently, your trading system will need adjustments before you get it right. If you are following our previous articles about the algorithm and the way we adjust it for precious metals trading after forex, you will quickly adapt it to oil. 

Oil trading is done with the CFD contracts, meaning traders can go long and short like in forex and have leverage, although not as high as with forex. CFDs can have any asset underneath and leverage gives traders additional buying power if needed, however it is a double-edged sword for beginner traders without good risk management if any. CFDs on oil are not available in the US since the Dodd-Frank Act after the 2008 financial crisis. There are other ways to trade oil this way for US citizens, though.

Brent and West Texas Oil are the two oil types traded, both are popular yet certain prop traders think WTI oil is a better choice since the price action is smoother. Both charts are extremely similar so traders can pick one. Oil is expressed in the USD, at least that is the standard offer you will see on the broker list. Other currencies are redundant since oil does not really care how the dollar is doing, the effects of the dollar movements on the oil are not significant. According to certain prop traders, it’s probably the most detached asset from the USD after palladium. Since oil is traded in USD globally, some countries do not like this fact and are trying to introduce closed markets where the USD is not used, most of these countries are big oil exporters. 

Natural Gas is also offered with better product range brokers, although natural gas price action is not very friendly, similarly when we compare gold and copper. Oil is far more traded asset so there is no need to take risks with other more exotic assets unless you have exhausted all other major markets. News about the USD is also one of the uncontrollable risks we do not have to account for since oil is very strict about its value, even when the USD is strong the oil price is steady. On the other hand, oil is very sensitive to global political events, such as war tensions, recent pandemic situations, and OPEC deals. So when we do fundamental analysis, we need to pay attention to a completely different set of news and events. These events are for most of the time unexpected and unscheduled, an uncontrollable risk we have to accept if we trade oil. There is nothing we can do, these events just pop up but we can still be positive in the long run regardless. The price after such events may spike but understand these are not common events and the spikes are not always going to adversely affect your trade. After all, you may be ending by having profit spikes since the events can cause the price action in the direction of an already established trend, further pushing it. We will address one point where oil price reaction could have ruined your trade later.

Correlation with oil is one of the most popular technical analysis we see, yet be warned correlations come and go and cannot be applied effectively in trading according to prop traders. Correlations are commonly explained by many educational websites and books but in practice, they are not consistent enough for traders to rely on. You can test this claim in a demo account if you can make a trading plan that identifies conditions for a trade entry, following the correlation between assets. The Canadian dollar is commonly explained as the currency to go if you want to use price action information for trading oil. CAD is considered positively correlated to oil, still, you can see if this is true and how consistent it is. Now, when the oil price action is mostly flat since the COVID-19 pandemic extreme bearish move, we cannot see a steady correlation to CAD at all. In the picture below we have marked sections where there is a positive correlation between CAD (orange line) and WTI (black line) into no correlation and even into a negative correlation period, all separated by green vertical lines.

If somehow you have a plan for how to use this correlation period, you would likely have more losses than winners in the future giving how inconsistent it is. 

Brokers will have different product symbols in the platform list for oil CFDs, for example, “WTI”, “US Oil”, “USOUSD” or “WTIO” for WTI oil, and “UK Oil”, “UKOUSD” and so on for Brent. Brent oil is like silver is to gold when we talk about price action and volatility. It has more choppy periods, sudden moves and generally is less smooth than WTI. Since we are trading just one of them, you can pick WTI. The charts between the two oil types almost look the same, just Brent is a bit more amplified. 

If you are using the ATR indicator to measure the volatility of oil assets, you will notice it is the same as with the JPY currency pairs. Volatility is an important part of the algorithm we have talked about in previous articles and oil does not have anything different here. Trends need volume or volatility to keep the trend going, otherwise, we end up trading false breakouts. Trading precious metals required some changes from forex but trading oil retains the relation of volume to trends. 

Not that ATR value can be different on the same oil asset but with different brokers. Sometimes this difference is dramatic; it can affect your position sizing (for the ones using our system). The reason for this might be because some brokers record Sunday flat candles (periods). When these count into the ATR they drastically lower its value. If you think this changes something you are wrong. Your position size might be a bit larger for the lower ATR but the end pip performance is the same. After all, just pick the broker you like regardless of this chart behavior. 

The algorithm structure is the same except we do not include the baseline. The baseline element does not have a good effect on trading since we have supply and demand, and this also opens room for reversal trades. The algorithm structure also contains two confirmation indicators and one trade exit dedicated indicator. These indicators need to be switched for some that perform better on oil. Of course, in some cases your forex or precious metals indicators may work as well but know if the system is not giving consistent results, switch these first. Note both precious metals and oil are commodities, so start with the algorithm made for metals and then make adjustments if needed. You will probably find indicators that work better on oil and even small odds in your favor per trade create drastic performance differences at the end of the year. 

Now about the events you cannot control regarding the oil, if you follow political events, after 13th September 2019 an Iranian oil tanker got shot and caused the incident in the oil market. The price went up but your pending orders, more importantly, Stop Loss orders would get passed. The gap when the price opened was extreme to the point it resembles a flash crash in forex. According to the price action, you could be in a long position as we see higher lows and highs before the spike, or you could have avoided all of this if your volume/volatility indicator filtered the signal. However, even if you were in a short position, do not let this loss deter you. It is the long game you are aiming at, just move on as nothing happened. These events are very rare, nothing similar can happen in the next decade, anomalies are part of the trading. Some traders could leave these positions open after the spike in hope of a reversal since the jump was extreme, but traders that follow a system accept the loss. The worst-case scenario for those that left the position open is now a possibility, the price could have continued up and cut a large part of their account or completely erase it depending on how long they wait for a reversal. This damage can only be repaired with year-long profitable trading. Those who cut the position immediately, they are still profitable at the end because it is the long game that matters. They will embrace this loss every time. 

In conclusion, add oil into your trading arsenal if you are already successful with forex and precious metals. The algorithm that works with metals is going to work with the oil too, and with adjustments, you will have another profit maker asset. Unpredictable events with oil are part of the trading risk you will need to take, but this will not make a dent in your overall, year after year performance. Don’t worry about the USD strength, trade it even before the USD important event. The knowledge you have with trading and the algorithm you have created is universal, and by knowledge we also mean the skill set and the mindset. The testing phase for every system is a must, do not expect great results just because one system is good with forex currency pairs. Oil is something completely different fundamentally and technically. 

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Forex Assets

Trading Costs Involved While Trading The AUD/PKR Forex Exotic Pair

Introduction

In this exotic, AUD is the Australian Dollar, and PKR is the Pakistani Rupee. Trading exotic currency pairs can be highly volatile compared to major currency pairs. The AUD is the base currency, and the PKR is the quote currency. That implies that the exchange rate of the AUD/PKR is the number of Pakistani Rupees that a single Australian Dollar can buy. Thus, if the exchange of AUD/PKR is 112.584, it means that with 1 AUD, you can buy 112.584 PKR.

AUD/PKR Specification

Spread

The spread in forex trading represents the value difference between the buying price of a currency pair and its selling price. These prices are referred to as “bid” and “ask.” The spread for the AUD/PKR pair is – ECN: 32 pips | STP: 37 pips

Fees

Some forex brokers charge a fee whenever a trader opens a position. The fee is not standardized and depends on the broker and the size of the trade. Note that STP accounts normally don’t attract broker fees.

Slippage

Whether long or short, when you open a position, it can be executed at a different price than what you requested. This price difference is called slippage in the forex market and is a direct result of extreme volatility or broker delays.

Trading Range in the AUD/PKR Pair

If you observed a currency pair’s price movement, you’d notice the difference in price changes across different timeframes. That is the trading range and is used to determine the volatility of a pair.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

AUD/PKR Cost as a Percentage of the Trading Range

When you combine the total trading costs of a currency pair, you can analyze the percentage costs across different timeframes. This analysis can help you determine the best time to trade a currency pair.

ECN Model Account Cost

Spread = 32 | Slippage = 2 | Trading fee = 1 | Total = 35

STP Model Account Cost

Spread = 37 | Slippage = 2 | Trading fee = 0 | Total cost = 39

The Ideal Timeframe to Trade the AUD/PKR

As seen above, trading the AUD/PKR pair on shorter timeframes is costlier. In both the ECN and the STP accounts, it is cheaper trading the pair over longer timeframes since the trading costs are lower. Note that the trading costs decrease with an increase in volatility. The lowest trading cost for the AUD/PKR pair is when volatility is at the highest 852.4 pips.

The ideal trading time is evidently on the longer timeframes. But shorter-term traders can open positions when volatility is maximum across 1H, 2H, 4H. and 1D timeframes. Traders can also employ the use of forex pending order types, which eliminate the cost of slippage. Here’s an example with the ECN account.

Total cost = Slippage + Spread + Trading fee = 0 + 32+ 1 = 33

Notice how the trading costs have been reduced across all timeframes when forex pending orders are used. The maximum cost, for example, has reduced from 593.22% to 559.32%.

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Understanding The Fundamentals Of AUD/KES Forex Currency Pair

Introduction

In the AUD/KES pair, the AUD represents the Australian Dollar while the KES is the Kenyan Shilling. When buying and selling this exotic currency pair, forex traders should expect instances of high volatility. In the AUD/KES pair, AUD is the base currency, and KES is the quote currency. The price attached to this pair is the amount of KES that 1 AUD can buy. For example, if the price of AUD/KES is 76.399, it means that if you have 1 Australian Dollar, you can buy 76.399 Kenyan Shillings.

AUD/KES Specification

Spread

When you want to buy a currency pair in forex trading, you buy it from the broker. If you sell the pair, you sell it to the broker. The difference between these two prices is the spread. The spread for the AUD/KES pair is – ECN: 25 pips | STP: 30 pips

Fees

Most brokers charge a commission when you open a position. This commission varies from broker to broker and also depends on the size of your position. STP accounts are usually commission-free.

Slippage

In times of high volatility, or when your broker delays executing a trade, you will notice that the price at which you open a position is different from the exertion price. This is slippage in forex trading.

Trading Range in the AUD/KES Pair

In forex trading, trading range refers to the fluctuation in a currency pair’s price across different timeframes. Analysis of the trading range provides a powerful tool for deriving the volatility of a currency pair.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

AUD/KES Cost as a Percentage of the Trading Range

The total trading cost involved in buying and selling a currency pair includes the spread, slippage costs, and brokers’ fees. Using the total trading costs, we can establish the percentage costs of a currency pair in pips.

ECN Model Account Cost

Spread = 25 | Slippage = 2 | Trading fee = 1 | Total = 28

STP Model Account Cost

Spread = 30 | Slippage = 2 | Trading fee = 0 | Total cost = 32

The Ideal Timeframe to Trade the AUD/KES

These analyses show that trading the AUD/KES pair on larger timeframes carries lower costs than smaller timeframes. Notice that on longer timeframes, volatility is higher. We can thus say that higher volatility corresponds to lower costs. For both the ECN and the STP accounts, costs are highest when volatility is at four pips and lowest when volatility is 737.1 pips.

To determine the ideal trading will depend on your trading style. Generally, longer-term traders enjoy low costs for both types of accounts. For the shorter-term traders, waiting for when volatility is at the ‘maximum’ will help lower the costs. Traders can also use forex limit orders to lower trading costs since using such orders eliminates slippage. Here’s one example using the ECN account.

Total cost = Slippage + Spread + Trading fee = 0 + 25+ 1 = 26

With no slippage costs, notice how costs have significantly dropped. The highest cost for the AUD/KES pair has dropped from 474.58% to 440.68%.

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Costs Involved While Trading The AUD/RUB Forex Exotic Pair

Introduction

AUD is the Australian Dollar, and RUB is the Russian Ruble; AUD/RUB is thus an exotic currency pair. When trading this pair, forex traders should expect relatively high volatility due to its exotic nature.

In this pair, the AUD is the base currency, and the RUB is the quote currency. It means that the AUD/RUB pair’s price represents the amount of Russian Ruble that one Australian Dollar. If the AUD/RUB price is 55.813, it means that you can buy 55.813 Russian Rubles using 1 Australian Dollar.

AUD/RUB Specification

Spread

For the AUD/RUB pair, the spread is the difference between the price at which you can buy the pair from a broker and the price at which you can sell it to the broker.

The spread for the AUD/RUB pair is:

ECN: 10 pips | STP: 15 pips

Fees

If you have an ECN account, different brokers will charge you varying fees per trade, depending on the size of your position. For most STP accounts, however, there are no fees levied whenever you open a position.

Slippage

In the forex market, slippage occurs when you open a position, but it is executed at a price different than the one you requested. The primary determinants of slippage are market volatility and your broker’s speed of execution.

Trading Range in the AUD/RUB Pair

Throughout the day, the price of a currency pair fluctuates. This fluctuation, as observed from different timeframes, is known as the trading range. In forex, the trading range can help a trader determine the volatility of a currency pair, hence assess the risks it carries.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

AUD/RUB Cost as a Percentage of the Trading Range

We can combine volatility, slippage, and trading fees to determine the cost of trading a currency pair across different timeframes.

Below are cost percentages for both the ECN and the STP forex accounts. These percentages are in terms of pips.

ECN Model Account

Spread = 10 | Slippage = 2 | Trading fee = 1

Total cost = 13

STP Model Account

Spread = 15 | Slippage = 2 | Trading fee = 0

Total cost = 17

The Ideal Timeframe to Trade the AUD/RUB

In the analyses above, we notice that lower timeframes have low volatility, accompanied by higher trading costs for the AUD/RUB pair. With either the ECN or the STP account, costs are highest when volatility is at the lowest, 3.1 pips. The lowest costs are incurred when volatility is the highest at 802.2 pips.

We can observe that longer-term traders generally enjoy lower trading costs. However, shorter-term traders can reduce their trading costs by trading the AUD/RUB pair when volatility is above average; since costs are lower.

If traders use pending orders, they can eliminate slippage, which lowers the trading costs. Here’s an example with the ECN account.

Total cost = Slippage + Spread + Trading fee

= 0 + 10 + 1 = 11

You can notice that there is a significant reduction in trading costs. For example, the highest trading cost for the ECN account has reduced from 220.34% to 186.44%.

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Forex Assets

Trading The AUD/INR Forex Exotic Pair & Analysing The Costs Involved

Introduction

AUD/INR is an exotic currency pair in the forex market, with the AUD representing the Australian Dollar and the INR representing the Indian Rupee. Here, the AUD is the base currency, and the INR is the quote currency. That means that the AUD/INR price represents the amount of INR which 1AUD can buy. For example, let’s say that the price of the AUD/INR is 52.2654. It means that 1 AUD can buy 52.2654 INR.

AUD/INR Specification

Spread

When you go long in forex trading, you have to buy the currency pair from your forex broker. Now, if you decide to sell back the pair to the broker, they will buy it at a lower price than they sold to you. The difference between these two prices – also known as “bid” and “ask” – is the spread.

The spread for the AUD/INR pair is:

ECN: 20 pips | STP: 25 pips

Fees

Some brokers charge a commission for positions opened using ECN accounts. They vary depending on the size of the trade. STP accounts are rarely charged any trading fees.

Slippage

Slippage in Forex is the difference between the execution price of a market order and the price at which that order was placed. The slippage comes about due to increased market volatility or inefficiency on the part of your broker.

Trading Range in the AUD/INR Pair

When a currency pair fluctuates, its volatility varies across different timeframes. The analysis of this volatility in different timeframes is done using the trading range. It can help the trader identify the most suitable timeframes for a particular currency pair.

The trading range is expressed in pips. It shows the value of pips you stand to gain or lose on various timeframes.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart.
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

AUD/INR Cost as a Percentage of the Trading Range

Expressing the total trading costs of a currency pair as a percentage of the trading range helps to understand the trading costs that pair on multiple timeframes. It shows how the trading costs change with volatility.

Below are the trading costs for the AUD/INR  pair on ECN and STP accounts.

ECN Model Account Costs

Spread = 20 | Slippage = 2 | Trading fee = 1

Total cost = 23

STP Model Account

Spread = 25 | Slippage = 2 | Trading fee = 0

Total cost = 27

The Ideal Timeframe to Trade AUD/INR Pair

From the above analyses, we can observe that the lowest trading costs of the AUD/INR pair are on longer timeframes. The lowest trading costs for both the ECN and the STP accounts are when the AUD/INR volatility is at the highest – 518.3 pips. While the shorter timeframes have higher trading costs, intraday traders can take advantage of the maximum volatility periods during these timeframes.

Furthermore, traders can reduce the trading costs by implementing forex limit orders instead of market orders, which are prone to slippages. Here is an example of how the limit orders remove the slippage costs.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 20 + 1 = 21

You can notice that the forex limit orders lowers the overall costs by making the slippage cost 0. In this scenario, the highest trading cost has been reduced from 389.83% to 355.93%.

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Exploring The Costs Involved While Trading The AUD/KRW Exotic Pair

Introduction

The AUD/KRW is an exotic currency pair where AUD is the Australian Dollar, and KRW is the South Korean Won. This article will cover some of the essential elements of the AUD/KRW pair that you should know before you start trading this exotic pair.

The AUD is the base currency, and the KRW is the quote currency in this pair. Hence, the pair’s price represents the amount of KRW that can be bought using 1 AUD. For example, say the price of AUD/KRW is 795.89, it means that for every 1 AUD, you can buy 795.89 KRW.

AUD/KRW Specification

Spread

In forex trading, your broker will sell a currency pair to you at a higher price than the one they will buy from you if you sold it back to them. These prices are “bid” and “ask,” and the difference between them is the spread. The spread for the AUD/KRW pair is:

ECN: 21 pips | STP: 26 pips

Fees

STP type accounts incur no trade commissions. For the ECN accounts, the fees charged depend on your broker and the size of your position.

Slippage

When placing a forex market order with your broker, that order might be executed at a different price. The difference is slippage and is due to higher volatilities or execution delays by the broker.

Trading Range in the AUD/KRW Pair

The trading in forex aims to show the trader how a currency pair fluctuates across multiple timeframes. This analysis is used to determine volatility associated with the pair.

If. For example, the trading range of the AUD/KRW across the 4H timeframe is ten pips; it means that a trader can expect to gain or lose  AUD 12.6; since the value of 1 pip is AUD 1.26.

Here’s the trading range of the AUD/KRW  across multiple timeframes.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart.
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator.
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

AUD/KRW Cost as a Percentage of the Trading Range

Here, we calculate the total trading costs that a trader can incur trading the AUD/KRW across different timeframes under different volatility.

The trading cost is expressed as a percentage of the volatility, which is in pips.

ECN Model Account Costs

Spread = 21 | Slippage = 2 | Trading fee = 1

Total cost = 24

STP Model Account

Spread = 26 | Slippage = 2 | Trading fee = 0

Total cost = 28

The Ideal Timeframe to Trade AUD/KRW Pair

From the above analyses, we can observe that the highest costs in both the ECN and the STP accounts are incurred at the 1H timeframe when volatility is at the minimum 58 pips. Although the trading costs decline as the timeframe becomes longer, you can notice that the costs are lower when volatility is at the maximum across all timeframes. Therefore, for intraday traders trading the AUD/KRW pair when volatility approaches, the maximum will help lower the costs.

Using the forex limit order types can also help to reduce the overall costs since it eliminates the risks of slippage encountered in market orders. Here’s an example.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 21 + 1 = 22

Notice how the overall trading costs have been lowered in all timeframes. When volatility is at the minimum at the 1H timeframe, the highest trading cost has declined from 406.78% to 372.88%.

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The Fundamentals of the Canadian Dollar (CAD)

The Canadian dollar, which is also known as the CAD, may not date back long in time like some other currencies (e.g. the British pound), yet its history is equally fascinating. Although the CAD is relatively young, it is now believed to be the seventh most traded currency in the world. Back in 1941, an important decision was made in the Province of Canada, a then-new British colony in North America, to make their currency a one-tenth value of the United States’ Golden Eagle $10 coin. This change meant that the two currencies were connected more tightly and that the value of the CAD depended on the worth of the USD. As Canada did not have a central bank for some time, the printing of money was a duty performed by several private banks.

As Canada kept growing, new Canadian territories slowly started to adopt the CAD – Nova Scotia in 1871 and Newfoundland in 1949. The currency was pegged to the USD quite a few times throughout history: 1841—1933, 1940—1950, and 1962—1970. Despite the peg, Canada always demonstrated the air of independence, and this was particularly noticeable during the Great Depression when the Canadian government decided to move towards having their own monetary policy and central bank. Hoping to protect itself from the economic downfall that was particularly prominent in the US, Canada was pushed into making their own central banking institution and take over control of their currency. The CAD is nowadays also referred to as a loonie, which is the name of a bird that is printed on the C$1 coin, which incidentally inspired the derivation of the name toonie used for the C$2 coin. Aside from C$, some similar variations that include the dollar symbol are used as well so as to make a difference from other dollar-denominated currencies, notably CA$ and Can$.

Bank of Canada

For almost one entire century, Canada managed to go without a central bank with 10 private banks handling the issuance of the CAD. Nevertheless, the benefit of printing money was never intended for the government of Canada to reap, but the banks alone. One of the biggest banks at the time, the Bank of Montreal, grew to become a more dominant institution that acted as a central bank. This bank was, however, an independent player whose goals were not necessarily aligned with Canada’s needs, especially since there was an overall lack of autonomy and vision. After the Great Depression, Canada became aware of the need to become more separate from the USD, which brought forth the creation of their own central bank.

In 1935, the Canadian government did take necessary action and established the Bank of Canada, which then took on the responsibility of running the currency. The Bank of Canada (BOC) now holds meetings eight times a year to discuss matters pertaining to their goals of maintaining price stability. Unlike other central banks, such as the Federal Open Market Committee (FOMC) in the United States, the BOC has a single mandate, which has proved to be quite limiting for enacting monetary policy. Some other single-mandate central banks, e.g. the European Central Bank (ECB), do not deal with maximizing employment and GDP growth. As the ECB is only concerned with price stability, they are often unable to provide the assistance Europe requires. Canada, however, appears to be handling this issue much better, which could be potentially attributed to its laws.

The CAD Currency Basket

The BOC in fact seems to be acting as a dual-mandate central bank, which has been supported by their actions during some periods of crisis in the past. The new Governor of the Bank of Canada and the Chair of the Board of Directors, Mr. Tiff Macklem, was appointed in June this year, at a rather difficult time when many Canadian citizens and companies requested support in order to withstand the COVID-19 pandemic. Owing to his expertise in financial markets, the new Governor is believed to be able to assist the central bank to weather the current economic crisis. 

Canadian Economy

Canada is one of the largest economies, currently believed to be ranking in the top 10 economies in the world. Canada thrives on oil, mining, and logging, as these are the country’s biggest industries, which make the CAD heavily based on commodities. Canada still has strong ties with the United States, which is also its largest trading partner, and this relationship appears to impact the Canadian economy whenever there are changes in the US. Considering the fact that more than 50% of imports in Canada come from the US, any impediments in the US economy are likely to cause the same slowdown in Canada. In addition to the two economies being so closely intertwined, the CAD acts as the reserved currency for many Caribbean islands. What is more, one can even pay for all goods and services with this currency in some of the islands in this region.  

Major Correlations

Due to the strength of the Canadian economy largely stemming from oil, mining, and logging industries, the CAD has established some of its major correlations with the related commodities. The correlation between the CAD and oil, for example, has always been one of the more prominent ones although its nature and degree keep changing. In the past, traders have witnessed quite a high correlation between the two, which entails that once the oil goes down, so will the CAD during the same period of time. Information concerning such strong correlations can help traders assess the currency and come to an important conclusion that may help their trading. Nonetheless, as we can see from the chart below, these correlations are neither strong nor relevant 100% of the time, so the CAD and oil do not necessarily reveal any similar or dissimilar tendencies at all times. However, due to their historically prominent correlation, traders interested in the CAD should most definitely obtain information on what is currently happening with oil, what some of its previous tendencies were, and where it will likely move in the future.

CAD basket vs. Oil (blue line)

Economic Reports

As the Canadian economy greatly resembles that of the United States, the same reports are going to apply: quarterly GDP reports, monthly employment reports, monthly retail sales, monthly producer and consumer price index (PPI and CPI) as well as a trade deficit. Any trader keen on trading the CAD can potentially rely on its knowledge and understanding of the US economy, as the Canadian economy largely models that of the United States. 

Most Traded Pairs

The most-traded CAD-based crosses include USD/CAD, EUR/CAD, GBP/CAD, and CAD/CHF. In terms of volume and liquidity, the number one currency pair is USD/CAD, which is said to make more than 50% of all CAD transactions. The remaining four currencies fall behind on both volume and liquidity, which is an extremely important piece of information for traders. Understanding the nature of these pairs particularly comes to prominence during some news announcements, which often trigger lighter spreads and greater volatility. The EUR/CAD and GBP/CAD currency pairs both have decent volume, while most other crosses involving the CAD could be considered as more exotic. The AUD/CAD, for example, is an unusual pair primarily due to the vast geographic distance and the low quantity of trade between the two countries, which immediately leads to lower liquidity levels and greater width of the spreads. While trading the CAD, in general as well as in the face of any news events, the safest crosses are believed to be USD/CAD, EUR/CAD, and GBP/CAD.

Most Traded CAD crosses vs. AUD/CAD

Trading the CAD

Due to the fact that the Canadian economy is so heavily reliant on commodities, it is most likely to perform best during economic expansion. Any period of global growth involving a high demand for materials such as copper, steel, oil, etc. is assumed to be bullish for commodity-based currencies. Therefore, the CAD, too, is generally likely to be bullish during economic growth. Although this reaction of the CAD to the rising market may not always be true in 100% of cases, it is going to hold true for the majority of cases. Any time the price of commodities appears to be dropping, traders can ten assume that there is little demand for commodities such as copper, steel, or oil for example. Whenever the economy seems to be in recession, the CAD can be expected to underperform, experiencing difficulties.

In terms of interest rates, at 0.25%, Canada appears to have set neither the highest nor the lowest rates. While placed in the middle at the moment, Canadian interest rates are generally said to vary according to CPI and PPI inflation reports. As the Canadian economy greatly influences the state of commodities, traders can expect any rise in commodities to lead to a rise in inflation in Canada, causing the country’s central bank to increase interest rates. As we discussed before, the price of commodities will also affect the CAD and vice versa. In terms of trade deficits, Canada seems to be doing well in particular due to its large quantity of exports leading to a trade surplus. Currently, Canada plans to keep on offering quantitative easing programs in order to alleviate the impact of the COVID-19 pandemic. Nonetheless, the Canadian economy seems to be recovering, especially after the coronavirus restrictions started to ease although GDP is projected to shrink by 7.8% in 2020.

Central Bank Interest Rates

Recent Trends (until September 2020)

The CAD appears to have exhibited the greatest number of trend changes among all major currencies in the past few weeks. Going steady on the downwards trend line, the CAD broke the pattern through a reversal, followed by a bullish movement for three days straight, with the chart ending in a form of a pull-back. The nature of the continuation of this pullback may bring some lucrative opportunities, for example, should a reversal occur. Some market analysts state that they would prefer going on the upside than going bearish when it comes to the CAD at this time. It is interesting to know that professional traders believe that CAD has one of the best charts at the moment. Preceded by a clear change of trend and quite a few up-and-down movements, we may still not be able to see a true breakout, although the bullish reversal pattern is quite apparent at the end of the chart. This currency has been rather weak for a long period of time, but experts seem to believe that the CAD is finally going to start to go up in the near future. Just this past week, the CAD had a few important news events and economic reports come out, such as the Governor’s speech and the GDP report. Compared to other currencies, the CAD appears to be doing really well at the time, currently placed among the strongest currencies.

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Forex Assets

What Should You Know Before Trading The CAD/EGP Forex Exotic Pair

Introduction

The CAD/EGP is an exotic currency pair with the CAD representing the Canadian Dollar, and EGP – the Egyptian Pound. Forex trading in such an exotic currency pair is accompanied by higher volatility. The CAD is the base currency, while the EGP is the quote currency in this pair. Therefore, the price attached to this pair shows the amount of EGP that 1 CAD can buy. Let’s say that the price of CAD/EGP is 11.7692. This price means that for every 1 CAD, you can buy 11.7692 EGP.

Spread

In the forex market, the difference between the buying and selling prices of a currency pair is called the spread. The spread for CAD/EGP is: ECN: 3.7 pips | STP: 8.7 pips

Fees

There are no broker fees associated with the STP accounts. For the ECN account, however, the trading fee is determined by your broker.

Slippage

Slippage in forex is the difference between the price that a trader requests the broker to complete a trade and the price that the broker executes the trade. This difference is determined by the brokers’ speed of execution and market volatility.

Trading Range in the CAD/EGP Pair

Forex traders endeavor to know the average number of pips that a particular currency pair moves within a given timeframe. The trading range represents the volatility of a currency pair within a particular timeframe. The knowledge of a pair’s trading range makes for a useful risk management tool.

If, for example, during the 1-hour timeframe, the CAD/EGP pair has a trading range of 10 pips, then someone trading this pair can expect to gain or lose $8.5 within this period. Below is a table showing the minimum, average, and maximum volatility of CAD/EGP across different timeframes.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/EGP Cost as a Percentage of the Trading Range

In the forex market, trading costs include brokers’ fees, slippage, and spread. i.e.

Total cost = Slippage + Spread + Trading Fee

Below are analyses of percentage costs (in pips) to be expected when trading the CAD/EGP pair using either the ECN or the STP account.

ECN Model Account

Spread = 3.7 | Slippage = 2 | Trading fee = 1

Total cost = 6.7

STP Model Account

Spread = 8.7 | Slippage = 2 | Trading fee = 0

Total cost = 10.7

The Ideal Timeframe to Trade CAD/EGP

As can be seen from the tables above, trading the 1-hour timeframe with either the ECN or the STP account carries the highest trading costs. We can deduce that during times of low volatility, the trading costs are higher. However, for short term traders, timing their trades when volatility is above average during the 1H, 2H, 4H, and the 1D timeframes ensure they incur lower trading costs with the CAD/EGP pair.

The higher timeframes provide the longer-term traders of the CAD/EGP pair lower trading costs. Forex traders can reduce the trading costs by using limit order types, which removes the risks of slippage. Here’s a demonstration of how this works in the ECN account.

Total cost = Slippage + Spread + Trading fee

= 0 + 3.7 + 1 =4.7

Notice that when the slippage cost is eliminated by using limit orders, the total costs are significantly reduced. The highest cost, for example, reduces from 113.56% to 79.66%.

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Beginners Forex Education Forex Assets

The World’s Top Forex Currencies

Many Forex traders make the mistake of not thinking about what they are trading beyond price fluctuations on a screen. While it is true in trading that the price is king and also that prices are never too high or low not to be able to rise or fall any more, over time it will work better if it understands what makes the currencies it negotiates unique. Understanding Forex’s major global currencies will make you a better trader, more focused, and more profitable.

What are the World’s Leading Forex Currencies?

There are eight currencies that are the most important in the Forex universe. These are the most important, more or less, according to the consensus:

  • USD (U.S. dollar)
  • EUR (Euro)
  • JPY (Japanese Yen)
  • GBP (British Pound)
  • CAD (Canadian Dollar)
  • CHF (Swiss Franc)
  • AUD (Australian Dollar)
  • NZD (New Zealand Dollar)

In addition, the Chinese yuan (CNY) is becoming increasingly important, although it is not yet fully convertible. There is an onshore Yuan and an offshore Yuan, the last of which is offered for trading by many Forex brokers.

The ranking shown above was not simply ordered by relative GDP or any other economic indicator. Instead, the level of importance given to individual currencies takes into account convertibility, its use as a global reserve, and its correlation with important raw materials. For example, there are several countries, such as India, which have economies much larger than Switzerland or Australia. However, Australia is a major producer of gold and several other raw materials used in manufacturing, while Swiss banks hold a large share of global private capital and especially of gold, which gives their respective currencies a weight that goes beyond the national economies they represent. You must think beyond the plain economic factors to succeed in understanding the major global forex currencies.

Currencies Are National Debt

All modern currencies are backed on paper by nothing more than the nation’s central bank’s promise to meet the obligation. Currencies are 100% debt.

The USD Is The King

The first thing that the trader must take into account in order to understand the main world currencies of Forex is that the USD is of paramount importance. All other currencies are first valued on the basis of their value against the USD. Therefore, you can trade in Forex markets much more easily by simply focusing on the other 7 currencies paired with the USD instead of worrying about every possible crossing, although there are some exceptions.

The importance of the USD is due not only to the large size of the US economy, which is larger than that of any other nation and almost as large as that of the entire eurozone. It is also due to the unique position of the United States as the architect of the global financial system and the world’s only superpower. The dollar is the world’s largest reserve currency, and there is still more cash wealth in USD than in any other currency.

This means that the USD will generally be the main driver of currency market movements. If people around the world want to keep the USD, it will go up and that will tend to weigh in most other currencies and vice versa. In the last 15 years, the USD has had a more predictable and strong trend than any other Forex world currency, which is something that helps to understand the main Forex world currencies.

“Security” and “Risk” Currencies

For various reasons, the market tends to view the following currencies as safe havens, so their relative value tends to increase when there is market turbulence that is caused by fears about global economic prospects: USD, JPY and EUR. The CHF used to be the main security currency, but its role as a safe haven is now considered to be lower due to some unbridled revaluations by the Swiss National Bank and also due to its very high negative interest rate of -0.75%.

Other currencies tend to perform well when there are good prospects for global economic growth. An appreciation of the appetite for risk in the face of risk aversion is a great help in understanding Forex’s major global currencies.

Currencies Related to Commodities

Certain currencies are highly correlated positively with the prices of various raw materials, as these countries are large producers of these raw materials in question. The most important examples are the CAD, which correlates positively with the price of crude oil, and the AUD, which correlates positively with the price of gold. NZD tends to perform well when there is a growing demand for dairy and lamb products.

Liquidity

Most traders will notice that different currency pairs have different “personalities”: some are very volatile and move quickly (a good example is GBP/JPY), while others tend to move in “2 steps forward, 1 step back” mode (the perfect example is the EUR/USD pair). This is due to the liquidity of the respective currencies. There are more euros and dollars than any other currency and this is why their prices tend to move quite slowly. However, when you look at currencies like GBP, JPY, and CHF, there are much smaller amounts involved and, when they are heavily in or out of demand, a liquidity constraint can cause the price to move very quickly.

Time of the Day

In general, currency prices move more during trading hours in London and New York, but also during your local business hours. This means, for example, that the GBP tends to be rather flat during the first part of the Tokyo session, while at that session there will tend to be more activity in Australian and New Zealand dollars, except during before the opening of London and later New York, which overlap to some extent with “domestic” business hours. This is partly due to the fact that currency exchange rates are often moved by economic data publications and central bank publications which, of course, are scheduled during domestic business hours.

While the factors discussed in this article are neither the first nor the only ones that traders will think about, taking this basic information into account can help them to be more flexible and successful in trading certain currencies.

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Forex Assets

Analysing The CAD/HUF Forex Currency Pair & Determining The Costs Involved

Introduction

The CAD/HUF is an exotic currency pair where CAD represents the Canadian Dollar, and HUF – the Hungarian Forint. In this article, let’s understand some of the basic concepts you should familiarise with before trading the CAD/HUF pair.

For this currency pair, the CAD is the base currency and the HUF the quote currency. In this case, the price associated with the CAD/HUF pair shows the amount of HUF that 1 CAD can buy. For example, if the price of CAD/HUF is 232.97, it means that 1 CAD can buy 232.97 HUF.

Spread

Spread in the forex market is the difference between buying price, i.e. ‘bid’ and the selling price, i.e. ‘ask.’ The spread for the CAD/HUF is – ECN: 50 pips | STP: 55 pips

Fees

The trading fees you are charged depends on the type of forex account you have. STP accounts carry no trading fee, while for the ECN accounts, the trading fees are determined by your forex broker.

Slippage

In highly volatile trading sessions, sometimes the price at which you trade is different than the price at which that trade will be executed. This difference is called slippage and is usually determined by your broker’s speed of execution.

Trading Range in the CAD/HUF Pair

In the forex market, a currency pair will fluctuate differently across different timeframes. Trading range helps a forex trader analyze how a given pair moves (in terms of pips) over a given timeframe, which is an important risk management tool.

For example, let’s say that during a 1-hour timeframe, the CAD/HUF pair has a trading range of 10 pips. A forex trader trading this pair can expect to gain or lose $43 since the value of 1 pip is $4.3

The table below shows the minimum, average, and maximum volatility of CAD/HUF across different timeframes.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart.
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator.
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/HUF Cost as a Percentage of the Trading Range

Trading costs that can be expected in forex include slippage, spread, and brokers’ fees. Thus, Total cost = Slippage + Spread + Trading Fee.

Forex traders should learn how these costs change across different timeframes as the currency pair price fluctuates. The tables below show the percentage costs (in pips) that can be expected when trading the CAD/HUF pair.

ECN Model Account

Spread = 50 | Slippage = 2 | Trading fee = 1

Total cost = 53

STP Model Account

Spread = 55 | Slippage = 2 | Trading fee = 0

Total cost = 57

The Ideal Timeframe to Trade CAD/HUF

With both the ECN and the STP forex trading accounts, the 1-hour timeframes have the highest costs. Therefore, for short-term traders, using the timeframes with minimum volatilities increases the trading costs they will incur. For the 1H, 2H, 4H, and the 1D timeframes, you will incur lower trading costs by trading the CAD/HUF pair when the volatility is above average.

For both types of trading accounts, longer time frames, i.e., the weekly and the 1-month, offer lesser trading costs for the pair. It is worth noting that forex traders can minimize their costs by using limit order types, which eradicate the risks of slippage. Here’s an example with the ECN account.

Total cost = Slippage + Spread + Trading fee

= 0 + 50 + 1 =51

You can notice that when the cost associated with slippage is removed, the overall costs for trading the CAD/HUF pair significantly drops. The highest cost reduces from 898.31% to 864.41%.

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Understanding The Costs Involved While Trading The CAD/ILS Forex Exotic Pair

Introduction

CAD/ILS is an exotic currency cross. Here, CAD is the Canadian Dollar, and ILS is the Israeli Shekel. The CAD is the base currency, and the ILS is the quote currency. Therefore, the price of the CAD/ILS pair represents the quantity of the ILS that  CAD can buy. If the price of the pair is 2.6004, it means that 1 CAD can buy 2.6004 ILS.

CAD/ILS Specification

Spread

The buying price and the selling price of a currency pair tend to be different in forex. The difference between these two prices is the spread. The spread for the CAD/ILS pair is: ECN: 22 pips | STP: 27 pips

Fees

Forex brokers charge a commission on every trade made with the ECN account. The commission varies depending on the broker and the type of trade. Trades on STP accounts do not attract a trading fee.

Slippage

It is rare for a trader to get the exact price they request for a trade. Usually, there is a difference between the price requested and the execution price. This difference is the slippage, and it depends on market volatility and the speed of trade execution.

Trading Range in the CAD/ILS Pair

The trading range is the analysis of how currency fluctuates across different timeframes in terms of pips. The trading range is used to analyze a currency pair’s volatility and expected profit. For example, if on the 2-hour timeframe the trading range of the CAD/ILS pair is 10 pips, then a trader can expect to either gain or lose $38.5

Here’s the trading range for the CAD/ILS pair.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/ILS Cost as a Percentage of the Trading Range

The cost of trading any currency involves the slippage, fees, and the spread. These costs vary across different timeframes under different volatility conditions. For a forex trader, analyzing the cost as a percentage of the trading range helps implement informed risk management techniques.

The tables below show the analyses of the trading costs for the CAD/ILS pair across different timeframes.

ECN Model Account

Spread = 22 | Slippage = 2 | Trading fee = 1

Total cost = 25

STP Model Account

Spread = 27 | Slippage = 2 | Trading fee = 0

Total cost = 29

The Ideal Timeframe to Trade CAD/ILS

We can see that the trading cost for the CAD/ILS pair is higher during shorter timeframes and low volatility in both the ECN and STP accounts. Longer-term traders trading on weekly and monthly timeframes enjoy relatively lesser trading costs than shorter timeframe traders.

It is worth noting that for every type of trader, initiating trades when volatility is above average reduces the trading costs. Furthermore, opting to use forex limit orders instead of market orders which are susceptible to slippage, can significantly reduce trading costs. With limit orders, the risk of slippage is removed hence lowering trading costs. Here are the trading costs when limit orders are used.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 22 + 1 = 23

We can see that trading costs for the CAD/ILS have reduced across all timeframes, with the highest cost dropping from 491.53% to 372.88% of the trading range.

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Forex Assets

Analysing The Costs Involved While Trading The CAD/INR Exotic Currency Pair

Introduction

The CAD/INR pair is considered an exotic currency pair where CAD is the Canadian Dollar, while the INR is the Indian Rupee. This article will cover the basic elements of the CAD/INR pair that you should know before you start trading the pair.

In this pair, the CAD is the base currency, while the INR is the quote currency. Therefore, the price attached to the CAD/INR pair is the amount of INR that can be bought by 1 CAD. For example, if the price of CAD/INR is 55.059, it means that for every 1 CAD, you can get 55.059 INR.

CAD/INR Specification

Spread

The price at which you can buy a currency pair is different from the price at which you can sell the same pair. This difference is the spread. The spread is considered a source of revenue for brokers and a trading cost for forex traders. The spread for the CAD/INR pair is as follows.

ECN: 39 pips | STP: 44 pips

Fees

The trading fee is the commission you pay your forex broker for every trade you make. STP accounts usually have no trading fees, while the fees charged on ECN accounts vary from broker to broker.

Slippage

Slippage represents the difference between the price at which you place a trade and the price at which your broker will execute the trade. Market volatility and the broker’s efficiency determine the amount of slippage.

Trading Range in the CAD/INR Pair

The trading range in forex helps a trader analyze the extent of a currency pair’s fluctuation during a specific timeframe. As measured in pips, this fluctuation can help determine the volatility of the pair and the expected gains or losses. For example, if in the 4-hour timeframe the CAD/INR pair has a volatility of 30 pips, a trader can expect to either gain or lose $54 since the value of 1 pip is $1.8

The table below shows the minimum, average, and maximum volatility of CAD/INR across different timeframes.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/INR Cost as a Percentage of the Trading Range

The knowledge of the potential costs when trading helps determine the trading strategies to be used. Cost as a percentage of the trading range will help us understand how trading costs vary with volatility under different timeframes.

Total cost = Slippage + Spread + Trading Fee

The tables below show the analyses of percentage costs in both ECN and STP accounts.

ECN Model Account

Spread = 39 | Slippage = 2 | Trading fee = 1

Total cost = 42

STP Model Account

Spread = 44 | Slippage = 2 | Trading fee = 0

Total cost = 46

The Ideal Timeframe to Trade CAD/INR

Depending on your forex trading style, you can use the above analysis to coincide with your trade of the CAD/INR pair with moments of lower trading costs. The 1-hour timeframe for the STP and the ECN accounts has the highest trading costs of 779.66% and 711.86% of the trading range, respectively. Also, notice that the highest costs coincide with the lowest volatility of 3.1 pips.

Trading longer timeframes like the 1-week and the 1-month timeframes are associated with lower costs. However, trading when the CAD/INR pair’s volatility is above average has a lower cost. Another way of reducing trading costs is by using the limit order types, which eliminates the slippage costs. Here’s how it works.

Total cost = Slippage + Spread + Trading fee

= 0 + 39 + 1 = 40

When limit orders are used, the slippage cost becomes zero. Consequently, the trading costs are significantly reduced, with the highest trading cost dropping from 711.86% to 677.97% of the trading range.

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Forex Assets

The FX Problems with the USD: Yesterday, Today & Tomorrow

As one of the major currencies on the globe and a currency that holds such importance for the rest of the world, the USD has always posed as a topic everyone is interested in. Due to these reasons, it is crucial that we understand the economic situation worldwide and grasp which role the official currency of the United States of America has to play. Currently, we are seeing many changes in various aspects of existence as we know it and, despite the vastness of the media sources, many are still vague or unsure about what is going to happen down the road. Naturally, it is essential for these reasons to delve into the knowledge we have accumulated so far both on the USD and its connections to other spheres of life, discuss its relevance outside the realm of forex, and, last but not least, list some of the most thought-provoking predictions proposed by prominent prop traders in the market.

From the perspective of technical analysis, we are safe to state that the USD is one of the most difficult currencies to trade. Generally, the currency is often portrayed as such owing to the involvement of the big banks that have a tendency to flock towards the greatest concentration of money. As the USD is the currency of preference among traders across the globe, the big banks, understandably, desire to maintain more control over the USD-based currency pairs. What is more, since currencies are always traded one against the other, the USD as the currency encumbered with more news events is often going to bear the responsibility of whether the currency pair goes up or down.

In the past, we have seen how the USD frequently acted as a determinant of which direction the pair it is part of is going to take and both news and banks play a major role in how this typically plays out. In addition, history has shown how any event taking place in the United States appears to have an impact on the rest of the planet and, as such, they assign more importance to the USD over any other currency. The USD is also known as a safe-haven currency towards which people of various backgrounds are naturally driven. This currency is additionally the world’s reserved currency and countries all over the world tend to hold the dollar as a hedge to protect their systems.

Trading the USD is a particularly important topic due to the vigilance of the big banks and increased risk for the traders. Forex experts generally advise traders to apply the same strategies as with any other currency but also insist on exercising caution especially early on. Should traders with more experience show interest in trading a USD-based pair, they are advised to proceed with the use of their tested systems and combinations, whereas forex beginners are warned about the possibility of facing some unfavorable circumstances dissimilar to any other currencies. It appears that most traders face challenges with the USD. In addition, as it appears, many end up losing everything because of a deadly combination of negative factors: highly risky currency, poor money management, and lack of knowledge on trading psychology. Therefore, when trading the USD, it is important to involve a variety of skills and maintain awareness of other factors that can potentially affect the trade.

When trading the USD, or any other currency for that matter, most traders focus all of their energy and attention on the offense in the attempt to extract the greatest possible amount of money from the market. However, on the other end of the spectrum, there is defense as an equally important determinant of the success a trader can experience. Many assume that the acquisition of skills, tools, and systems will render them the most accomplishments in this world, but even the best technical traders can experience a great loss if they fail to grasp the need to see both sides of the coin. The defensive part of the strategy is, at times, probably less exciting, yet it is at the same time the necessary addition to the offense, complementing and rounding out the comprehensive approach every trader needs to be take in trading currencies. 

Upon learning about money management, trading psychology, and technical analysis, as the three pillars of offense, traders are left with the additional task of figuring out how to hold the fort on the other end of the continuum. Long-term defense strategies that any forex enthusiast should list as a top priority include the diversification of money and protection from a major economic downturn. If a trader manages to assemble the two constituent parts and put effort into satisfying both criteria, success is guaranteed no matter what events are taking place in the market. By following these pieces of advice, challenges can be successfully mitigated with even difficult currencies such as the USD.

The next level of trading involves the questions of what happens to any trader’s money once a trade is completed, what is in the cards with regard to the future of investment, and which plan of action a trader has developed to further conquer new goals and/or challenges. Some forex experts greatly criticize the financial news sources, despite their popularity and presence, in relation to their ability to give information on world economics. Sources such as CNBC and Bloomberg are some of the most prominent sources of financial-related information, yet forex connoisseurs claim that these companies always seem to be bullish on the economy because they are paid to maintain this positive flair by various sponsors. Banks, companies selling financial products, and brokerage firms are some examples of sponsors who have an interest in maintaining and preserving a positive outlook on the market regardless of what is currently happening.

While these sources do provide correct facts or numbers, traders still need to consult with some other sources to obtain additional information and get the full picture, as some theories or pieces of information can never be found in the mainstream media. The sources providing information on gold, for example, provide an excellent sample of how detailed and useful the media can be, as they are both bearish on the economy but they still give out real and relevant data. In order for traders to have a good defense, they need to see beyond biased media and get as much information as possible to see the whole picture.

In order for any trader to play defense in trading the USD, the information on the status of this currency as a safe-haven, the reserved currency of the world is extremely important. US citizens, for example, rarely diversify their money, which can be particularly dangerous in times of recession that are simply unavoidable. Recessions are a recurring theme in any market that preserve the overall health of the economy. As we can see from the table below, recessions always happen, sooner or later, lasting for a minimum of one year and usually a few years apart (see the number within brackets). Now, more than a decade after the last recession, we are witnessing the major impact the COVID-19 pandemic had on the world economy, putting more stress on the importance of learning how to protect one’s finances thoroughly.

Recessions in the United States
1953—1954 (4) 1980 (5)
1957—1958 (3) 1981—1982 (1)
1960—1961 (2) 1990—1991 (7)
1969—1970 (8) 2001 (10)
1973—1975 (3) 2007—2009 (6)

 

While the results of any recession can be truly devastating, it is important to note how the forex market is practically impervious to their damaging effects owing to the fact that fiat currencies simply have no intrinsic value. As traders in the spot forex market trade one currency against the other, what they can expect is for the market conditions to potentially dictate whether a currency pair goes up or down. The profit, however, is not something traders need to be concerned with in these cases, as the negative state of the market does not affect trading in this manner, especially if the ones doing the trade are knowledgeable and experienced in terms of trading currencies. While this is a trait unique to the forex market, it is vital that traders understand that as long as the trade is shielded from the damaging effects of a recession, they are not. 

Many traders are quite diligent and well informed with regard to the variety of methods of earning money and their financial endeavors may often range between stock, bonds, IRAs, real estate, and businesses to trading currencies. With the increased number of sources of money, traders understand that even if stocks decrease in value, bonds may go up, which understandably brings them a heightened level of security. Therefore, from a financial standpoint, traders feel fully covered because they have secured financial income from multiple sources that can bring them profit. Nonetheless, this plethora of revenue streams may still not be an indication that traders are sufficiently diversified, and the lack of understanding of what proper diversification means can potentially endanger all trader’s efforts.

When we compare all sources of income listed above (e.g. stocks, forex, etc.), there is one shared characteristic, or one common trait, that makes the difference in terms of diversifications – the means of payment. When a trader receives compensation for all his/her business endeavors in one single currency, they are likely to suffer from any external factor that affects the currency in question. This is a particularly important topic for the United States, whose currency has never truly depreciated to the extent of the question of its stability to arise. While the currency fluctuated up and down as part of its natural tendency, it thus never raised concerns that would propel the US citizens to truly think of the need to diversify the list of currencies they rely on. 

While the USD is still perceived as a safe-haven or reserved currency, the period of its glory may be slowly (or not so slowly) coming to an end as the hierarchy in terms of production and finances is changing on a global scale. Although the USD has not lost its position as the strongest currency, we have seen how risky certain situations concerning the US economy and currency were in the past 10 to 15 years, when the US government took extreme measures in order to preserve the stability. In each of such difficult stances in history, the US would typically decide to print more money, making it the only country on the planet to rely on quantitative easing as much.

As an extreme method of boosting the economy, the time may come when all dues may have to be paid eventually in this respect, which will in effect have quite terrible effects on anyone who has ever put his/her hopes in the USD alone. Coupled with the past moves of the US against other world countries in the attempt to dominate or maintain its strength, we can expect them to use every opportunity to get themselves out of the inferior position. While from the perspective of history many such wars were carried out through the involvement of the military, we are starting to see a new form of battles taking place on the financial plane.

Whether any decision the US has made in the past can ricochet right back and affect anyone involved or not, we can all agree that taking necessary precautions is very much a need today. While extending your portfolio to other business deals and endeavors is most definitely a favorable decision, long-term your finances do depend on the diversification of the currencies you depend on in the sense of remuneration. As the US is known for its tendency to hold one currency and traders are very much accustomed to enjoying the stability of the currency, the best choice to be made in this case is to include other currencies as well. Traders should, then, discover another currency on which they are long-term bullish and use them to half the risk that comes with putting all eggs into one basket. Some forex experts for example state that gold, as well as silver, is another extremely useful way to protect oneself from limiting options a single currency brings.

Generally, the precious metals market has proved to bring more benefits and one can compare them to stable coins from the crypto market, while the downside is quite small. The crypto market too is said to have an amazing upside and can help a trader stop depending on the USD, or any other currency alone for that matter. Therefore, if traders rely on other currencies as well, hold metals, and invest in cryptocurrencies as well, they both protect themselves and reduce the downside of trading/holding one currency alone.

With regard to where a trader should invest his/her finances, we can compare some events currently taking place with some of the forex experts’ views. The EUR, for example, may not be a good option because many countries are now making decisions to leave the European Union and, interestingly enough, EUR/USD may be one of the worst pairs to trade out of all 28 combinations with 8 major currencies. Moving towards another European country, the United Kingdom also proves to inspire little confidence in forex traders, as many believe that the downside of investing long-term in the GBP is too great at the time.

The AUD is another currency with a poor long-term outlook for investment due to the reduced exchange between Australia and China, poor housing market conditions, and the expectation of the economy to enter recession soon, supported by the facts and numbers given in some alternative sources other than mainstream media. In terms of economy, the NZD successfully withstood the last elections, which only confirms the health of the currency and the country’s economy, yet experts still are still doubtful with regard to investing in the currency, alike in the JPY. The Canadian political climate seems not to be pro-money at the moment, which is the last of the currencies that traders should not consider in terms of long-term investment. 

One of the most prominent forex personalities shared that he used to hold the following three currencies: the USD as his homeland currency, the CHF due to the unique neutrality and banking system in Switzerland, and the CNY because of the country’s continuous efforts to improve their economy. He also shared that he decided to invest his finances into other currencies as well, so he kept asking the question of which currencies he is bullish on. While making the decision where to put his money, the question of which countries represent the values that are reflected in their official currencies arose. At the same time, he started to notice how both rich people and big companies all shared the same inclinations to move from the West and turn to countries that have fewer taxes, serve as a nice place to live, offer a great business climate, and avoid liber politics that are believed to be damaging for the world of finance. This forex expert also shared how he eventually decided to split the amount of money invested in the CNY and allocate the second half in the RUB, since he strongly feels that Russia is on a good path, in addition to some smaller countries’ currencies due to their budding markets.

Forex experts are slowly revealing their beliefs that the world power is shifting to the East, supporting their view with the facts regarding some events that are already taking place. We are seeing a strong determination of many countries in the East to purchase precious metals, reflecting a significant gold-buying program that may reveal more than a desire to grow a country’s capital. Russia, China, Iran, and Azerbaijan significantly increased their gold reserves, while India showed a greater interest in silver for its central reserves. As quite a pricy move, the purchase of precious metals is rather interesting, especially on such a large scale involving so many countries. What is more, we know that precious metals are indeed precious for their intrinsic value and are unlikely to depreciate in value, especially since their supplies are limited. In the case of a currency war, currencies would be the first in line to drop in value as a result of a poor economic downturn, whereas any country with heavy reserves of precious metals would not only be safe but could easily move the center of power in its direction.

With such a massive move towards precious metals that is noticeable in several countries, the lessons are there for the taking. If wealthy people and countries having more money than any forex trader can ever imagine are deciding to start buying gold to this extent, why should forex traders refrain from making the same move themselves? What is more, precious metals are always a good commodity to have regardless of exterior factors and current circumstances. Nevertheless, especially now, at these uncertain times, holding precious metals can be perceived as a smart business investment that can provide you with added security.

Investing in the crypto market also appears to be a tremendous opportunity for sustainable financial growth and security. However, even the most immersed crypto enthusiasts do not actually know where this market is going to go and how it is going to develop. In addition, while the downside of trading cryptocurrencies can be quite dramatic, taking you right down to zero, the upside is very likely to be extremely good. Nonetheless, despite the danger it involves, the crypto market still offers much value as a form of diversification, protecting you even if all of your other business ventures fall apart.  

 If traders secure themselves by entrusting their finances in different markets, i.e. forex, crypto, and metals, it will provide a great source of security and prove to be an extremely wise decision, especially in times such as the ones we are currently living. The return on such investments can double in the sense that once any recession is over, which often last approximately one to two years, a trader can buy any stock ties for example for a much cheaper price and thus increase his/her finance increasingly fast. That way, these individuals will easily find themselves on top, as most people are unable to do the same due to the effect the recession had on them. What is more, with such a vast variety of instruments for making money, traders can feel comfortable in case any one of them goes down because, as it often goes, another source of income will start to increase in value to substitute for the loss experienced in some other market.

In conclusion, although the USD is still seen as one of the strongest currencies worldwide and a currency of choice in terms of country reserves across the globe, traders need to think of diversification outside the forex market. Invest in techniques, methods, and systems that you use in trading currencies and, by all means, combine these experiences with other instruments that will provide you with security and stability should the USD or the US market start to depreciate in the future. And, lastly, even if you are just a beginner, or even more so, choose to invest your money no matter how small the amount is elsewhere because defense is equally important to offense.

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Forex Assets

Asset Analysis – Trading The CAD/PHP Forex Currency Pair

Introduction

CAD/PHP is an exotic Forex currency pair where CAD is the Canadian Dollar while PHP is the Philippine Peso, the Philippines’ official currency. This article will cover fundamental aspects that you should know about CAD/PHP before you start trading the pair.

Understanding CAD/PHP

In this currency pair, the CAD is the base currency, and the PHP is the quote currency. The CAD/PHP pair price represents the quantity of the PHP that can be bought by 1 CAD. If the CAD/PHP price is 36.181, it means that for every 1 CAD you have, you can buy 36.181 PHP.

CAD/PHP Specification

Spread

In forex trading, the spread is the difference in the value at which a trader can buy a currency pair and the price at which they can sell it.

ECN: 10 pips | STP: 15 pips

Fees

There are no trading fees associated with STP accounts. However, for the ECN accounts, the trading fees that you will incur per transaction are determined by your forex broker.

Slippage

When trading forex, slippage occurs when there is a difference between the price at which you place your trade and the price at which your broker executes it. Slippage in forex frequently happens at times of higher volatility or when significantly larger orders are made.

Trading Range in the CAD/PHP Pair

Forex traders should know how a given currency pair changes within different timeframes. This change in terms of pips is referred to as the trading range. It is used to analyze the historical volatility of a given pair across different timeframes. Therefore, the trading range can be used to determine the amount of profit that a trader should expect to earn.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart.
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator.
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/PHP Cost as a Percentage of the Trading Range

Slippage, spread, and brokers’ fees amount to trading costs to a forex trader.

Total cost = Slippage + Spread + Trading Fee

Therefore, forex traders should be aware of how these costs vary during different timeframes depending on the pip change of the currency they trade.

The tables below are of the percentage costs that can be expected when trading the CAD/PHP pair under the ECN and STP account types. The costs are expressed as pips.

ECN Model Account

Spread = 10 | Slippage = 2 | Trading fee = 1

Total cost = 13

STP Model Account

Spread = 15 | Slippage = 2 | Trading fee = 0

Total cost = 17

The Ideal Timeframe to Trade CAD/PHP

From the above trading range cost analysis, the most cost is incurred at the 1H timeframe at 220.34% for the ECN account and 288.14% for the STP account. These costs imply that it is not ideal to trade during times of low volatility of about 2.3 pips. However, the trading costs associated with the 1H, 2H, 4H, and the 1D timeframes are lower when the market volatility is above average. Intraday traders can time their entry when the volatility of the CAD/PHP is above average.

The longer timeframes for both types of accounts have lower trading costs associated with them. Thus, longer-term traders can get to enjoy lower costs.

Forex traders can also significantly reduce their trading costs by employing limit order types to ensure they do not experience slippage costs. Let’s look at the total costs when slippage is zero with the ECN account.

Total cost = Slippage + Spread + Trading fee

= 0 + 10 + 1 =11

With the ECN account, the highest trading cost reduces from 220.334% to 169.49%, showing that using the limit order types significantly reduces the trading costs.

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Forex Assets

Costs Involved While Trading The CAD/RON Forex Exotic Pair

Introduction

The CAD/RON is an exotic currency pair where CAD is the Canadian Dollar, and RON is the Romanian Leu. This article will explain some basic elements about the CAD/RON you ought to know before you start trading this pair. The CAD is the base currency, and RON is the quote currency in the CAD/RON exotic pair.

Thus, the CAD/RON pair’s price represents the amount of RON that you can buy using 1 CAD. If the pair’s current price is 3.1292, it means that you can use 1CAD to purchase 3.1292 RON.

CAD/RON Specification 

Spread

When trading forex, the spread represents the difference between the price at which a currency pair can be bought (bid price) and the price it can be sold at (ask price).

The spread for the CAD/RON pair is: ECN: 35 pips | STP: 39 pips

Fees

The STP accounts have no trading fees attached. Trading fees for the ECN accounts vary depending on your choice of forex broker.

Slippage

When trading in the forex market, sometimes the price you request on an order tends to be different from the price your broker executes the trade. This difference is known as slippage, and it depends on the broker’s speed of execution and market volatility.

Trading Range in the CAD/RON Pair

To ensure that proper risk management measures are taken, forex traders should know how much a currency pair fluctuates within a given timeframe. Trading range analysis can help forex traders to determine the volatility associated with trading a particular currency pair. This volatility is measured in terms of pips. If the CAD/RON pair has a volatility of 10 pips within the 1-hour timeframe, then a forex trader can be expected to gain or lose $32 since the value of 1 pip of CAD/RON is $3.2

Below is a table showing the minimum, average, and maximum volatility of CAD/RON across different timeframes.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/RON Cost as a Percentage of the Trading Range

When trading forex, the costs you can expect to incur include; brokers’ fees, slippage, and spread.

Total cost = Slippage + Spread + Trading Fee

The tables below show the analyses of percentage costs in both ECN and STP accounts.

ECN Model Account

Spread = 35 | Slippage = 2 | Trading fee = 1

Total cost = 38

STP Model Account

Spread = 39 | Slippage = 2 | Trading fee = 0

Total cost = 41

The Ideal Timeframe to Trade CAD/RON

From the above cost analysis, we can observe that the cost of trading the CAD/RON pair varies across different timeframes depending on the volatility. For both the STP and the ECN accounts, the 1-hour timeframe carries the highest costs at 694.92% and 644.07%, respectively. These higher costs are associated with the low volatility of 0.1 pips observed during the 1-hour timeframe.

We can also notice that the trading costs drop significantly when the volatility across all timeframes is above average. Therefore, for intraday forex traders, placing trades when the volatility is above average might be a better way of reducing the trading costs associated with the CAD/RON pair. On the other hand, longer-term traders of the pair enjoy lesser trading costs.

One way for traders to reduce their trading costs is to use limit order types. These forex order types eliminate the effects of slippage, thus make the associated slippage costs zero. Below are costs for a trader using limit orders.

ECN Model Account (Using Limit Orders)

Total cost = Slippage + Spread + Trading fee

= 0 + 35 + 1 = 36

As you can see, the trading costs are significantly reduced when limit orders are employed. The highest trading costs dropped from 644.07% to 610.17% of the trading range.

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Forex Assets

Costs Involved While Trading The JPY/LKR Forex Exotic Pair

Introduction

JPYLKR is a forex exotic currency pair, where JPY is Japan’s currency, and LKR is the currency of Sri Lanka. In this currency pair, JPY is the first currency, and the LKR is the second currency. The JPYLKR shows how much LKR is needed to have one JPY. It is quoted as 1 JPY per X LKR. For example, if the value of this currency pair is at 1.7686, then almost 1.7686 LKR is required to purchase one JPY.

JPYLKR Specification

Spread

The spread comes from the difference between the Ask and Bid price that a broker take as a charge. This value is set by the broker. However, it varies on the type of execution model used for executing the trades. Below are the ECN and STP values of JPY/LKR forex exotic pair.

Spread on ECN: 19 pips | Spread on STP: 24 pips

Fees

Every broker takes fees from trading, which is similar to the stock market. However, there is no fee on STP accounts, but a few pips on ECN accounts.

Slippage

Sometimes the entry price and execution price does not match, which is known as Slippage. The reason for slippage is the market volatility and the broker’s execution speed.

Trading Range in JPY/LKR

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

JPYLKR Cost as a Percent of the Trading Range

With the volatility values from the above table, we can determine the chance of cost with volatility changes. We have got the ratio between total cost and volatility and converted into percentages.

ECN Model Account 

Spread = 19 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 19 + 5 + 8

Total cost = 32

STP Model Account

Spread = 24 | Slippage = 3 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 19 + 5 + 0

Total cost = 27 

The Ideal way to trade the JPYLKR

The JPYLKR has enough volatility and liquidity. Hence, trading in this currency pair is straightforward and profitable. The above table’s percentage values are within 300%, which is an indication of stable volatility. Therefore, the costs are low irrespective of the timeframe and volatility you trade.

Digging it a little deeper, there is an inverse relationship between the cost and volatility. In a lower timeframe, the volatility is higher, and the cost is lower. However, in a higher timeframe, the volatility is lower, but the cost is higher. In this situation, traders should focus on trading when the volatility is on the average value. Therefore, it will be cost-efficient for all traders.

Furthermore, traders can quickly reduce costs by placing ‘limit’ and ‘stop’ orders. Because by using limit orders, the Slippage can be totally avoided, and the total costs get reduced. In our example, the total cost will be reduced by five pips, as shown below.

Using Limit Orders

Spread = 19 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 19 + 0 + 0

Total cost = 19

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Forex Assets

Trading The CAD/ZAR Forex Cross Currency Pair & Analyzing The Costs Involved

Introduction

The CAD/ZAR is an Exotic forex currency cross. CAD represents the Canadian Dollar, and the ZAR corresponds to the South African Rand. CAD is the base currency in this pair, while the ZAR is the quote currency. This pair’s exchange rate shows the value of the ZAR, which is equivalent to 1 CAD. If the pair’s exchange rate is 12.7969, it means that 12.7969 ZAR is equivalent to 1 CAD.

CAD/ZAR Specification

Spread

The spread in forex is calculated by subtracting the bid price from the asking price. Brokers determine the spread since it’s their primary source of revenue. Below is the spread charges for ECN and STP brokers for CAD/ZAR pair.

ECN: 39 pips | STP: 44 pips

Fees

Forex traders with the ECN type accounts have to pay a commission to their brokers for every position they open. Brokers do not charge any trading fees on STP accounts.

Slippage

The difference between the trade price preferred by a trader and the broker’s execution price is the slippage. In forex, slippage depends on market volatility and the speed at which the broker executes the trade.

Trading Range in the CAD/ZAR Pair

The trading range is best described as the analysis of how the exchange rate of a currency fluctuates across different timeframes. This analysis will help to estimate the expected returns from trading a particular currency pair. If, for example, on the 1-hour timeframe, the volatility of the CAD/ZAR is ten pips, a trader can expect to gain or lose $78. The trading range for the CAD/ZAR pair is shown below.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/ZAR Cost as a Percentage of the Trading Range

To make an informed risk management decision when trading the CAD/ZAR pair, we can analyze how the trading costs vary across different timeframes with different volatilities. Here are the cost analyses for the CAD/ZAR pair for both ECN and STP accounts.

ECN Model Account

Spread = 39 | Slippage = 2 | Trading fee = 1

Total cost = 42

STP Model Account

Spread = 44 | Slippage = 2 | Trading fee = 0

Total cost = 46

The Ideal Timeframe to Trade CAD/ZAR

We can notice that shorter timeframes have higher trading costs than the longer timeframes for both the ECN and the STP accounts. Also, across all timeframes, the trading costs reduce as the trading range of the CADZAR pair increases from minimum to maximum.

Although longer-term traders enjoy lesser trading costs, intraday traders can reduce their trading costs by trading when the volatility ranges between medium to the maximum. We can also further reduce the trading costs by implementing forex limit orders, which ensures that slippage does not affect your prices. Here is how trading costs can be reduced using forex limit orders.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 39 + 1 = 40

Using limit orders has significantly reduced trading costs. For the CAD/ZAR pair, the highest cost has been reduced from 711.86% of the trading range to 677.97%.

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Forex Assets

Trading The CAD/SEK Forex Exotic Currency Pair & Analyzing The Costs Involved

Introduction

CAD/SEK is a Forex exotic currency pair, where CAD is the primary currency of Canada, and SEK (Swedish Krona) is the currency of Sweden. In this exotic currency pair, CAD is considered the base currency, and SEK as the quote currency. This pair’s price determines the value of SEK, which is equivalent to one CAD. We can quote it as 1 CAD per X numbers of SEK. For example, if the CADSEK pair’s value is at 6.5877, we would need almost 6.5877 SEK to buy one CAD.

CAD/SEK Specification

Spread

In all the financial markets, the spread represents the difference between the Bid and Ask prices. It is typically a charge that is deducted by the Forex broker. These spread values vary on the type of execution model used for trade execution.

The spread of the CAD/SEK pair on ECN is 39 pips, and on the STP model account is 44 pips.

Fees

The trading fees that forex brokers are similar to the stock market. It is deducted from the traders’ accounts as soon as they open a new position. There is no fee charged on STP accounts, but a few pips are charged on ECN accounts.

Slippage

Slippage occurs when a trader opens a trade at a price, but it opens at another price by expanding the spread. The main reason for the slippage to occur is the market volatility and the broker’s execution speed.

Trading Range in CAD/SEK

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/SEK Cost as a Percent of the Trading Range

The below tables represent the percentage values of trading costs involved while trading this particular Forex asset in various time frames. Please note that these values must be used for directional purposes only. So, for instance, if the percentage of costs involved is high in the one-hour time frame, it implies that this pair is expensive to trade in that particular time frame.

ECN Model Account 

Spread = 39 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 39 + 5 + 8 = 52

STP Model Account

Spread = 44 | Slippage = 5 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 39 + 5 + 0 = 49

The Ideal way to trade the CADSEK

The CAD/SEK is an exotic cross currency pair with sufficient liquidity. As a result, traders may find it easy to trade in this pair. If we look at the table, we would see that the percentage values did not move above 65%, representing a lower trading fee even in the lower timeframe. Therefore, trading in this currency pair is suitable for intraday, swing, and even scalping. However, the best decision is to trade when the cost of trading is at the average value.

There is another way to reduce the cost while trading this pair, and it is to place a pending order. We can either place a limit or stop order instead of the market order. In that case, the slippage won’t be considered while calculating the total costs. Therefore, in our example, the overall cost will be reduced by five pips, as shown below.

STP Model Account (Using Limit Orders)

Spread = 44 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 44 + 0 + 0 = 44

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Forex Assets

Australian Dollar, Pound, and South African Rand: Three Fashionable Currencies

Today we will examine three currencies and four markets (EUR/GBP, GBP/USD, AUD/USD, USD/ZAR) so that you know the latest developments that need to be known and that affect those currencies.

The pound sterling has long been a good barometer of geopolitical tensions between the United Kingdom and the European Union, and now more than ever when Boris Johnson threatens without being a bluff to derail the negotiations.

The Sterling has long been a good barometer of geopolitical tensions between the United Kingdom and the European Union. After seeing what happened in the last few days, everything points to the potential risk of the negotiations breaking down. But there is a halo of hope, the past. Yes, you can remember perfectly well how whenever both sides were about to throw everything overboard, always, at the last moment, it was redirected.

Why wouldn’t it be like this again this time? Why would it not be as if the time limits were finally extended and interest agreements were signed? What is urgently needed is to reach a trade agreement next October to avoid a chaotic exit, bearing in mind that the UK’s current transition period ends at the end of next December.

The pound plummets between 3.2-3.6% against the euro and the dollar and is only 2% of the land originated by the COVID 19 (on March 18 it stood at 1.065). Even on Wall Street, there are voices advocating the fact that the odds of seeing the parity between the British currency and the Community currency have increased (calculations say that the probabilities have increased from 3% to 12% with a view to 3 months and from 11% to 25% with a view to 6 months), a fact that would be historic since it has never happened in history, not even with the holding of the EU exit referendum on 23 June 2016.

Investors who expect a recovery of the pound around 4-5% in the next 6 months are paying even 30% less than those who are leaning towards more weakness in the pound. One more fact that reveals what I just told you, that the market believes that both parties, as always, are using orthodagos and will finally reach some kind of agreement as always. Investors who expect a recovery of the pound around 4-5% in the next 6 months are paying even 30% less than those who are leaning towards more weakness in the pound.

The point is that a weak pound favours UK exporting companies, on the other hand, we have that the country’s imports would be more expensive.

* EUR/GBP: since last June this market was lateral and quiet, but since 3 September it is rising with joy. If the cuts bring the price down to 0.8877, it could be an opportunity to look there for an upward rebound.

* GBP/USD: since March the rise of this market is brilliant. But this month it reached its strongest resistance that was formed in March 2019 and then successfully tested in December of the same year. Once again, she has not been able to cope with it, and as always she touches it, falls come. Thus, breaking the resistance of 1.3383 implies the option of looking for more climbs.

Pound, Australian Dollar, South African Rand, Three Currencies in the Eye of the Hurricane
– The Central Bank of Australia comments that the strength of the Australian dollar is due, among other reasons, to the increase in commodity prices, especially iron prices, at the same time the entity did not offer any clues reflecting the implementation of additional monetary measures.

The strength of the Australian dollar is due, among other reasons.

The Bank announced the expansion of lending to entities and gross domestic product contracted more than ever in the last quarter, officially pushing Australia into its first recession in nearly three decades. The Australian dollar has revalued more than 26% since its low of 19 March, when the Central Bank announced emergency measures that included lowering the interest rate to 0.25%.

* Aud/Usd: Investors who are very aggressive will likely bounce upwards in the 0.7214 zone.

– The South African rand is testing a key level. It is the currency of the emerging market with the best performance this September only behind the peso of Mexico and the real of Brazil, due to speculation that the record cycle of monetary policies of the Reserve Bank of South Africa may be coming to an end.

As the Federal Reserve is likely to keep interest rates low in the future, the South African currency may continue to attract demand from investors borrowing dollars to buy higher-yielding currencies, known as carry trade (a fact that has generated in September a profit of +4%).

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Forex Assets

Bitcoin Vs. Gold: Which is the Better Investment?

Traditionally, gold is considered a protective asset in which money flows when problems arise in stock and currency markets. This can be seen very simply in the example of January 2016, when the collapse of the Shanghai Composite index began, which brought with it the other stock indices. Investors reacted immediately to the recession and transferred their money to gold, literally, in two months the price of gold rose from 1,090 to 1260 US dollars.

A similar situation could be observed on the eve of the referendum in the United Kingdom, as the June quotes went from 1210 to 1350 US dollars. The year 2016 was saturated from the point of view of fundamental factors. Because as soon as the last event of the year, the elections in the United States, was completed, the quotes at the end of the year fell to almost the level of January 2016.

Below are several arguments in favour of investing in gold:

Confidence in gold. Gold in the minds of investors, a priori, is considered a reliable financial instrument. This image was formed in past centuries when gold acted as a monetary equivalent and a means of monetary support. For a long time, gold will be interpreted as a reliable asset.

Limitation of natural resources. Gold reserves are limited, the industry’s constant demand for metal will support the price.

Freedom of Tenure. Physical gold can be inherited or donated to another person.
Liquidity. Gold has the advantage that in any form it presents, it can be converted in a fairly fast way into another type of asset.

Risk diversification. In the years 2008-2010, when the foreign exchange, stock, and commodity markets experienced stagnation, gold increased by more than 80%.

Cryptocurrency: The New Digital Gold

Cryptocurrency quotes behave similarly: on the eve of the referendum in Britain, bitcoin appreciated by more than 50%. After the growth of spring quotes, analysts began to talk seriously about the fact that cryptocurrencies can become for investors the “safe haven”, whose role so far is played by precious metals. Optimistic investors believe blockchain has a future, while the cryptocurrency market is a new investment trend that will replace currency and commodity markets. On April 1, Japan officially recognized Bitcoin as a currency and thus marked the beginning of a new investment instrument.

Below are the arguments in favour of cryptocurrency investments:

Profitability dynamics. In the last 6 months, BTC showed a growth of more than 500%, a similar dynamic of ETH. Despite the strong volatility (5-10% per day), in the medium and long term, the dynamics are upward. Gold in the last 10 years is in the range of 800-1400 US dollars (except for the peak of growth at the time of the mortgage crisis in the US).

Corporate support. In late February 2017, Ethereum Enterprise Alliance was created, which included more than 150 corporations, including CME Group, Mastercard, Intel, Microsoft, J.P.Morgan. This speaks to how corporations see a perspective on cryptocurrency and are ready to support it. This will inevitably be reflected in the future growth of their contributions.

Limited emissions. A limited resource in the face of increased demand generates price growth. Cryptocurrency emission is limited, cryptocurrency does not have a single emission center. Gold production has been out of control for a long time and has not been backed up by a single currency.

Investment facility. The purchase of gold involves a number of difficulties: the certification procedure, the guarantee of physical metal storage conditions, etc. You can win in cryptocurrency in a few mouse clicks.

Anonymity. All transactions with cryptocurrencies are anonymous, while the negotiation of futures or real gold falls under the control of the tax authorities.
Reliability and transparency of investments. The transparency of blockchain technology is being adopted by corporations, building on it applications with their own cryptocurrencies. All transactions of participants are recorded in the system while remaining anonymous. It is impossible to fake transactions, so the popularity of the blockchain (blockchain) and cryptocurrencies will only grow. Gold can be counterfeited, cryptocurrency can’t.

Transition to the era of digital technology. Even the Bretton Woods and Jamaican systems converted gold from a monetary asset into an investment asset. Today, when the world enters the world of digital technologies, it is an electronic cryptocurrency that becomes the focus of investors’ attention.

Availability. Investment in gold is available to investors with relatively large seed capital, and gold can only be purchased through specialist stock exchanges or banks. Anyone with the Internet can invest in cryptocurrencies.

Area of use. Gold has ceased to be a means of payment and is used only as an investment asset. Cryptocurrency, in addition to an investment asset, also acts as a means of payment and can be invested in ETF.

I think these arguments are enough to secure the prospects of cryptocurrency. Gold is slowly falling behind, becoming attractive only to conservative investors, who are used to “keeping” their assets. Already 20-25 years ago the Internet came into the world, changing the consciousness and lifestyles of millions of people, and now comes a new era, the era of the blockchain.

Investing in cryptocurrencies is possible as follows:

-Create a farm and mine or do cloud mining. This option is quite expensive and has a long return.

-Trading on stock exchanges. The disadvantage of this method is the reliability in the purses: the purse and private services can be hacked, a purse on a hard drive is difficult to recover if it fails.

Trading Cryptocurrencies on Forex

The popularity of cryptocurrencies is intensifying the activities of scammers. To date, there are more than 1000 cryptocurrencies (according to the Coin Market Cap website) and some of them are HYIPS that are barely updated every month. So, in conclusion, some tips on how to invest correctly in cryptocurrencies:

-Cryptocurrency is a currency within an application developed on blockchain technology. Analyze the feature of the application, its usefulness, and prospects.

-Many decentralized applications will be developed within Ethereum because the long-term cost of ETH will only grow. Invest in cryptocurrencies, they’ve already proven their solvency.

-A project that offers a fixed income per week (month) – HYIP.

-Do not rush to participate in ICO. There are examples when the value of tokens falls after their first placement.

Conclusion. Gold is gradually losing its role as an attractive investment asset. Blockchain technology is changing the world, creating a new economy, and opening a new era of investment. The future of cryptocurrencies and the one that believes in the latest innovative technologies of the Internet today, and tomorrow it will be possible to multiply its investments several times.

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Forex Assets

Everything About Trading The CAD/SGD Forex Currency Pair

Introduction

CAD/SGD is a Forex exotic currency pair where CAD represents the Canadian Dollar and the SGD, – the Singapore Dollar. For this pair, the CAD is the base currency, and the SGD is the quote currency. Therefore, the price attached to the pair is the quantity of the SGD that can be bought by 1 CAD. If the price of the CAD/SGD pair is 1.0289, it means that 1 CAD dollar buys for 1.0289 SGD.

CAD/SGD Specification

Spread

In forex trading, the difference in pips between the buying price (bid) and selling price (ask) is the spread. Forex brokers primarily generate their revenues through the spread. The spread varies depending on the type of trading account. The spread for the CAD/SGD pair is:

ECN: 7 pips | STP: 12 pips

Fees

For every individual trade made on an ECN account, one has to pay a commission. This fee varies with the broker and depends on the type of trade executed and the currency being traded. STP accounts do not have fees.

Slippage

In forex trading, slippage is the difference in the price in which a trader initiates a trade and the price at which it is executed. Slippage is a direct result of the brokers’ speed of execution and market volatility.

Trading Range in the CAD/SGD Pair

In forex, the trading range shows the fluctuation of a currency pair within s specific timeframe. The trading range is useful to estimate potential profit or loss from trading different timeframes. For example, if the CAD/SGD pair fluctuates ten pips in the 2-hour timeframe, it means that a trader can expect to either gain or lose $97 by trading one standard lot.

Below is a table showing the minimum, average, and maximum volatility of CAD/SGD across different timeframes.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/SGD Cost as a Percentage of the Trading Range

Cost expressed as the Percentage of the trading range helps a forex trader establish the anticipated trading costs under different market volatility across different timeframes.

Total cost = Slippage + Spread + Trading Fee

The tables below show the percentage costs to be expected when trading the CAD/SGD pair. The costs are expressed as a percentage of pips.

ECN Model Account

Spread = 7 | Slippage = 2 | Trading fee = 1

Total cost = 10

STP Model Account

Spread = 12 | Slippage = 2 | Trading fee = 0

Total cost = 14

The Ideal Timeframe to Trade CAD/SGD

We can see that in both the ECN and the STP accounts, costs are higher when volatility is at a minimum across all timeframes. Furthermore, we can observe that these costs tend to reduce when the volatility increases to the maximum.

For the CAD/SGD pair, costs are highest when volatility is at the lowest at 0.02 pips during the 1-hour timeframe. Conversely, the trading costs are lowest at the 1-month timeframe when volatility is at a maximum of 8.7 pips. Since high volatility can be risky and low volatility less profitable, forex traders should consider trading during times of average volatility.

More so, traders can increase their profitability by eliminating the costs associated with slippage. By using limit instead of market orders, forex traders can avoid experiencing slippage when entering and exiting positions.

Let’s have a look at how zero slippage cost affects the total costs.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 7 + 1 = 8

Notice that using the limit order type reduces the overall costs. The highest cost, for example, has reduced from 169.49% to 135.59%.

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Forex Assets

Top Secret: The Hidden Message of Indices

Spoiler for newcomers to the world of investment: In the long term, between 90% and 95% of funds fail to beat the benchmark they intend to surpass. This means that the active management fund (with that “star manager” so famous) they offer you in their bank branch (or in the luxurious private banking office, as if it were something very special and exclusive “only for a few”), has only a ten-to-ten chance of surpassing the index. An index in which you could invest much cheaper (up to 70 times cheaper) and profitable.

After the initial shock-if you were unaware of this reality, take the time to think about what your savings have been putting you through all these years-some questions arise: What lies behind this superiority of indices over active fund management? Is this a generalized clumsiness on the part of managers, or is it a consequence of the idiosyncrasy of an industry with perverse incentives?

What if the success of the indices is telling us something much more important and profound about the nature of the markets, and therefore they are a clue as to how we should or should not face investment? Although the most common question is the one that the media themselves induce us to pose uselessly:

What funds will beat the index?

This question is formulated with very bad intentions because it induces us to try to “guess” that fund every 10 that in the future will do better than the remaining 9. Are you familiar with the typical headlines in the press: “The funds that rent the most this year”? Obviously, the industry is interested in adopting this perspective because then we will always be subscribing to the fund that we believe will surpass the rest, thus changing the background as who changes shirts, instead of “standing still” indexing us.

The question does not make sense for two reasons:

Firstly, it is not possible to predict today what specific funds will beat the indices over the next few years. The fact that a fund has done so in recent years is not a sufficient reason for it to continue to do so. In fact, it is usually indicative of just the opposite. An example: Only 5% of US first quartile stock market funds in 2013 repeated quartile in 2014. And five years later, none of the funds that invest in large or medium-capitalization equities manages to stay within 25% of the best funds. Although the press and specialized media devote all their attention and praise to the funds that broke their index last year, investing “in pursuit of the best funds” is the worst way to choose an investment fund (and yet it remains the determining factor with which most investors make their investment decisions).

The second reason why there is no point in asking who will beat the index is practical: we do not need to know which funds will beat the index to achieve reasonable returns, with very low long-term risk. To illustrate this, imagine investing being like betting on a 20-team football league that will last 20 years. We can’t know who will end up being number 1, but we do know who will always be second to the rest of 18 teams: the index that everyone is trying to overcome. That is to say, obsessing about getting the first one right, when in the long run we have easy access to the runner-up -above the other 18 options available-, is at best frustrating and at worst very dangerous for our long-term heritage.

Why is this happening?

But let’s go back to the main question and stop being distracted by interesting distractions: What are the reasons for the success of indexation compared to other active investment strategies?

Although there are many reasons why managers have so many problems to overcome the index, we will summarize below the two most common: the costs and the idiosyncrasy of the management profession.

What I would like most in this article is to propose a third, much deeper and more fundamental cause, we could almost say philosophical, that justifies as much or more than those usually attributed to the success of indices as an investment strategy.

Is there passive management?

Before continuing, a necessary clarification: “passive” management does not exist. Someone, if not us, ultimately makes the decisions-systematically or discretionally-on what, how much, and when to invest. As we shall see, the dynamics of indices do not escape this unavoidable condition. By investing in indices we are investing according to its construction strategy-which by definition is active-, not immobilizing the money in a chest at the bottom of the sea. The appellation of “passive management” used by the industry is therefore unfortunate and leads to misunderstanding. The most appropriate “indexed management” or indexing should be generalized. But then,

What is an Index?

Apart from its orthodox definition, an index is nothing more than an attempt at simplified representation-and like any representation of reality, it is biased-of the market. We must not forget that its great success as a form of investment was neither premeditated nor intentional in its origins; it was simply an attempt to take a “picture” of the markets.

Very briefly, it consists of deciding on an amount of N shares to be included in a portfolio together with a selection and weighting criterion, which will result in a number (the “level” of the index at each point in time according to the quotation of its underlying components). For example, N=35 in our Spanish IBEX, N=500 for the S&P of large capitalization shares in the United States, etc. The most common criterion is that, in order to be representative of a market, they have to be the most “large”, as defined by those with greater liquidity and turnover. A committee of experts will meet regularly to assess whether existing actions meet the criteria and represent the market, or whether changes need to be made. That is, actively take and put actions to continue fulfilling the original criteria.

How does an Index work?

The indices are, in essence, baskets of dynamic actions in which their components are “recycled” as time passes, expelling the companies in decline and entering the ones that are capitalizing (for whatever reason or reasons) current dynamics of the current business cycle. The indices are therefore much more than “a picture of the market”, they are the tip of the iceberg -what you see- of a long previous process.

This process of “recycling” resembles the creative destruction that occurs in the real economy throughout economic cycles and that was described by Joseph Schumpeter in 1942. In free-market economies and throughout the inevitable economic cycles, the process of innovation involves the destruction of old companies and their business models (the winners in previous business cycles) by new products and emerging business models.

For Schumpeter, entrepreneurial innovation is the driving force behind long-term net economic growth, despite destroying companies from previous cycles along the way. Indeed, nothing is forever. Neither IBM was going to be eternal in the ’70s, nor today’s FAANG are going to dominate forever, no matter how much the myopia of the present makes us believe otherwise. Schumpeter called this recursive and inescapable process “creative destruction”.

If you look, the indices execute the same process of creative destruction as the economy but applied to the selection of their portfolio constituents. In fact, the indices are the last step in a company selection strategy that began decades ago with thousands of previous start-ups (most of which failed). Indeed, of all the start-ups, only a small group survives, and even less are profitable. Of that small, profitable group, only a small percentage eventually goes on the stock market. On the way are those companies unable to scale their business model or simply survive. And of that minuscule group of companies listed on the stock exchange, only the most successful companies become part of the stock index that represents that market and, by extension, the best of the economy of the sector, country, or region that the index tries to represent.

Usually, once inside the index, those companies with greater capitalization will have a greater weight in the index. Thus, the more successful a company is for investors, or so it is perceived, the more it will rise in price and its weight in the index will be higher. The effect of this process is that, in each new business cycle, those companies that better capitalize on the new business models of the current economy are the ones that weigh the most, so the indices end up capturing -automatically and inevitably- the most successful companies in each cycle.

The S&P-500 index first included 500 companies in 1957. Today only 86 of the original companies remain in the index. Since then, the remaining 414 original companies have been replaced by new ones.

It is this sense, and unlike investment in isolated companies, indices imply a low risk for the long-term investor because by definition they cannot fail. Although recessive periods are unavoidable (we must always bear in mind that stock market indices can drop temporarily around -50% or more at the worst times, which is not usually obvious to most investors) throughout business cycles, investing in indices globally ensures we capitalize on every new wave of growth. So, if we understand volatility as a mathematical description of how much an asset moves over time, and not as risk, then we can recognize that indexed investment, despite its high volatility, involves a lower real risk to the long-term investor than other investment alternatives.

Indexation thus allows us to participate in the process of natural creative destruction of the economy and its economic cycles, in a sufficiently efficient way -in fact, more efficient than 90% of all funds- automatically (the investor does not have to do anything) and much cheaper than through active management.

The next question is, being these investment rules that implement indices so simple…

Why don’t most managers surpass the Index?

We discussed this in-depth here. In short, the first reason is cost: Investment funds bear cumulative costs and fees which, in total, average between 2%-3% per year. This may seem little, but it would be the equivalent of participating in a marathon in which active managers are added between 20 and 30 meters more to run per kilometer. At first, it doesn’t seem like much, but in the long run of an “investment marathon,” leaving a 3% annual return on commissions means reaching only half of the accumulated return that we could achieve without that ballast. Ballast that indices lack, being simply an abstract numerical result.

The second reason is the idiosyncrasy of the industry, which generates perverse incentives in managers. On a personal level (yes, managers are also normal people), a fund manager within a large fund manager -usually within a large bank with a large product distribution chain- is not compensated for the risk of making investment decisions that are too different from those of his colleagues and therefore from those of the index construction. The manager has an unknown chance of getting it right. But if it goes wrong, he risks losing his job. This asymmetric incentive and the tyranny of being judged short-term work (if we deviate from the index, it is impossible to overcome it always and during all periods), cause mimetic behaviors that explain part of the little dispersion of results between managers with the same benchmark. These incentives cause managers to devote themselves to managing the best that their careers can, not the money of their clients. Usually, who pays for this perverse incentive dynamic is the final investor, who sees his active management funds moving further and further away from the total return on the index.

But as I outlined at the beginning, the costs and perverse incentives of the industry are not sufficient reasons to explain the overwhelming success of indexation versus active management. There is a deeper and more impactful reason, which however usually goes unnoticed or is not given the importance it deserves.

This reason has a lot to do with the worldview we have of the world, of what the world really is, and the path we take in the face of the inescapable dilemma of all investment.

The Dilemma of Investment

Investing means facing, whether we are aware of it or not, a dilemma from which we cannot escape. Regardless of the narratives, styles, or instruments used, and profitable investment strategy-that is, with positive mathematical hope in the long run-ultimately has to choose between two mutually exclusive ways of investing: Look for a high profit/loss ratio at the cost of sacrificing the percentage of hits. Or, pursue a high success rate at the cost of a low profit/loss ratio.

Unfortunately, in the real world, there are no consistent strategies that combine both a high degree of accuracy and a high profit/loss ratio. Attempts to pursue these “unicorns” are not sustainable and have always ended catastrophically (for the investor).

Thus, for deterministic environments, it is very efficient to assign media and talented people (and “hedgehog mentality”) to solve the problem via concave strategies. Very intelligent people are often attracted to these kinds of strategies, of increasing complexity and sophistication, with which they feel that they are controlling what is happening and can bring even more value the more they try. One example could be the engineering associated with the thermodynamics of gases and their mechanical conversion into transport vehicles. A car today has a sophisticated engine and systems that are far more efficient than any car half a century ago.

Decreasing marginal return on complexity when investing. 

However, as Jack Bogle has commented on numerous occasions, today’s average manager, regardless of his intelligence, does not manage better than the typical manager of half a century ago. For many great hedgehogs (including Nobel Prize winners) and dedicated media (including the now fashionable Artificial Intelligence and Machine Learning techniques), the marginal benefit of increasing complexity decreases very quickly from an optimal point (# a’ in the following diagram). Indeed, despite the “sophistication inflation” that the industry has suffered in terms of mathematical models and products in recent decades, there has been hardly any material advance for the investor in the quality of active management. The reason is that the system on which the manager works-the financial markets-, regardless of their talent and available means, is fundamentally non-deterministic.

Indeed, since markets are an emerging phenomenon as a result of human action, even if the mathematical models that describe the markets were definitely correct-something impossible in Popper’s scientific sense-and/or complete in his description of social reality-something impossible in Hayek’s sense-; the evolution of the markets in the short and medium-term will always and necessarily be unpredictable.

Warren Buffett reminds us of them in his own words on the next date. You don’t just need a great expert to obtain good investment results, but it is likely that, if we are very smart, we will be an obstacle to achieve our objectives because we will tend towards attitudes and worldviews of the hedgehog:

“If you have an IQ of 160, sell 40 points to another. You need to be smart but not a genius: Investing is not a game where the player with an IQ of 160 beats the one with 130. The rationality of what you’re doing is essential.” -Warren Buffett

Indeed, the industry is reluctant to accept that, in financial markets, as a paradigm of an environment dominated by uncertainty, less is more. In other words, maximum efficiency when investing is not achieved by indefinitely increasing the complexity of the models (point ìc’ in the upper scheme), but by keeping it at an optimal and reasonable level of complexity (point ìa’), adequate and consistent with its unpredictable nature. Once an optimal threshold of complexity has been passed to the environment, it is useless to continue allocating more resources or to increase the complexity of the solutions. It seems that the industry is endeavoring to increase the complexity of its services and products not to increase the value brought to the customer, but simply to use this striking sophistication as an advertising tool.

Indices resist where humans fail.

Most of the success in investing is in not letting us become our worst enemy (what I call investment iatrogenia). If markets and investments are by themselves a difficult art to learn, adding ourselves as a traitor to our goals sometimes gives it an insurmountable difficulty. We come into the world laden with psychological biases and are easy prey to fallacies. Becoming our worst enemy by investing is the easiest and fastest thing that can happen to us. And it is not a question of being more or less intelligent, but of knowing and being able to manage our emotions during the long journey. However, the indices, like any systematic strategy, lack the possibility of falling into some fallacy or psychological bias. Indeed, like any cost-effective systematic and convex strategy:

The index keeps winning shares as long as they meet the conditions to stay in the index. Be it for 1 year or be 100 years. This may seem obvious, but not at all during the time that we are invested, as human beings are very sensitive to the path traveled (“path-dependent”, which an old quant would say). If we invest in a company that after a few years suffers a fall of -70% or -90%, it is most likely that the “pain” for said loss leads us to abandon it and sell. . Philip Morris

The index eliminates the losers, even if we are “in love” with them. Once we have bought an action, we tend to reinforce the reasons for that decision, to “like” it beyond the pure strategic investment decision. When it falls below our purchase price, we tend to justify and believe that it is the market that is making a mistake. This results in many investors accumulating a large stock market that, if they had followed the criteria of the index, would have been sold long ago to make room for other stocks. In other words, indices don’t fall in love with any action. If it does not meet the conditions to stay in the index, then it is removed without hesitation twice.

In other words, by definition and when implementing a profitable convex strategy, an index cannot fail (the shares can). It is neutral with regard to sectors and investment factors (some sectors and investment factors do better or worse than others over time, but we do not know which and when). It is neutral regarding the risk of the manager as an incentive worker to keep their job; that may be implementing strategies that end up being, in the most benign cases, followers of the index (the problem of close trackers), and in the worst incoherent with the nature of the market (and make it much worse than the index). And above all, it is practically neutral with respect to the erosion of commissions, which in active management are usually around 2%, while funds and indexed ETFs are already reaching the 0.05% annual (up to 40 times cheaper) environment.

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Forex Assets

Costs Involved While Trading The ‘CAD/TWD’ Forex Exotic Currency Pair

Introduction

The CAD/TWD is an exotic currency pair where CAD is the Canadian Dollar, and the TWD is referred to as the Taiwan New Dollar. In this pair, CAD is the base currency, and the TWD is the quote currency, which means that the exchange rate for the pair shows the quantity of TWD that can be bought by 1 CAD. In this case, if the exchange rate for the pair is 21.864, then 1 CAD buys 21.864 TWD.

CAD/TWD Specification

Spread

In the forex market, the spread is considered a cost to the trader. It is the difference between the ‘bid’ and the ‘ask’ price. Here are the spread charges for ECN and STP brokers for CAD/TWD pair.

ECN: 29 pips | STP: 34 pips

Slippage

When trading forex, slippage occurs when the execution price is below or above the price at opening the trade. The primary causes of slippage are the brokers’ speed of execution and market volatility.

Trading Range in the CAD/TWD Pair

The trading range in forex is used to analyze the volatility of a currency pair across different timeframes. This analysis gives the trader a rough estimate of how much they stand to gain or lose by trading that pair over a given timeframe. For example, say the volatility of the CAD/TWD pair at the 1-hour timeframe is 20 pips. Then, a trader can anticipate to either profit or lose $91.4

The trading range for the CAD/TWD pair is shown below.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/TWD Cost as a Percentage of the Trading Range

For us to understand the trading costs associated with the volatility, we will determine the total cost for both ECN and STP accounts as a ratio of the above volatility.

ECN Model Account

Spread = 29 | Slippage = 2 | Trading fee = 1

Total cost = 32

STP Model Account

Spread = 34 | Slippage = 2 | Trading fee = 0

Total cost = 36

The Ideal Timeframe to Trade CAD/TWD

From the above analyses, we can conclude that it is costlier trading the CAD/TWD pair on shorter timeframes when volatility is low. Longer timeframes, i.e., the weekly and the monthly timeframes, have lesser trading costs. Therefore, it would be more profitable trading the CAD/TWD pair over longer timeframes.

However, for intraday traders, opening positions when the volatility is above the average will reduce the trading costs. More so, using forex limit orders instead of market orders will reduce the trading costs by eliminating the costs associated with slippage. Here’s an example.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 29 + 1 = 30

You can notice that using the limit orders significantly reduces the cost as a percentage of the trading range.

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Forex Assets

The Forex Trader’s Guide to Protective Assets

A protective asset is a financial instrument that shows a stable change in price without drops and spikes, regardless of the macroeconomic and geopolitical situation. As such, this type of asset is in demand during the time of crisis. As profits are typically earned on price movements when trading Forex, you are probably wondering whether you should be trading with this type of asset. In this article, you will find out.

Protective assets are subject to the following requirements:

-Price stability is irrespective of the overall volatility of the market. Force majeure should not have a significant impact on protective assets. On the contrary, at the moment of force majeure, investors’ capital flows into protective assets, since they enjoy the greatest confidence in the event of instability.

-Protection against inflation. The higher the return, the higher the risk. That is why protective assets do not have high returns, but at least they must grow in price after inflation.

-Minimum exposure to price changes. That is, they should have the lowest volatility and the highest liquidity.

Instruments, which grow in price when another instrument is depreciating, are sometimes mistakenly referred to as protective assets. For example, natural gas is not exactly a safe haven for oil. This is because natural gas has its own fundamental elements influencing price and its correlation with oil prices is weak. The situation, when oil falls and gas grows, can be called coincidence.

Ideally, a protective asset should not depend on geopolitics and the global economy but should still be highly liquid. There is no ideal, but there are some assets that have more of these features than high-performance instruments. A trader has two options: he can add to the portfolio instruments with a negative correlation (if one instrument depreciates, while another is appreciated). Or you might consider buying protective assets. The second option is more reliable because the negative correlation does not always work.

A good period of analysis to consider is the long crisis of 2008-2009. Although many companies started IPOs after this period, still, at present, it is possible to find interesting charts to make a comparison.

Gold

It is a classic protection asset, where investors’ capital flows amid major economic problems. It is partly the result of a historical stereotype. The scarcity of resources, the demand of the industry are the main factors that ensure the stability of the gold price.

Before 2008, the growth in the price of gold futures had formed a view that this asset is the most reliable, compared to currencies, stocks, and other commodities. This stereotype was ruined during the 2008 crisis.

In the 2008-2009 crisis period, gold was also falling in value. And even with its peak growth in 2012, long-term investments were not the most profitable. As international stock markets recovered to pre-crisis levels, gold quickly devalued. It was at the end of 2018 that the stock markets collapsed. Even if we consider this situation as an example when gold was a safe asset, it is not convincing compared to the overall trend.

Conclusion. Gold can be considered a protective asset only during the time of the short-term economic crisis. Then investors’ money stays in the system, simply flowing from one market to another. But in the event of a global crisis, investors withdraw their money from all markets. As we have learned from history, gold is an asset that also falls during these times. And the long-term trend of gold does not look like a chart of a stable protective asset either.

Another problem with investments in gold is the form. It seems that the most accurate thing is not to invest in physical gold, the delivery margin reaches 20% – 30% (gold alloy tends to oxidize). You will need fairly large seed money to buy gold futures (from several thousand USD). There are also problems with taxes.

Protective Actions

Protective actions are actions whose price is relatively stable and have little or no response to a bearish trend. These values are not interesting to speculators, as they are not rising rapidly during a global bullish trend. These values have the following characteristics:

  • There is a demand for the company’s assets, regardless of the world situation.
  • The products are of strategic importance.
  • The companies do not have excellent financial performance, but they do have government support.

During global economic growth, investors pay attention to companies from developed economies, whose stocks during a crisis will quickly fall in price. So, protective assets are the shares of emerging market companies. The most promising industries in this regard are the mining industry (these are rare metals, diamonds) and power generation.

A good example will be some companies from Russia which is an emerging market. As mentioned above, the oil and gas industry is not a protective asset. After the fall in contributions in 2009, stocks did not return to the pre-crisis level. The crisis of 2008 did not affect the company very much. And even after the crisis, the investment was more than successful.

For developed countries, there is also a separate approach. It is based on the fact that even in a crisis, ordinary people will continue to buy food, and rich people will not yet be able to deny themselves luxury.

When most stocks were declining in 2008-09, McDonald’s shares, after a small decline, instead, increased in value. Note that there was no significant reduction at the end of 2018, as was the case with technology companies. For example, Apple stocks that passed the 2008 crisis quite easily showed a serious decline at the end of 2018. And IBM documents in 2008 fell by more than 30%. Tesco and Walmart, which represent the retail segment, have similar graphics to McDonald’s. In the future, stocks of these corporations declined sharply, so the shares of the consumer sector and the food sector are safer than the shares of retail companies.

Conclusion. There are no universal protective assets, and they can be different at different times. However, there are some values constantly increasing, as demonstrated in the example of McDonald’s.

It is important that we highlight that there is no single rule on how to identify a protection asset. The potential investor should review the stock chart of each company and analyse the behaviour of the quotes at the time of a prolonged crisis. Previous recommendations on which countries, industries should pay attention and which criteria should meet these values.

Important! Protective actions are less relevant to protective assets than gold or government bonds. Yes, they fall less during a crisis, they can produce losses when other values will increase at a different time. It makes sense to consider protective actions only for the period of a possible recession, then one must decide the actions of each company individually.

Investors should certainly not consider the actions of the oil and gas industry, technology, and biotechnology companies unless such companies are under the strict control of the government. Nor should you use second-tier stocks as protective assets, as investors generally dispose of them at the time of a crisis. The greater the capitalization of a company, the greater the probability that the company will receive state funds. Small-capitalization companies face high risk.

Government Bonds

Government bonds are also called sovereign bonds. Here we talk about one of the safest assets, although nothing is safe by default. First of all, these are US bonds, or treasury bonds, where the risk of default is almost zero. Some important moments:

-The priority of short-term bonds (less than 3 years). Long-term documents respond better to market volatility.

-The priority of values with a floating rate.

-The priority of government bonds in developed economies. Municipal bonds and emerging market bonds are considered to have low liquidity.

There is one drawback with government bonds, and that is their low profitability and that almost never exceeds inflation. But in a low market, a yielding asset is rare, and bonds can be an alternative to deposits.

Corporate bonds are not protective assets. During the crisis period, there is the largest number of bankruptcies of different companies, including large corporations. If knowing the above, you still want to add corporate bonds to your portfolio, focus on things like credit rating, the presence of foreign exchange earnings, and the possibility of government support. An alternative to individual debt securities is bond funds.

Currency

So far, the US dollar is one of the few currencies that analysts recommend adding to their investment portfolio in some way for diversification purposes. The confidence generated by this currency is very strong, even in spite of the growing size of the debt. The euro sinks more strongly in times of local or protracted economic problems; therefore it is not considered a protective asset.

In the course of a crisis, there is always a strong demand for the Swiss franc, but you have to know that there is a small problem with liquidity. For example, investors in Africa, India, or Russia will find it difficult to buy or sell it quickly.

The Japanese currency is also sometimes considered a protective asset. Previously, it really was, but now, when the country is trying to combat deflation for a year and, on the contrary, is looking for ways to weaken the national currency, it is not worth considering it as such.

Other Protective Assets

Real estate. Some analysts think that real estate can serve as a protective asset. Everything here is very relative. If tourist properties in the Mediterranean used to be in demand (for example, Spain), then, during the crisis, demand dropped drastically, and real estate prices also fell. You also need to know what the real estate service costs is (and rent doesn’t always cover them), so investment doesn’t look promising.

Investment funds and ETF. It can also be considered as a kind of protective asset, as they are often diversified. But, during a crisis, their coverage function is weakened: they are becoming cheaper along with other assets. These investments relieve the investor from responsibility for the formation of a balanced portfolio, but the risk of the fund manager’s error persists.

Deposits. They are considered the most reliable conservative investment vehicle. The banking system is backed by the State and the Central Bank, then, the probability of a large bank going bankrupt, even speaking in times of crisis, is quite small (although there are exceptions). The insurance funds fully or partially offset the deposit in case of force majeure.

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Forex Assets

Trading The ‘CAD/MYR’ Forex Exotic Currency Pair

Introduction

The CAD/MYR is an exotic Forex currency pair where CAD is the Canadian Dollar, and the MYR is the Malaysian Ringgit. In this pair, CAD is the base currency, while the MYR is the quote currency. The price associated with this pair represents the amount of MYR that can be traded for 1 CAD. For example, if the price of the CAD/MYR is 3.1163, it means that 1 CAD can purchase 3.1163 MYR.

CAD/MYR Specification

Spread

When trading a currency pair, the ‘bid’ price and the ‘ask’ price are different. This difference constitutes the revenues that brokers earn, and is called the spread. Below is the spread charges for ECN and STP brokers for CAD/MYR pair.

ECN: 4 pips | STP: 9 pips

Fees

Fees represent the charges that brokers impose on forex traders when opening a position. These charges vary on the ECN account, depending on your forex broker. STP accounts usually do not charge fees for trading.

Slippage

Sometimes we intend to complete a trade with a prevailing price, but instead, the trade is executed at a different price. The difference between the two prices is slippage, and it is a result of market volatility and your broker’s speed of execution.

Trading Range in the CAD/MYR Pair

The trading range shows the volatility of a currency pair across different timeframes from minimum to the maximum expected volatility. The knowledge of market volatility can help a trader estimate possible gains or losses for different timeframes. Let’s say that the maximum volatility for the CAD/MYR pair at the 1-hour timeframe is 20 pips. A forex trader trading one standard lot of this pair can expect to gain or lose $64.2

Below is the trading range for the CAD/MYR pair.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/MYR Cost as a Percentage of the Trading Range

When the cost of trading is expressed as a percentage of the trading range, it can help a forex trader implement proper risk management measures. Below are cost analyses of the CAD/MYR pair for both the ECN and the STP accounts.

ECN Model Account

Spread = 4 | Slippage = 2 | Trading fee = 1

Total cost = 7

STP Model Account

Spread = 9 | Slippage = 2 | Trading fee = 0

Total cost = 11

The Ideal Timeframe to Trade CAD/MYR

In both the ECN and STP accounts, the 1-hour timeframe during minimum volatility of 0.1 pips has the highest trading cost. Generally, the 1H, 2H, 4H, and daily timeframes have higher trading costs compared to the weekly and the monthly timeframes. Therefore, longer-term traders of the CAD/MYR pair enjoy lesser trading costs.

However, the intraday traders can reduce their trading costs by initiating trades when the volatility for the 1H, 2H, 4H, and daily timeframes is above average. They can further lower these costs by using the forex limit orders, which eliminates the slippage costs. Here’s an example with the ECN account.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 4 + 1 = 5

You can notice that the overall trading costs have reduced when the limit orders are used. For example, the highest trading cost has been lowered from 118.64% to 84.75% of the trading range. Cheers.

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Forex Assets

Forex Trader’s Guide to Agricultural Commodities

Agricultural commodities include items that revolve around crops and animals, making them an important source of nourishment for many people and animals in the world. These commodities can also play a role in industrial applications, such as the building of furniture, fabric for clothing, and skin and hair care products.

Many of these items can serve multiple purposes. For example, corn is food, but it is also used as an ingredient in fuel production. Beef can also be consumed, while other companies use other parts from the cow to make products. This sector also employees more than 1.3 billion people, which is nearly 20% of the entire world’s population. Even with the uncertainty of Forex trading, we know that humans will always have a need for agricultural commodities. In this article, we will provide a breakdown of each of the categories of industrial products and the driving forces behind their prices.

Cereal Grains

This category includes grains like oats, wheat, corn, barley, and rough rice. They serve as food sources for humans and animals. Some of these options, like corn, can be used in fuel. If you monitor the spread between one grain and another, it will give you a good idea of the values of one grain against another. Try Googling “What are the grain prices today?”

Oilseeds

Canola, cotton, palm oil, and soybeans are all examples of oilseeds because they have high oil content in their seeds. The meal from these crops can also be used in clothing and other industries. These are considered to be one of the most important crops in the world. 

Meat & Dairy

This category revolves around livestock and includes live animals sold for meat, hide, organs, bones, and other parts, or cuts of meat that are meant to be consumed. Dairy products are primarily used for cooking and include staples like milk, butter, whey, and cheese. 

Soft Commodities

Items in this category are farmed and are usually separated from cereal grains, oilseeds, meat, and dairy. Coffee, Cocoa, and Sugar are common examples. 

Miscellaneous Commodities

These commodities include items like lumber, rubber, and wool that don’t really fit into any of the above categories. Of course, these items serve multiple uses in different industries like clothing, building houses, and others. 

You might find yourself wondering whether you should add agricultural commodities to your trading portfolio. First, you should consider that the price of these products is driven by population growth, agricultural productivity, technology, demand for meat in China, and global warming. Population increase will create more of a demand for these items as the population increases to an expected 9 billion people in the next 20 years.

Agricultural productivity is growing in more developed countries, but it is lacking is less developed ones. Technology can help farmers figure out the best times to plant, monitor the weather, test livestock, and perform other useful tasks. China is the largest meat consumer in the world and that demand is also expected to increase with population growth. As for global warming, heatwaves might kill off crops as temperatures increase over time. This would obviously hurt crop production. 

Some other advantages of trading these products are high liquidity, transparent prices, leveraged trading options, and the fact that there are a lot of products to choose from. Of course, these products carry their risks just like any other forex instruments, so traders should be well-educated and prepared before investing in any asset.

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Beginners Forex Education Forex Assets

Quick Start Guide to Exotic Pairs

Currency pairs fall into one of three categories: major, minor, or exotic. Major pairs include the most traded currency pairs and always feature the US dollar. Some examples would include the EUR/USD, USD/JPY, GBP/USD, and USD/CHF. Minor pairs, otherwise known as cross-currency pairs, don’t include the US dollar. For example, GBP/JPY or EUR/AUD are both minor currency pairs. Exotic pairs typically consist of a major currency that is traded alongside a less traded currency, or a currency that comes from an emerging market. Here are some examples of exotic currencies:

  • TRY – Turkish Lira
  • HKD – Hong Kong Dollar
  • JPY – Japanese Yen
  • NZD – New Zealand Dollar
  • AUD – Australian Dollar
  • MXN – Mexican Peso
  • NOK – Norwegian Krone 
  • SGD – Singapore Dollar
  • ZAR – South African Rand
  • THB – Thailand Baht
  • DKK – Danish Krone
  • SEK – Swedish Krona 

You will see exotics traded against currencies like EUR/TRY, USD/HKD, JPY/NOK, NZD/SGD, and so on. These pairs can be more volatile and are not offered for trading by every broker. Some brokers pick and choose certain exotic pairs, while others might offer every exotic, or none at all. You can check your broker’s product list to see what is available.  

You might wonder whether it is a good idea to trade this type of currency. These pairs are undoubtedly more volatile than majors and minors, and we wouldn’t suggest trading exotics if you’re a beginner. Major and minor currencies are less risky because they are attached to stable economies, which are usually moved by interest rates and economic data. Political and economic instability have more of a driving force with exotics. The fact that less traders are trading exotics can also cause more drastic price movements and spreads tend to be wider with these instruments. After all, there’s a reason why many brokers limit their dealings with this type of instrument. 

While trading exotic pairs is risky, these types of instruments might suit one’s trading style in way that other instruments don’t. If you have a lot of experience and understand the market, then it might be worth investing in exotics with a long-term trading plan. On the other hand, traders should remember that you do not have to trade with these just because they exist. Sticking with majors and minors is a much safer option and there is nothing wrong with sticking to basics, especially where money is involved. If you’re determined to trade exotics, we would suggest practicing with a demo account first, so that you’ll be more prepared.

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Forex Assets

Trading The NZD/HKD Forex Exotic Currency Pair

Introduction

NZD represents the official currency of New Zealand, while HKD is the official currency of Hong Kong. It is an exotic-cross currency pair where NZD is the base currency, and HKD the quote currency. The price of NZDHKD determines the value of HKD, which is equivalent to one NZD. In other words, this pair represents 1 NZD per X HKD. For example, if the pair is trading at 5.14452, we would need about 5.1 HKD to purchase one NZD.

NZD/HKD Specification

Spread

To get the Spread value, we just have to subtract the Bid price from the Ask price. The value of the spread is set by a broker. However, the amount in pips depends on the type of execution model used for executing the trades.

Spread on ECN: 31 pips | Spread on STP: 35 pips

Fees

Like other financial markets, Forex has some fees that a trader needs to pay while they take a trade. Note that the broker does not take any fee on STP accounts, but a few fees are charged on ECN model accounts.

Slippage

The slippage is a set of pips formed by the difference between the demanded price by the trader and the execution price by the broker. The main reason for the occurrence of slippage is market volatility or the broker’s execution speed.

Trading Range in NZD/HKD

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

NZD/HKD Cost as a Percent of the Trading Range

The volatility values from the above table show how the cost varies with the change in volatility. The ratio between total cost and the volatility values reconverted into percentages to have a better outlook.

ECN Model Account 

Spread = 31 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 31 + 5 + 8

Total cost = 44

STP Model Account

Spread = 35 | Slippage = 1 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 35 + 1 + 0 = 36

The Ideal way to trade the NZD/HKD

The NZDHKD is a pair with high liquidity. Therefore, trading this exotic currency pair seems to be feasible. We can see from the above table that the highest Percentage of values are barely above 100%. It means this currency pair is relatively less expensive to trade.

The most significant costs are in the hourly timeframe only, as the costs in 2H, 4H, and daily timeframes are also low. However, every trader should avoid the volatile market condition. Therefore, the best way to trade this pair is to look out for the possibilities to be on lower timeframes also while sticking to the average volatile level.

Also, traders can reduce the trading costs further by eliminating market orders and placing orders as ‘limit’ and ‘stop.’ In this case, slippage can completely be avoided. Please go through the below table to further understand this.

STP Model Account (Using Limit Orders)

Spread = 31 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 31 + 0 + 0 = 31 

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Forex Assets

Forex Currency Pairs 101

You have probably heard about most of the available currencies such as the US Dollar, the British pound, and the Euro, the three of these currencies are traded within Forex as well as plenty of others. Each currency in the world has its own ISO code, this is often a three-letter abbreviation of the currency, on the rare occasion, this may be a four-letter abbreviation. The letters given to it are often related to the overall title of the currency, but in some cases such as with the Swiss Franc, it can be completely different as the Swiss Franc has CHF as its ISO.

We have outlined some of the major currencies below, there are of course a lot of other currencies available, however when you are starting out with trading and the foreign exchange markets, then you will most likely be concentrating on these slightly more major pairs.

So those are some of the main currencies, but when we trade in Forex, we are always trading one currency against another, these pairs of currencies are simply called currency pairs. They are the bread and butter and the buying and selling of these currency pairs is how we end up making money. So let’s have a look at what some of the main currency pairs that you should know and should be looking at trading when you are just starting out.

Major Pairs:

Euro Cross Pairs:

Pound Cross Pairs:

Yen Cross Pairs:

Other Cross Pairs:

Each currency has its own value that fluctuates up and down, the value of a US Dollar is $1, it will always be $1. However, $1 is not equal to £1. At the time of writing this £1 was worth almost exactly $1.26. So in the foreign exchange world, it would be written as GBP/USD = 1.26. It is always written as the base currency first, then the quote currency, and then the current exchange rate.

You are able to both buy and sell currencies, so let’s briefly look at what that means, thy can be summed up with a single sentence each:

Buy or Long = When you buy the base currency and sell the quote currency.

Short or Sell = When you sell the base currency and buy the quote currency.

So how do we make money? Let’s say we want to make a profit on this, we would buy into the pair, which means that we would be buying GBP with our USD for the value of 1.26 US Dollars to Great British Pounds. We would then hope that the value of your point would increase, so the exchange rate would move up to 1.27 or 1.28 (of course there are a  lot of extra decimals in there too). If that was to happen, when we sell back, we would have more dollars than we started with, giving us our overall profits.

That is in essence how the currency pairs work. Of course, there are far greater complications when we start looking at pairs that are completely different to our base currency, the good news is that you very rarely have to ever think about that, the broker that you are using will luckily be able to do all of the thinking and calculations for you, so all you need to look for is the fluctuations in the exchange rate between currency pairs. 

Hopefully, that has given you a little understanding of how things work, there’s a  lot to learn when it comes to trading, so it is good to sometimes keep things simple and to not give too much information at once. Take things one step at a time and you will manage to become successful in no time.

 

 

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Forex Assets

Asset Analysis – Trading The NZD/QAR Forex Exotic Pair

Introduction

NZD is the authorized currency of New Zealand, while the QAR (Qatari Rial) is the official currency of Qatar. The combination of these two currencies forms the NZDQAR exotic pair. As a trader, we aim to identify the possible movement in this pair by an appropriate analysis method and make money from the differential.

Understanding NZD/QAR

In every currency pair, the first currency is known as the base currency, and the second currency is known as the quote currency. We can quote it as 1 NZD per X numbers of QAR. For example, if the NZDQAR pair’s value is at 2.4460; therefore, we need almost 2.4460 QAR to buy one NZD.

NZD/QAR Specification

Spread

The bid price is the price level that buyers are willing to pay when they buy an instrument. Similarly, ask price is the lowest price that a seller is willing to pay when they sell a currency pair. The difference between these prices is known as Spread. This value changes with the change of the execution model.

Spread on ECN: 12 pips | Spread on STP: 17 pips

Fees

The fee or commission in Forex is similar to the one that is pair to stockbrokers where it is automatically deducted from traders’ accounts when they take a trade. However, an STP account does not take any fees but a few pips on ECN accounts.

Slippage

There is some market condition when we enter a buy or sell trade, but the trade opens some pips higher or lower, known as Slippage. The Slippage might happen when the market is volatile.

Trading Range in NZD/QAR

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

NZDQAR Cost as a Percent of the Trading Range

With the volatility values obtained from the above table, we can see how the cost varies as the volatility of the market varies. All we did is, got the ratio between the total cost and the volatility values and converted into percentages.

ECN Model Account 

Spread = 12 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 12 + 5 + 8 = 25

STP Model Account

Spread = 17 | Slippage = 5 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 17 + 5 + 0 = 22

The Ideal way to trade the NZD/QAR

The NZD/QAR is a currency pair that has a lot of volatility and liquidity. Therefore, it is easier for a trader to trade this exotic-cross currency. If we analyze the table mentioned above, we can say that the H1 timeframe has the highest cost as a percentage of the trading range at an average of 44.64%, where the average movement is almost 56 pips. The increase in volatility provides higher price fluctuation, but it is often risky for a trader as there is a possibility of unwanted stop loss hit and reverse back.

Moreover, in the monthly timeframe, the price of the NZD/QAR provides an excellent movement with a low cost of an average of 0.77% only. Therefore, if we trade this pair in a higher timeframe, we might reduce the risk of market volatility. We can also use limit orders in the place of market orders to further reduce the costs, as shown below.

STP Model Account (Using Limit Orders)

Spread = 12 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 12 + 0 + 0 = 12

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Beginners Forex Education Forex Assets

Precious Metals Trading Guide

Metals can make a great addition to any trader’s portfolio, so long as one understands the risks and rewards related to trading this type of instrument. Combining that knowledge with careful trading decisions can certainly pay off for savvy investors. Most Forex brokers offer investment opportunities in Gold and Silver, while Platinum, Palladium, and Copper are also commonly traded metals. In this guide, we will cover the unique aspects related to each of these metals, along with other base metals, and what drives their prices.   

Gold

Gold has earned its spot as the most popular trading metal because of its several unique qualities:

  • It can be used as currency
  • Jewelry 
  • Industrial uses (dentistry and electronics)
  • Durability 
  • Conducts heat & electricity  

Supply & demand does not have as much of an effect on Gold, which helps the metal to retain its value. People tend to hoard it because of financial concerns related to the economy, in relation to inflation, and when a political crisis is on the horizon. However, this works out, as the price drops when the hoarded Gold is sold, and prices are driven higher when others want to buy. In 1980, Gold reached its highest price of $2,076. Since then, the price has gone up and down several times.    

Silver

Silver is typically offered alongside Gold and is one of the most well-known trading metals. Silver’s price can be more volatile than Gold, but it does have several important applications:

  • Currency
  • Photography
  • Batteries
  • Electrical Appliances 
  • Medical Products
  • Industrial Items that require Silver inputs 

The demand for Silver in both industrial and investment areas can cause the price to go in either direction, which is the main reason for its higher volatility. As a precious metal, silver holds its value better than printed money. 

Platinum

Platinum is an industrial metal with many practical uses in:

  • The Auto Industry 
  • Jewelry 
  • Petroleum 
  • The Computer Industry 

This precious metal is rarer than Gold since less of it is removed from the ground yearly. South Africa is one of the main sources for the supply of Platinum. The rarity of Platinum drives the price up, making it one of the most volatile metals to trade. It also finds itself listed as an amount in a broker’s investment portfolios less often than the ever-popular Gold & Silver. 

Palladium 

Palladium is a lesser-known precious metal with several industrial uses:

  • Manufacturing; electronics & industrial products
  • Dentistry 
  • Medicine 
  • Jewelry
  • Chemical Applications
  • Groundwater Treatment

Palladium is considered more of a luxury metal in some instances, yet it is also essential for preventing air pollution. Like Silver and Platinum, the price of Palladium is more volatile, making it a risky but potentially rewarding investment option. 

Copper 

Although Copper is the most inexpensive of the items on our list (and the only option that isn’t considered to be a precious metal), it is still useful in the production of several items:

  • Motors
  • Generators
  • Wiring
  • Machinery 

Copper is one of the five most-traded commodities and it also experiences high volatility. 

In addition to the above options, some brokerages also offer trading in the following base metals:

  • Aluminum: This lightweight, recyclable, and corrosion-resistant metal has many industrial uses and a strong demand in China.
  • Iron: Iron is used to manufacture steel, in engineering, and to make alloy steels, which help to build bridges, electricity pylons, bicycle chains, cutting tools, and rifle barrels. 
  • Lead: Lead is used in battery production, x-rays, piping, and for many other industrial needs. China is the leading country in the production of the metal. 
  • Steel: Steel is valuable for construction and engineering purposes. 
  • Nickel: As one of the most widely used metals on Earth, Nickel has many favorable traits that make it useful for industrial purposes. Stainless steel, electronics, plating, catalysts, and rechargeable batteries are all made using Nickel. 
  • Zinc: Galvanizing metal, alloys, die-castings, zinc-oxide (cosmetics, paint, pharmaceuticals, rubber, plastics, ink, batteries, etc.), and zinc-sulfide are the main uses of Zinc. The price is driven by Chinese supply & demand, US demand, global prices, and input prices. 
  • Tin: Tin is often used as a protective coating due to its high resistance against corrosion. Soldering demand is one of the top factors driving the price of Tin. 
  • Molybdenum: This metallic element has a high melting point, making it a strong compound in alloys like steel. The price is driven by supply & demand, global stocks, demand outlook, seasonal changes, and input prices. 

Risks & Rewards 

Supply & demand is one of the main issues that can affect the price of a metal. During times of economic uncertainty, many traders gravitate towards metals, which can cause the price to shoot up. This could ultimately affect one’s ability to find a buyer.  

On the other hand, adding metals to one’s investment portfolio lowers the overall risk of volatility and risk. This is because they have intrinsic value, which protects against inflation. Unlike with money, it is impossible to print more Gold, Silver, Platinum, etc., which makes metal a more stable investment option. Gold, Silver, and Platinum are among the top-traded commodities, next to Crude Oil and Natural Gas. Long-term trends also secure the value of these metals, including demand from China, technological innovations, and environmental regulation. 

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Forex Assets

Analyzing The Costs Involved While Trading The NZD/SGD Exotic Forex Pair

Introduction

NZD/SGD is the abbreviation for the native currencies of New Zealand and Singapore. It is considered an exotic pair, where NZD is the first (base) currency, and SGD is the second (quote) currency.

Understanding NZDSGD

This pair’s price determines the value of SGD, which is equivalent to one New Zealand Dollar, NZD. We can quote it as 1 NZD per X number of SGD. For example, if the NZDSGD pair’s value is at 0.90759, we need almost 0.90759 SGD to buy one NZD.

NZDSGD Specification

Spread

The spread comes from the difference between the bid and the ask prices offered by the broker. This value is controlled by the brokers; therefore, traders don’t have a say in this. This value varies on the type of execution used for performing the trades. Below are the ECN and STP values for NZD/SGD currency pair.

Spread on ECN: 26 pips | Spread on STP: 31 pips

Fees

The fee or commission in Forex is similar to the one that is paid to stockbrokers, where it is automatically deducted from traders’ accounts when they take a trade. Note that there are no fees on STP trading accounts, but a few pips are charged on ECN accounts.

Slippage

Slippage happens when a trader tries to open a trade in a price, but it opens at another price. The main reason to occur slippage is the market volatility and the broker’s execution speed.

Trading Range in NZDSGD

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

NZDSGD Cost as a Percent of the Trading Range

If we look at the volatility values at the above table, we can see how the cost changes with the change in volatility of the market. We just have got that ratio and converted into percentages.

ECN Model Account 

Spread = 26 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 26 + 5 + 8

Total cost = 39

STP Model Account

Spread = 26 | Slippage = 5 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 26 + 5 + 0

Total cost = 31

The Ideal way to trade the NZDSGD

The NZDSGD is a currency pair that has a lot of volatility and liquidity. Therefore, it is easier for a trader to trade this currency pair. The above-mentioned percentage values are all within almost 500%. It is an indication that the cost is higher in the lower timeframe and lowers in the higher timeframe.

In other words, the cost rises with an increase in volatility. Therefore, the risk of this pair is that it is highly volatile. However, the best time to trade in this pair is when the volatility is at the average value. A decrease in volatility is ineffective, while the increase in volatility is risky. Therefore, sticking to the average value is suitable for this pair.

Furthermore, there’s an additional way to lessen the cost of the trades you execute. This is by placing a pending order as a ‘limit’ order instead of a ‘market’ order. In this case, there will be no slippage. So, in this example, the total cost will be reduced by five pips.

STP Model Account (Using Limit Orders)

Spread = 26 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 26 + 0 + 0

Total cost = 26

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Forex Assets

The Fundamentals of the Swiss Franc (CHF)

The Swiss Franc, otherwise known under the code CHF, is the official currency of Switzerland and Liechtenstein as well as legal tender in Italy. Since its creation in 1850, the CHF has historically been marked by Switzerland’s neutral stance in war situations, making people around the world build trust in Swiss banking institutions. People’s tendency and willingness to keep their money in Switzerland appears to stem from the country’s image of being impartial and honorable under all circumstances, making the CHF and Swiss banks unique. For a period spanning across several centuries, Swiss banking institutions exuded the air of safety and fairness. Their firm approach of withholding information from government entities to preserve anonymity long supported the impression that they would leave on others, which unfortunately started to wither in the past few years.

The long-held belief in the credibility of Swiss institutions and their distinctive conduct was undermined directly once the news of sharing information with US and German governments broke out, consequently affecting their safe-haven status in the world of banking. Apart from the changes in Swiss banking systems and the effects they have had on the way they are perceived by others, it is interesting to note how Switzerland is quite a small country. Along with its size, the country’s GDP is thus also rather small, especially compared to some other countries. Despite these facts, the official currency of Switzerland unusually ranks fifth among all major currencies, which is directly proportionate to the quantity of money flowing into the country. The CHF, which is also called frank or swissie, is currently believed to be the most tightly linked to the price of gold among all other currencies. The history of Switzerland and the present state of the currency both point towards uniqueness and distinctiveness in comparison to other currencies and their respective countries to this day.

The Swiss National Bank

The Swiss National Bank, Switzerland’s central bank, was established in 1907. Unlike other central banks in the world, the Swiss National Bank (SNB) is an aktiengesellschaft (AG) that stands for a public limited company. This further implies that the SNB is a for-profit type of institution, thus resembling J.P. Morgan, Credit Suisse, or Deutsche Bank. Despite its uniqueness, the SNB still functions as a regular bank, i.e. it holds deposits, makes loans, etc. Aside from its standard banking-related tasks, the government of Switzerland additionally placed responsibility for the country’s monetary policy on the SNB. The bank is also in charge of Swiss gold reserves, which has fueled conspiracy theories about large, hidden vaults under the city of Bern that supposedly store immense quantities of gold.

The unproven allegations that kept many interested in the pursuit of confirmation and discovery were not confirmed by the bank which further kept the veil of mystery regarding this topic. This massive interest led to a breakthrough approximately 12 years ago when a German journalist managed to get in touch with an individual who worked in one of the vaults. The worker disclosed confidential information concerning the location of the vaults and the amount of gold to a German newspaper, yet the Swiss government refuted all claims. The Swiss National Bank is, however, still believed to hold massive gold deposits as a central bank responsible for the county’s gold reserves.

What is more, since the SNB is a for-profit independent bank, it achieves its aims of making a profit through the Bank Council, with six members appointed by the government and five by the shareholders. Regardless of the bank comprising the minority of the council, it is still tasked with managing the economic policy. The SNB has a dual mandate, consisting of price stability (i.e. regulating inflation) and economic growth. It is also one of the central banks to meet the least frequently to discuss Swiss monetary policy. The monetary changes, which include the LIBOR (Swiss interest rates), are announced only once every quarter as opposed to many other countries. The Swiss National Bank is led by Mr. Thomas J. Jordan, appointed in 2012 as the bank’s Chairman. One of his greatest contributions was the essay he wrote on the possible repercussions of abandoning the official currency in favor of the EUR amidst the changes that were taking place in European countries in the 90s. This paper contained a detailed assessment of the future, involving monetary policy and housing markets collapse, that would come true a decade later. 

Economic Reports

The key economic reports in Switzerland are GDP, employment level, retail sales, CPI and PPI, and consumption indicator. Nevertheless, it appears that overall economic numbers do not impact the CHF substantially unlike some other currencies. 

Most Traded Pairs

The USD/CHF and EUR/CHF are the most liquid crosses, followed by the GBP/CHF and CHF/JPY currency pairs. Professional traders advise caution with all other CHF-based crosses due to the fact that trading outside these four pairs tends to be rather light and illiquid. Currency pairs such as AUD/CHF typically involve many wide spreads and erratic movements and such crosses are quite susceptible to the impact of news events. Therefore, in order to avoid extreme volatility and gain the most volume, the previously mentioned pairs may be the best option for trading in the currency market.

CHF-based Crosses Compared

Key Correlations

Gold

Switzerland held to the gold standard for the longest period of time among all other countries, even after most of them abandoned it in the 1970s. The fact that stayed on the gold standard implies that they maintained equal amounts of gold to back up their currency. This lasted until the 90s when they cut the gold reserves by 50%, so each new banknote they printed would be supported by a half of its value in gold reserves. This ratio was further reduced later, but the CHF is still tied to the price of gold. Even though this relationship has weakened over time, the CHF typically rises when gold does and vice versa.

XAU/CHF vs. USD/CHF

EUR/CHF

In the midst of the EUR collapse in 2011, with many European countries undergoing major difficulties, no one knew whether a stronger economy could bail them out or whether the ECM could offer any support. Looking for more stability in the crisis, many wealthy individuals decided to move their finances to Switzerland. This subsequently caused the EUR to depreciate and the CHF to appreciate, and the pair suddenly moved from 1.50 to 1.04. The price of Switzerland’s official currency quickly climbed sharply and as they are a large exporting economy with most of their exporting done with Europe, the price of their products steeply increased.

The SNB decided to take action and buy great amounts of currency once EUR/CHF reached the above-mentioned low so as to return the value to 1.20. The pair went up in a matter of a few hours and after 1600 pips turned out to be one of the greatest market moves in the currency market. The close relationship between the two currencies imitates a currency peg, which entails that a currency pegged to another cannot trade freely anymore. Due to this intense resemblance, some professional traders chose to focus on other EUR-based pairs as they generally involve less slippage and tighter spreads. Nowadays, traders are keen on trading USD/CHF and EUR/USD owing to these crosses’ high (95%) negative correlation.

EUR/CHF

Trading the CHF

The CHF used to be one of the top three most traded currencies, yet due to the correlations with the EUR and gold, it has lost its independence in a way. Its safety status diminished greatly after Switzerland abandoned the gold standard and the banking institutions started to give out confidential information. Switzerland has maintained its interest rate at -0.75 since 2015, which is one of the lowest rates among all central banks. Inflation amounted to 0.57% in 2019 and was projected to reach 0.64% in 2020. The last report the SNB issued in June of 2020 highlighted a sharp decline in economic activity and inflation as a result of the COVID-19 pandemic. Although they state that current inflation and growth estimates are challenged by unusually high uncertainty, they are generally assumed to pick up in the following year. Due to the nature of the country’s economy and exportation, the CHF carries hardly any difficulties with a trade deficit.

The country’s overall economic activity depends on GDP, and as the decline in Swiss GDP was already noticeable in the first quarter of the year, with April witnessing one of the lowest points in economic activity, the SNB projects a stronger GDP declined in the second quarter of this year. With regard to news events, the CHF’s correlation with the EUR makes it more susceptible to whatever is happening with the EUR. Therefore, if the ECB decided to reduce interest rates, the effects would likely be felt with the CHF as well. The SNB does not necessarily need to take the same action as the ECB, as it has not done in the past either, yet the CHF and the EUR have exhibited similar behavior for many years now. As discussed before, many traders decide to trade other EUR pairs rather than EUR/CHF due to this correlation.

Central Banks’ Interest Rates

Latest Events

The CHF has been moving in various directions lately, which has been largely boosted by the higher EUR. A recent downtrend has turned into a rather weak uptrend supported that can be attributed to the EUR. The EUR appears to have been much better than the CHF lately, pulling it upward. This week, both the EUR and the CHF seem to be in the neutral territory in comparison to other major currencies. Generally, as there is a little divergence between the EUR and the CHF, other crosses involving the former may again be a better choice. The end of August is typically a quiet period in the forex market, so trading currencies can potentially be a little sluggish as well. In terms of economic reports, KOF economic barometer, which many participants in the financial markets seem to be interested in, will come out on August 28, providing information on the Swiss GDP. The CHF is generally directed towards a weaker value due to the Swiss National Bank’s desire to boost inflation.

Although it is one of the strongest currencies in the world, trading the CHF is still subject to susceptibility to some other factors such as the EUR, gold, and, currently, the coronavirus pandemic. Nonetheless, due to its strong economy and the unique central bank the currency rests on, the CHF is believed to remain one of the safer investment options. Switzerland’s safe-haven currency was estimated to be the second best-performing currency of 2020.

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Forex Assets

Asset Analysis – Trading Costs Involved While Trading The CAD/AED Currency Pair

Introduction

CAD/AED is a Forex exotic currency pair, where CAD represents the currency of Canada, an AED is the currency of the UAE. In this exotic currency pair, CAD is the base first, and AED is the second currency.

Understanding CADAED

This pair’s price determines the value of AED, which is equivalent to one CAD. We can term it as 1 CAD per X numbers of AED. For example, if the CAD/AED pair’s value is at 2.8007; therefore, we need almost 2.8007 AED to buy one CAD.

CADAED Specification

Spread

In every financial market, Spread represents the difference between the Bid and Ask. It is usually a charge that is deducted by the forex broker. This value changes with the type of execution model.

Spread on ECN: 10 pips | Spread on STP: 15 pips

Fees

The trading fees in the forex market and stock market are the same. It is deducted from the traders’ accounts as soon as they open a new position. Note that STP accounts do not charge anything, but a few pips charges on ECN accounts.

Slippage

Slippage happens when price opens above or below the execution level. Slippage occurs because of two important reasons – market volatility and broker’s execution speed.

Trading Range in CADAED

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CADAED Cost as a Percent of the Trading Range

The volatility values on the above table indicate how the cost varies with the change in market volatility. All we did is to get the ratio between the total cost and the volatility values and converted them into percentages.

ECN Model Account 

Spread = 10 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 10 + 5 + 8 = 23

STP Model Account

Spread = 10 | Slippage = 5 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 10 + 5 + 0 = 15

The Ideal way to trade the CADAED

The CADAED is an exotic cross currency pair with higher volatility and liquidity. Because of this, traders may find it easy to trade in this pair. We can see that the percentage values above where the value did not move above 230% that represents a higher trading cost in the lower timeframe. However, when we move to the monthly timeframe, the average cost came to below 2%.

Therefore, trading intraday in this currency pair is risky due to the high trading cost. On the other hand, trading in a higher timeframe has less cost, but it requires a lot of patience and time. Overall, for every trader, it is recommended to stick on trading where the trading cost is at the average value.

Another way to reduce the cost is to place a pending order as ‘limit’ and ‘stop’ instead of ‘market.’ In that case, there will be no slippage in the calculation of the total costs. So, in our example, the overall cost will be reduced by five pips.

STP Model Account (Using limit orders) 

Spread = 10 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 10 + 0 + 0 = 10

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Forex Assets

Analyzing The CAD/DKK Forex Exotic Currency Pair

Understanding CADDKK

CADDKK is an exotic currency pair where CAD is the major currency Canada and DKK is the currency of Denmark. In this currency pair, CAD is the first currency, and DKK is the quote currency.

The price of CADDKK determines the value of DKK that is equivalent to one CAD. We can term it as 1 CAD per X amount of DKK. For example, if the CADDKK pair’s value is at 4.7712, we need almost 4.7712 DKK to buy one CAD.

CADDKK Specification

Spread

When we subtract the Bid price and the Ask price, we will find the Spread. Spread is a trading cost that is controlled by the broker. Therefore, traders don’t have to do anything with this. This value changes with the change in execution.

Spread on ECN: 19 pips | Spread on STP: 24 pips

Fees

Trading fees in the forex market is the cost that the broker takes from traders. It is automatically deducted from traders’ trading account. Note that a few pips charges on ECN accounts but there is no fee on STP.

Slippage

Spread is the difference between the execution level and the open price level when it is an excessive level of volatility in the price. Market volatility and execution speed of your broker mainly contributes to the degree of slippage.

Trading Range in CADDKK

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CADDKK Cost as a Percent of the Trading Range

With the volatility, values provide an indication of how the cost varies with the change of volatility. We got the ratio between the cost and volatility and converted into percentages.

ECN Model Account 

Spread = 19 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 19 + 5 + 8

Total cost = 32

STP Model Account

Spread = 19 | Slippage = 5 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 19 + 5 + 0

Total cost = 24

The Ideal way to trade the CADDKK

The CADDK is an exotic currency pair with stable volatility in the price. Therefore, it may provide a decent movement even in intraday trading. The percentage of values did not move above 64%. Therefore, we can say that that CADDKK is nicely tradeable even if in the lower timeframe. However, the trading risk is an essential factor that most of the traders should consider while making a trading decision.

Overall all traders should trade when the cost is at an average value. The increase in volatility is risky for the possibility of unwanted stop loss hit, while the decrease in volatility might make trading worthless. To reduce the cost, furthermore, you can place either a ‘limit’ or ‘stop’ order. In this case, there will be no slippage, and in this example, our total cost will be reduced by five pips.

STP Model Account (Using Limit Orders)

Spread = 19 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 19 + 0 + 0

Total cost = 19

Categories
Forex Assets

Analyzing The Costs Involved While Trading The CAD/NOK Exotic Pair

Introduction

CADNOK is a Forex currency pair, where CAD is the official currency of Canada, and NOK is the native currency of Norway. In this exotic pair, CAD is the base currency, and NOK is the quote currency.

Understanding CADNOK

This pair’s price determines the value of NOK, which is equivalent to one CAD. We can quote it as 1 CAD per X numbers of NOK. For example, if the CADNOK pair’s value is at 6.7135, it means we need almost 6.7135 NOK to buy one CAD.

CADNOK Specification

Spread

In forex trading, Spread indicates the difference between the Bid price and the Ask prices. Traders don’t have to do anything with this as it is deducted by the broker. This value changes with the type of execution model used for executing the trades. Below are the ECN and STP spread values of this currency pair.

Spread on ECN: 39 pips | Spread on STP: 44 pips

Fees

The trading fees that forex brokers take are similar to other financial markets. It is deducted from the traders’ accounts when they take a trade. Note that STP accounts do not take any charge, but a few pips are charged in ECN accounts.

Slippage

Slippage happens when a trader opens a trade at a price, but it opens at another price by expanding the Spread. The main reason to occur slippage is the market volatility and the broker’s execution speed.

Trading Range in CADNOK

The trading range is the representation of the minimum, average, and the maximum volatility of this pair on the 1H, 4H, 1D, 1W, and 1M timeframe. Using these values, we can assess our profit/loss margin of trade. Hence, this proves to be a helpful risk management tool for all types of traders.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CADNOK Cost as a Percent of the Trading Range

If we look at the volatility values from the above table, we can see how the cost changes with the change in volatility. We have provided the ratio between the cost and the volatility values into percentages.

ECN Model Account 

Spread = 39 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 39 + 5 + 8

Total cost = 52

STP Model Account

Spread = 39 | Slippage = 5 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 39 + 5 + 0

Total cost = 44

The Ideal way to trade the CADNOK

The CADNOK is an exotic currency pair that has enough liquidity. As a result, traders may find it easy to trade in this exotic currency pair. The percentage values from the above table did not move above 138%, which is an indication of less volatility. However, the Percentage of trading cost is lower in the higher timeframe.

Therefore, traders should be cautious to determine the price where trading is suitable. An increase in volatility is risky, while the decrease in volatility is less profitable. Therefore, the best time to trade in this pair is when the volatility remains at the average value.

Furthermore, another way to reduce the cost is to place a pending order as ‘limit’ and ‘stop’ instead of ‘market.’ In that case, the slippage will not be considered in the calculation of the total costs. So, the total cost will be reduced by five pips.

STP Account Using Limit Model Account

Spread = 39 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 39 + 0 + 0

Total cost = 39

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Beginners Forex Education Forex Assets

Intrinsic Asset Value Explained

Intrinsic value is a noteworthy term in the forex world as it refers to the measurement of what an asset is worth. Rather than referring to the simple trading market price of the asset, intrinsic value is calculated using more factors, some of which can be difficult to measure accurately. This gives one an overall idea of how a company is performing, along with the underlying value of the company and how much cash is flowing through it. Traders can then determine if the asset is overbought or oversold.

When measuring intrinsic value, there are two types of measurements:

  • Quantitative factors can be measured with hard numbers. This could include financial reports, profits, or any other statistics that can be accurately measured and represented with numbers.
  • Qualitative factors are more interpretive. Traders look at the company’s business model, what sets the business apart, governance, target markets and seasons, the quality of the company’s leaders, and other data that gives one an idea of the company’s qualities and chances of success.

Most traders take both quantitative and qualitative factors into consideration when determining a company’s intrinsic value because both offer important details that give an overall idea of how successful the company is. Many financial analysts have broken this down into effective mathematical models so that these factors can be measured in the most accurate way possible. While this makes the process more accurate, determining a company’s value is still subjective. One trader might find a business model to be solid, while another might feel that it is lacking, for example. These details can lead to differences in opinion. 

There are some popular calculation methods that are used by many traders, including the discounted cash flow (DCF) model, which looks at the company’s free cash flow and the weighted average cost of capital. The WACC accounts for the time value of money before then discounts future cash flow to the present. This system predicts the rate of return and future revenue streams for a company. 

The goal of measuring the intrinsic value for a company is to decide if an asset is overbought or oversold. Investors then make decisions about whether to buy or sell, depending on whether the stock is expected to rise in price or decline.  

Judging the intrinsic value of a company is subjective, but many traders have broken the process down to mathematical calculations that give good results. Most traders look at factors that can be measured with hard numbers, like financial reports, along with more interpretive data about a company’s target audience and other factors. Current events can also affect the intrinsic value of a company. For example, if a product launch fails or a major name in a company is arrested, the price is likely to fall. If you often invest in stocks, it is important to be aware of intrinsic value and how it can affect prices. Those that don’t want to keep up with this themselves should know that many successful financial investors publish their own intrinsic value calculations online for their followers.

Categories
Forex Assets

Costs Involved While Trading The NZD/INR Forex Currency Pair

Introduction

The abbreviation of NZD/INR is the New Zealand Dollar paired with the Indian Rupee. Here, NZD is the official currency of New Zealand, and Indian Rupee is India’s currency. Like other currency pairs, NZD/INR provides some decent movement that allows traders to make money from the forex market.

Understanding NZD/INR

In NZD/INR currency pairs, NZD is the base currency (First Currency), and the INR is the quote currency (Second Currency). In a currency pair’s sell trade, we trade the base currency to buy the quote currency and vice versa. Therefore, if the NZD/INR pair is trading at 49.02, it means we should have 49.02 INR to buy 1 NZD.

Spread

As price and bid price is a common term in the forex market, most of the traders should know. The price represents the price in which we sell a currency pair. On the other hand, the bid price is the price at which we take a buy trade.

The difference between the asking price and the bid price is called the spread, usually a charge that the broker takes from a trader. Below are the spread values for the NZD/INR Forex pair.

ECN: 36 pips | STP: 41 pips

Fees

A Fee is a cost that traders pay to the broker as a charge to take a trade. This fee differs on the type of broker (ECN/STP) we use.

Slippage

In some cases, when we take a trade at a particular price, it might ignore the level and open the trade at another price, which is usually known as Slippage. The Slippage can occur at any price level and at any time, usually when the market remains volatile.

Trading Range in NZD/INR

Our aim as a trader is to eliminate losses and minimize trading risks. The trading range here will indicate how much we will make as a profit or loss within a timeframe. To calculate the exact value, we will use ATR is a technical indicator that suggests the price movement in a currency pair. In the lower table, we interpret the minimum, average, and maximum pip movement in a currency pair. We will assess it merely by using the ATR indicator merged with 200-period SMA.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a considerable time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.
  9. NZD/INR Cost as a Percent of the Trading Range

The price of trade differs on the type of brokers and varies based on the volatility of the market. The full cost of trade involves fees, spread, and sometimes Slippage if the volatility is higher.

ECN Model Account

Spread = 36 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 36 + 8 = 49

STP Model Account

Spread = 41 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 41 + 0 = 46

The Ideal way to trade the NZD/INR

Considering the table, we should evaluate these two factors to make trading decisions in the NZD/INR pair. The trading cost and volatility are two critical factors that trade should contemplate when trading in the currency market.

In timeframes, we can see the price movement fluctuates from the minimum volatility and the average volatility. As a trader, we aim to make a profit from this pip movement and variation. However, it often becomes challenging to make a profit if there is no sufficient variant in the pip value. As per the price mentioned above, the NZD/INR pair is profitable in swing trading and day trading.

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Beginners Forex Education Forex Assets

Is the Value of the US Dollar Set to Decline?

Currently, the nation is still in the midst of the Coronavirus pandemic. Although there was some hope that precautions like masks and social distancing would lower the number of infected Americans by the summer, infection rates continue to rise with no end in sight. These trying times are also affecting the US economy and are forecasted to lower the value of the US dollar, which will affect forex traders across the globe. Here’s what you need to know:

  • The US government previously approved an economic relief package worth $2.2 trillion dollars in March of 2020
  • As the increased unemployment benefits are set to expire soon, the government is pressured to release another economic relief package to help many Americans that are still struggling with their mortgage or rent payments, bills, and to get by.
  • Another push for the economic rescue package comes from Americans that have been hit by reduced work hours. These people don’t qualify for the unemployment money, even though they are bringing home less money than usual, often significantly less. 

Due to these issues, the US Congress is currently considering another economic rescue payment. The exact figure of the proposed amount is in the debate, although it seems as though the package will total at least $1 trillion dollars. Some politicians are pushing for a package that would provide more relief than the previous one, with an estimated total of around $3 trillion. While the bigger package would contribute more to the US economy’s current debt, one should remember that the US government is already $23 trillion in debt.

When considering what can change the value of a currency, government debt is one of the top factors. Although only some of this debt is new, many investors previously trusted the Federal Reserve to work things out based on the recent economic expansion. Now, however, investors are beginning to doubt that the Federal Reserve can shoulder the burden as debt continues to climb, the US relationship with Germany declines, and some other world interactions that seem destructive are taking place. 

The bottom line is that investors need to remain up to date on current news and to be highly aware of any changes to the US dollar’s value, especially when taking part in forex trading. Several factors might cast a bleak light on the dollar’s value, including increased government spending, the current pandemic, and falling uncertainty surrounding the Federal Reserve and the US government. This doesn’t mean that you should avoid trading altogether, only that you should stay informed and pay close attention to the news during these times.

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Forex Assets

Different Settings for Different Currency Pairs

A few days ago we had a debate with one of our trainees about his trading system. He had a very interesting observation. After the back-testing, he noticed that his system works better on certain currency pairs while other currency pairs go short. So he was scratching his forehead and asking himself should he change the settings on his algorithm and make certain pairs perform better than before. He wanted to find a way to tweak the settings just for pairs that underperform and make them produce more pips. Is it a good idea to make adjustments just on the bad pairs so we can amplify efficiency?

This is not the first time we get a question like this and we are going to try to bring our experience to the table because we can only debate from that standpoint. With this topic, there really is no right answer. If we are going to track our results, currency pair by currency pair, we are going to find out that certain currency pairs absolutely outperform others. Naturally, we might find currency pairs that are normally giving us negative results over time and cutting into our bottom line.

So what can we do about this? We are all aware of the overall ridiculousness of people thinking that in the daily time frame, certain pairs have certain personalities that other pairs don’t. On the daily time frame currency pairs don’t have their own unique movements. Just because some pairs are acting one way at this moment doesn’t mean that they will stay in that course forever. These things will change.

Surely, we have some currency pairs that are more friendly to trade. Those pairs trend more often and they chop a lot less, for example, the EUR/USD. If we take a look at what the EUR/USD did in 2017 and much of 2018, it trended pretty nicely and it was a good pair to be part of. The way these pairs move over the time is going to change and because we have tried to focus on this, it just wasn’t worth of effort and time we’ve been sitting in front of our system and adjusting the settings to our algorithm just for specific currency pairs because of the way they were moving at that specific moment.

We believe that this kind of approach is not going to do any significant favor to us, simply because of the unpredictable movements of currency pairs. But on the other hand, it is not like that some pairs have unique personalities but surely some tend better than others and some tend worse than others. Long ago when we noticed this sensation, we tried to change settings for the ones that trend worse and see what is going to happen. The idea was to try to make our system more friendly to them. In the end, it just serves us better to keep everything consistent.

A pretty great algorithm with really great optimized settings could be an awesome thing on its own. Super cool algorithm with good settings that stay the way they are, should and will work no matter what currency pair we are trading. If it struggles on certain pairs right now or throughout back-testing periods we might consider just wait. There has not been a currency pair in recorded history that is just been a genuinely lousy mover and just stayed that way. We believe that it’s not about you adjusting your system to it, it is going to adjust on its own. Again, if we have a pretty good system in place we are going to be there to catch it when it does. Remember traders, at the end of the day most systems can catch trends. It is just a matter of where. The one thing we strongly aim to do is to cut our losses and a good system should do that. It’s just a matter of weathering the storm until all comes back our way again. We need to take a zoomed-out approach to this and realize that it’s not a matter that certain currency pairs are taking down our bottom line. What truly matters at the end of the day is what the whole thing does.

Losses are the inevitable part of forex trading and we need to understand that currency pairs that don’t do well are just going to be on our trading landscapes probably always. If we have currency pairs that are just totally eating our accounts over and over again no matter what we do, we might consider eliminating those pairs from our systems for good. These are extreme and unusual situations when we need to act like this better than staying frustrated in front of our trading systems after multiple times where this just continues to be the case with certain currency pairs.

Anything different than that could be the matter of waiting and allowing these pairs to correct their course. But if this issue is simply constant with certain pairs and does not get any better than the only logical smart thing to do is just to stop trading those currency pairs. Unfortunately, we need to cut them off. If we run a business and we have an employee that is constantly stealing from us over the past 5 years then we should get rid of him as soon as possible. It is not a big deal to admit to yourself that after a certain period of time a certain situation is obviously beyond the repair.

Here we all believe in discipline and patience and we value them as one of the highest priorities but on those rare occurrences where it just never-ever gets good, we shouldn’t waste our time sitting there and hoping it will be good. We have a lot of other currency pairs we should trade with and we’ll be perfectly fine. One more thing we want to emphasize here is that if we were going to cut some of the weakest pairs we should wait until forward-testing them first. This is because forward-testing could expose mistakes we did in back-testing and this might be one final chance for those pairs that tend to underperform. If they still don’t do right you guys know what your next step should be.

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Forex Assets

AUD and Gold Correlation Information for FX Traders

Over the past 10 years, exports of oil from Canada have been increased significantly. Canada is the fourth-largest producer and exporter of oil in the world, reaching around 3.6 million barrels per day in 2018. On the other hand, we have Australia, one of the world’s top producers of the yellow metal. More than 61% of Australia’s gold resources are located in Western Australia. A few days ago one of our bright trainees asked us a very interesting question during his research about precious metals. He was curious about currency correlations with other markets, to other actual commodities. So can we use one to better predict where the other might be headed?

Gold and oil are probably the two most important commodities that are always playing some of the main roles in the trading scene. The idea about this topic is to figure out if we can follow where oil is going to so we could somehow have a better clue of where the Canadian dollar is going. The same thing with shiny gold as it relates to the Aussie. There is the third one that deserves to be mentioned and that is the Nikkei index. If we follow that it often follows the same route as the USD/JPY. So are there any patterns or courses of action that we can anticipate? Sadly, looks like nothing here can help us at all.

Most professional traders keep saying that at the end of the day this is surely nothing more than a fun fact. We will try to give some explanations of why this is the case. The first reason is that they usually move in a tandem with each other so trying to get a speedy indicator where another one is going to go just doesn’t work. Second, in most cases, they don’t even correlate. Maybe they’ll correlate for a while and then they’ll stop and they’ll start up again. Here we simply never know when those changes are going to happen.

In the case of gold, the idea is that AUD and yellow metal should march in tandem. So gold actually does follow the AUD/USD down but when it rebounds, the AUD/USD doesn’t. If we dare to go long on the AUD/USD because there was a real branching there when gold went sharply, we would probably find ourselves in a problem. Even if before they moved in tandem we cannot acquire an advantage if two charts are just together in motion at the same time like that. Gold and all precious metals supposed to be the best hedge against a fragile economy if it crashes hard, so all the people holding metals out there should pay close attention to all earthquakes on the market.

The lesser-known correlation, Nikkei to USD/JPY used to move in tandem but is truly useless to traders in pursuit of real action. Over the past couple of years, since the Nikkei trades in the Asian conclave, the slowest in forex, some traders have been waiting for the closing result of the Nikkei market to better forecast directional bias for the USD/JPY in the NY and London sessions. We don’t recommend trading these lower time frames because it doesn’t work like we would want to and the Nikkei doesn’t have a powerful impact on the Eurostoxx 50 and the S&P 500 markets. These markets are much stronger from the financial angle and they would overrule anything that the Nikkei did earlier.

The only way to go forward is to put all our attention on things that matter. Worrying about how all these currencies correlate to the price of gold and oil might not be the highest tree in the forest we want to climb on. Simply, ‘Comdolls’ can not help us much. For our fellow traders who don’t know, the nickname ‘Comdolls’ refers to the AUD and USD because they are dollars and they tend to rely on commodities. So this way of trading isn’t probably the most exciting because we cannot just extract something from it and use it right away and start making pips.

It is crucially important for us to separate which are the things that can actually help us from the things that just whistle in the woods. We need to look at this thing as good news because it’s always better to know what kind of things we should eliminate from the equation. Forex market is a 4 to 5 trillion dollar a day market and surely it’s not set up for people to just come and take the money all the time. We will get out of it what we put into it. Our goal should be to absorb as much knowledge as we possibly can, to take notes, and be relentless.

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Beginners Forex Education Forex Assets

The Forex Trader’s Guide to Facebook

Facebook is currently the top social media platform in the world, pulling in more users than other media giants like Twitter, WhatsApp, Instagram, Twitter, and other names you’ve heard of before. The truth is that most of us have a Facebook account, and most of the people that we know do too. It’s almost surprising to find that someone you’re searching for doesn’t have a Facebook account, which provides reassurance that Facebook will continue to attract massive amounts of users, both young and old. Even grandparents have joined the trend and learned to use Facebook to connect with friends and family.

Despite its popularity, Facebook is expected to see a decline in revenue resulting from the coronavirus pandemic. Its true that many of us are stuck at home and might spend more time using the platform; however, some of the company’s revenue sources from other outlets like ads are expected to drop as these companies reel from the profit loss caused by the pandemic.

In order to deal with this, Facebook will either have to offer more ad space, which will bombard users with ads, or the company will need to keep their ad space the same and reduce prices so that companies can afford it. Either way, Facebook is expected to take a loss in the ad department. The current outlook is that the stock’s value will drop by a few percentage points, although it is still too soon to tell. With ads failing to produce as much revenue, the company has stated that many of the services that are being used don’t actually bring in any revenue.

Despite the expected drop in value on the horizon, we do have some good news for those that like Facebook. In the same ways that coronavirus has hurt the company’s revenue, it has also attracted new users and gotten some people into using the platform even though they were previously uninterested. Statistics show that people in Italy are spending up to 70% more time on the app. Once the pandemic is over and things return to normal, Facebook will likely see their profits go up thanks to the increased user base that will allow more people to view ads and use services that bring them revenue.

Potential investors also need to know that Facebook has more than $54 billion dollars in cash and resources, which will help soften or eliminate some of the blow from the current pandemic. This will allow to company to keep many of its workers employed and to potentially hire experienced workers that have been laid off by other companies.

There are some recent developments that produce mixed feelings about Facebook as well. This platform isn’t entirely open to free speech – which is a good and bad thing. It’s good because Facebook won’t allow you to post certain offensive things, but many users believe that the platform goes too far with its monitoring. Users find themselves in “Facebook jail” for sharing or posting certain content if it gets reported. This is basically like a timeout that keeps you from using your account. Facebook has also introduced fact-checking lately and will add comments to posts or even delete things that are deemed inaccurate by the fact-checkers.

Some of this has been the subject of controversy, as fact-checking often revolves around politics. Of course, Twitter has also taken to fact-checking, and the site even fact-checked the president. Some users find these features to be wholesome, while others feel as though they are too restrictive. Lately, the #StopHateForProfit movement has been protesting the platform’s policies, with many retailers deciding to pull their ads from Facebook altogether. Eddie Bauer is one of the most recent companies to drop their ads from Facebook and only time will tell how much momentum this movement will attract

The market has been experiencing increased uncertainty thanks to the coronavirus pandemic. This has affected things on a global scale and provides traders with good and bad opportunities. Right now, Facebook’s stock is down, meaning that it is probably a good idea to invest. It’s true that things are volatile, but Facebook’s stock is expected to rapidly increase in value as things return to normal, thanks to their increased customer base and the return of their ad-driven profits. If you decide to invest in Facebook, be sure to stay updated on company news and to watch revenue reports, while also considering other information to make sure that the stock’s predicted growth does not change. Be sure to stay updated on the recent protests against the company as well, as this could affect future profits if more companies jump on the bandwagon. If all of this seems like too much, then perhaps you should wait to invest until things calm down.

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Beginners Forex Education Forex Assets

Trader’s Asset Investment Guide: Apple

Apple is an American technology company that is headquartered in California. The company was founded by Steve Jobs and his partner Ronald Wayne back in April of 1976. This recognizable brand is insanely popular thanks to the easily recognizable iPhone smartphone, iPad tablets, Mac computers, iPad music devices, the Apple Watch, AppleTV, HomePod speaker, and AirPods, along with other products and online features. In addition to producing popular products, Apple is also responsible for creating online software like iTunes, the Safari web browser, and so much more. You’ve likely heard of Steve Jobs before, as he was a famous American businessman. The company’s co-creator Ronald Wayne sold his portion of the company shortly after its original launch in a move that he likely regrets to this day.

One thing is for sure about Apple: people will probably buy their products as long as they’re making them. With the popularity of the iPhone, many people trade in their older phones for the newest version every time one is released, even with costs soaring above $1,000 for a new phone. We’ve never doubted that Apple has built a dedicated fan base that will choose their products over anything else, but this company has experienced some ups and downs with their stocks in the past.

Early in 2019, Apple suffered a crisis where stocks plummeted 10%, sinking to an all-time low for the first time in 52 weeks. Financial media commented on the company’s downfall, and things didn’t seem to be going to well for Apple, even though the company had expected the value of their stock to rise right after Christmastime when many people would have been expected to buy their products for gifts.

Fortunately for Apple, their stocks have risen 43% in the previous 12 months, with record revenues being announced for their previous quarter. This rise in value happens to be occurring during the coronavirus pandemic, despite the uncertainty of these pressing times. Considering that many people are relying on unemployment or suffering delayed work hours, it is reassuring for Apple to see a rise in their stock’s value. This is more reassurance that people truly believe in the company.

Considering Apple’s ups and downs, many investors might wonder whether it is a good company to invest in. Here are some reasons why you should buy Apple stock:
The company is hoarding an almost legendary amount of cash. Apple was holding nearly $193 billion in cash at the end of March 2020 and this money is regularly returned to investors through stock buybacks and dividends.

Apple is expected to continue to grow. Their history proves this – the company’s quarterly revenue is up 16% from one year ago. Apple will continue to produce new devices, like updated iPhones and the company will continue to bring in monthly revenue from its TV services, iTunes, and other online services they have created. We can also expect to see new products released as we move more towards the future. Apple makes money through various sources. If the popularity of one product falls, there are several other products that will help the company to continue making a profit.

Although these factors are positive outlooks on Apple’s stock, there are also some downsides to investing in the company. Some feel that their iPhones may be losing popularity as sales are on the decline. While the iPhone used to be the company’s number #1 product, it only accounts for 50% of their revenue today. This could be contributed to the fact that the company continues to churn out new products and services, providing many more options for clients to spend their money on. Still, the number one earning product might end up taking a backseat to some of these other features. You’ll also want to consider that Apple iPhone has some tough competition with Android, which continues to produce new upgraded phones alongside them.

Another downside is that the popularity of Apple TV could decline. This is because the company offered free service for one year to anyone that purchased one of their TVs. This paid off by attracting a large customer base, but it isn’t yet clear how many of these customers are only watching because it’s free. Many of these users are already paying for other monthly subscription streaming services like Netflix, Hulu, Disney Plus, etc. Apple TV only costs $4.99 a month, but some people might feel that they’re already spending too much on streaming services and/or cable. The service will need to compete with other streaming devices to take their place with some customers.

Apple is easily one of the most recognizable companies in the world. It has attracted investors from all corners of the globe and many people have fallen in love with their products, with no plans to turn to any other companies for their technological needs. This company isn’t going anywhere anytime soon, which gives the value of their shares alone.

A few of the main reasons why you might want to invest in Apple would be their continuously advancing products, news updates, and the fact that they gain revenue from various sources like sales and subscription services. Revenue is constantly flooding in for the company and this pays off for investors. As time goes on, the company is expected to grow and bring in even more money. We don’t see Apple going out of business or slowing down anytime in the near future.

On the downside, Apple’s previous reliance on its famous iPhone is declining. Product sales are down, and the iPhone is only responsible for 50% of the company’s revenue. AppleTV also might not perform as well one many of the free yearly subscriptions run out if users decide not to pay for the service. It isn’t clear whether these users will choose to start paying for the streaming service, considering that there are so many competitors out there, like Netflix, Amazon Prime, Hulu, Disney Plus, and so on.

Final Thoughts

As of right now, investing in Apple might not be the best idea. If you had invested back in 2019 when the stock’s value dropped, then you would have made a good investment. Now, the best thing to do may be to wait to see if the value drops and then to invest. While we expect to see growth through new products and accessories from the company, some of Apple’s recent updates aren’t entirely original. For example, it almost seems as though the company is copying others by releasing a streaming service of their own. The only real difference is that the price is a few dollars less than the others. Of course, if you buy right now, the stock’s value may rise – as nobody can predict the market 100%. Be sure to stay up to date on Apple’s earnings reports, product launches, streaming service reviews, and other important information before making your own decision about whether to invest.

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Forex Assets

How Expensive Is It To Trade The NZD/MYR Currency Pair

Introduction

The abbreviation of NZD/MYR is the New Zealand Dollar paired with the Malaysian Ringgit. Here, NZD is the official currency of New Zealand and many others like the Pitcairn Islands and the Cook Islands. It is also to be the tenth most traded currency in the Foreign exchange market. MYR stands for the Malaysian Ringgit, and it is the official currency of Malaysia, which is further divided into 100 sens.

Understanding NZD/MYR

In NZD/MYR currency pairs, NZD is the base currency (First Currency), and the MYR is the quote currency (Second Currency). In the foreign exchange market, while we sell the currency pair, we always trade the base currency and simultaneously purchase the quote currency and vice versa. The market value of NZD/MYR helps us to understand the intensity of MYR against the NZD. So if the exchange value for the pair NZD/MYR is 2.7977, it means we need 2.7977 MYR to buy 1 NZD.

Spread

Foreign brokers hold two different prices for currency pairs: the ask and bid price. The ask (offer) price is the price in which we sell an asset, and bid(purchase) is the cost at which we buy it. The difference between the ask-bid price is called the spread. Below are the spread values for the NZD/MYR Forex pair.

ECN: 38 pips | STP: 43 pips

Fees

A Fee is the costs that we tradesmen pay to the broker for initiating a trade. This fee differs on the type of broker (ECN/STP) we use.

Slippage

When we want to achieve a trade at an appropriate price, but instead, if the trade gets fulfilled at a distinctive price, we call that distinction as Slippage. The Slippage can occur at any point in time, but often we can counter a volatile market.

Trading Range in NZD/MYR

As a trader, our main interest should be to prevent losses and minimize risks. The trading range here will ascertain the amount of income we will make or lose within a timeframe. ATR is a technical indicator that suggests the price movement in a currency pair. In the lower table, we have the interpretation of the minimum, average, and maximum pip movement in a currency pair. We will assess it merely by using the ATR indicator merged with 200-period SMA.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

NZD/MYR Cost as a Percent of the Trading Range

The price of trade differs on the type of brokers and varies based on the volatility of the market. The full cost of trade involves fees, spread, and sometimes Slippage if the volatility is higher.

ECN Model Account

Spread = 38 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 38 + 8 = 51 

STP Model Account

Spread = 43 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 43 + 0 = 48

The Ideal way to trade the NZD/MYR

With the assistance of the above tables, let us estimate these two factors to the trade the NZD/MYR pair. Volatility and cost are two aspects a trader must contemplate for trading any currency pair in the foreign exchange market.

In several timeframes, we can see the pip movement is tremendously elevated between the min volatility and the avg volatility. As a day trader, the objective is to attain profits from the pip variation of the market. It becomes challenging to make profits from the market if there is no variation in the pip value. Hence, trading this pair can be considered both profitable and risky. The answer to the question if trading this pair is expensive, is yes.

Trading using Limit Orders (STP Account Model)

To decline our expenses of trade, we can place the trades using limit orders as a substitute for market orders. In doing so, we can avoid the Slippage that will help lower the total cost of the trade. An instance of a Limit order is given below using the STP model.

Spread = 43 | Slippage = 0 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 0 + 43 + 0 = 43

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Beginners Forex Education Forex Assets

Trading the AUD/NZD Currency Pair

Most traders nowadays trade pairs involving currencies such as EUR and USD because they have found such currencies to provide them with the best results. However, once paired, some of the other major currencies we trade in the forex market are said to be extremely profitable trades due to their unique traits. The AUD/NZD currency pair, for example, has been praised by a portion of professional traders who have recognized its great potential. According to these supporters, the nature of this currency pair, or what it is and what it is not in other words, is what makes it so different from all other combinations, making it to some traders’ list of favorites.

If you are a technical trader who keeps looking for ways to evade news and hectic market activity knocking traders’ stop losses, you may find this currency pair particularly interesting despite what you may have heard about it before. Especially during the times of some important events (such as Brexit) or the involvement of some important individuals and organizations (e.g. the European Union), you will find how some of the more popular currency pairs, such as EUR/GBP and GPP/CHF, are heavily encumbered by the surrounding hype and needless news popping up every minute or so. In this case, traders are faced with a few options: give in to the upcoming news events, avoid trading news, and/or avoid trading the affected currencies. What is more, with trading other currency pairs comes the danger of encounter some really choppy periods we can see for ourselves if we take a look at the daily chart. Solidation, on the other hand, is a process traders mostly accept as part of the currency market, but some other downsides of trading popular currency pairs may not always be shared transparently and objectively through all available sources of educational material.

There are quite a few reasons why traders may eventually learn to enjoy trading the AUD/NZD currency pair. Firstly, the pair in question does not involve USD, the currency that is heavily monitored by the big banks whose impact on the market is profound. Secondly, both AUD and NZD are risk-on currencies, which makes trading much easier. Some other currency pairs such as AUD/JPY or EUR/USD entail the risk-on/risk-off challenge, which ties the forex traders close to the activity in the stock market. While trading risk-on/risk-off pairs the market moves exceptionally violently and this may overthrow almost any technical expertise and, thus, affect traders. By entering such trades, you are in fact taking on the risk of not having much control because of dealing with external factors. However, when you are trading two currencies which are both risk-on, you are to an extent trading a pair with no conflicting agendas.

With AUD and NZD being both risk-on currencies, you can feel at ease knowing that you are in fact trading currencies that are both heading in the same direction, further eliminating your list of external factors you ought to be concerned about. Therefore, as you are trading AUD against NZD, you are trading a pair without needing to worry about any derailment on the path to securing your pips. What is more, despite these currencies’ similarities, they still do not exhibit much correlation in the sense that traders sometimes feel annoyed when both currencies go up and down at the same time. In such cases, the correlating movement directly impedes trading as traders cannot trade until this unnerving parallel movement comes to an end. Luckily, while the AUD/NZD pair can at times display similar behavior, it hardly occurs as often as it does with some other currency pairs.

With regard to news, the forex traders who are trading this pair feel relieved because most news comes early in the trading day. Experienced traders using the daily chart who are fond of the AUD/NZD pair claim to trade approximately 20 minutes before the daily candle closes. Such an approach typically leaves them with several hours before any relevant news comes out. In case they find the news to be going against them, they can then still have the remaining 20 hours for the price to take a different turn. According to those who are used to trading the AUD/NZD, many times the price overacts to the news but eventually corrects itself. Should the news, therefore, appear to be negative in any way, traders need not worry since the price often either returns to its initial position or takes the direction the trader favors as the close of the candle approaches.

If we compare this pair with the ones involving USD, we should take into consideration the factor of time, which is in that case reduced to only a few hours. USD-based trades entail a considerably limited amount of time for the price to change and end up going the way traders may need them to. AUD/NZD, however, does not pose a challenge in this regard due to the fact that price generally either trends or consolidates. Even if consolidation worries you, professional traders say how a good choice of a volume indicator can help traders evade most consolidation patterns even though this pair is more likely to trend than cause problems. The chart below reflects how this currency pair is not prone to creating any choppy trends we may witness in some other pairs’ charts. Nevertheless, even if you find yourself trapped in one of such unfavorable trend, experts affirm that the result would not be more than one or two losses. They also add that traders should not fear these areas in the chart because if you keep trading, such losses would eventually be eliminated, unlike with some other currency pairs.

The EUR/USD chart reflecting the same period leaves an entirely different impression. Not only is the price moving too rapidly, but traders can hardly make a profit equal to that of AUD/NZD. By relying on a useful trend indicator, you will be able to know exactly when you should start trading, thus avoiding periods of price consolidation. When a chart is too choppy and the price is moving in a hectic manner, even the best indicators may not be able to detect the activity on the chart. You can, therefore, receive false signals and take unnecessary losses just by trading a currency pair that is prone to these erratic movements. Luckily this is more common for pairs such as EUR/USD than it is for the AUD/NZD currency pair. If your system can handle trading other currency pairs, rest assured that it will take you through AUD/NZD trades with ease. Nonetheless, this does not imply that you should not have a set plan for this currency pair regardless of the benefits that naturally come along.

 

Traders should primarily be prepared to take each trade for which they get a signal even though they may at times get several signals at the same time. Should you need to decide whether to trade AUD/NZD long and AUD/JPY long with a 2% risk, professional traders would advise you to enter the AUD/NZD trade without splitting the risk because of the increased chance of winning. Even though you are taking on the entire risk on one currency pair, understand that the likelihood of winning is much greater. What is more, even when you are testing your system, you can skip this currency pair because it commonly provides favorable trading conditions. Therefore, if you would like how your system operates on some more difficult currencies, you can test USD pairs, but testing AUD/NZD is assumed to be needless because of everything we have discussed earlier. You can also test AUD/NZD first to assess your algorithm because, if it does not work properly with this currency pair, it is much more likely to cause a disaster with some other currency pairs.

It seems that AUD/NZD is not talked about at great lengths in forex traders’ favored media, but the sources that do go into details appear to be extremely satisfied with the results they get from trading this currency pair. Some professional traders even say how the only reason this pair makes the second (and not the first) place is that they cannot enjoy any giant moves with AUD/NZD. Traders’ experiences and trading methods may differ, but this article still reflects an innovative approach to trading and making use of the two currencies. If you have yet to test this currency pair, you will hopefully discover the same benefits professional traders claim to exist, finding reasons to keep trading AUD/NZD. Last but not least, whether you learn to love AUD/NZD for the ability to test your algorithm or the opportunity to avoid choppy trends, trading this currency pair will surely be an interesting experience, especially for those of you who favor calm waters over some news-heavier or more unpredictable currency pairs.

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Forex Assets

How Expensive Is It To Trade The NZD/DKK Forex pair?

Introduction

NZD is the symbol of the New Zealand dollar, and it is the 10th most traded currency in the Foreign Exchange market. It is the official currency of New Zealand and some other countries like Cook Islands, Niue, the Ross Dependency. Whereas DKK stands for Danish Krone, and it is the official currency of Denmark, Greenland, and the Faroe Islands.

The currencies in the Foreign exchange market are traded in pairs. NZD/DKK is the acronym for the New Zealand dollar against the Danish Krone. In this case, the first currency (NZD) is the base currency, and the second (DKK) is the quote currency.

Understanding NZD/DKK

To find the comparative value of one currency in the Forex market, we need another currency to evaluate. If the value of the first(base) currency goes down, the value of the second (quote) currency moves up and vice versa. The market value of NZD/DKK determines the strength of DKK against the NZD. It can be clearly understood as 1 NZD is equal to how much of DKK. So if the exchange price for the pair NZD/DKK is 4.1943, it means we need 4.1943 DKK to buy 1 NZD.

Spread

Forex brokers have two different rates for currency pairs: the bid & ask price. Here the “bid” price at which we can OFFER the base currency, and The “ask” price is at which we can ACQUIRE the base currency. Therefore, the difference between the ask and the bid price is called the spread. Some brokers, instead of charging a split fee for trading, they already have the fees inherent in the spread. Below are the ECN and STP for the pair:

ECN: 15 pips | STP: 20 pips

Fees

When we place any trade, there is some payment/commission we need to pay to the broker. A Fee is simply that payment that we pay to the broker each time we open a position. The fee also fluctuates from the type of broker we use; for instance, there are no charges on STP account models, but a few pips on ECN accounts.

Slippage

The difference between the anticipated and executed price at which the trade is implemented can be termed as Slippage. It can appear at any time but mostly happens when the market is fast-phased and volatile.

Trading Range in NZD/DKK

The trading range is a tabular interpretation of the pip movement in a currency pair for separate timeframes. Using this, we can gauge the risk on a trade for each timeframe. A trading range effectively represents the minimum, average, and maximum pip movement in a currency pair. This can be assessed quickly by using the ATR indicator combined with 200-period SMA.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

NZD/DKK Cost as a Percent of the Trading Range

The cost of trade primarily varies on the broker and fluctuates based on the volatility of the market. This is for the reason that the total cost includes Slippage and spreads apart after the trading fee. Following is the description of the cost variation in terms of percentages. The knowledge of it is discussed in the subsequent sections for ECN and STP accounts.

ECN Model Account

Spread = 15 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 15 + 8 = 28

STP Model Account

Spread = 20 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 20 + 0 = 25

The Ideal way to trade the NZD/DKK

The NZD/DKK is an exotic currency pair, and the volatility in this pair is moderate. As seen in the range table above, the average pip movement on the 1hour time frame is 68. We must know that the cost of trade declines as the volatility of the pair increases. But this should not be held as an advantage because it is unsafe to trade high volatile markets as the prices rise and fall swiftly.

For instance, in the 1-hour timeframe, the maximum pip range value in this pair is 119 pips, and the minimum pip range value is 20 pips. When we compare the fees for both the pip movements, we find that for 20 pip movement fees is 140.00%, and for a 119 pip movement, the fess is only 23.53%.

So, we can substantiate that the prices are more significant for low volatile markets and high for extremely volatile markets. Hence, we must constantly try to make our entries and exits when the volatility is minimum or average than to that of maximum values. But if your preference is certainly towards decreasing your trading costs, you can trade when the market’s volatility is near the maximum values with optimal risk management.

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Forex Assets

Asset Analysis – Trading The NZD/SEK Exotic Cross Currency Pair

Introduction

NZD/SEK is the acronym for the currency pair New Zealand dollar versus the Swedish Krona. It is marked under the exotic cross-currency pair category. In this pair, NZD will be the base currency, and SEK will be the quote currency. In this article, we shall understand everything about trading this currency pair.

Understanding NZD/SEK

The price of this pair in the foreign exchange market determines the value of SEK comparable to one NZD. It is quoted as 1 NZD per X SEK. So, if the value of this pair is 5.8296, these many Swedish Kronor (SEK) are required to purchase one NZD.

Spread

Trading the Forex market usually does not involve spending a lot of fees like the Stock market. Here, Forex brokers make profits through spreads. It is nothing but the difference between Bid – Ask prices of an asset. Some broker has the cost inherent into the buy and sell prices of the currency pair; instead of charging a separate fee. Below are the spread values of ECN and STP brokers for the NZD/SEK pair.

ECN: 48 pips | STP: 53 pips

Fees

A Fee is the charges we pay to the stockbroker for executing a particular trade. The fee fluctuates from the type of broker we choose. For example, the fee on the STP accounts is zero, but we can expect a few additional pips on ECN accounts.

Slippage

Slippage is the contrast between the price expected by the trader for execution and the price at which the agent executed the price. There is this variation due to the high market volatility and more passive execution speed.

Trading Range in NZD/SEK

The trading range is used at this point; to measure the volatility of the NZD/SEK pair. The amount of money we will gain or lose in an allotted timeframe can be evaluated using the trading range table. The minimum, average, and maximum pip movement of the currency pair is exemplified in the trading range. This can be evaluated simply by using the ATR indicator combined with 200-period SMA.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

NZD/SEK Cost as a Percent of the Trading Range

The rate of trade varies on the stockbroker and fluctuates according to the volatility of the market. This is because the trading cost includes fees, slippage, and the spread. The rate of variation in terms of percentage is given below.

ECN Model Account

Spread = 48 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 48 + 8 = 61

STP Model Account

Spread = 53 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 53 + 0 = 58

The Ideal way to trade the NZD/SEK

The NZD/SEK is termed as an exotic-cross currency pair and has a low volatile market. Looking at the pip range table, the average pip movement on the 1H timeframe is 115 pips, which implies high volatility. As we know, the higher the volatility, the smaller will be the cost to implement the trade. Nonetheless, this is not a benefit to trading in a volatile market; it involves higher risk.

For instance, in the 1M time frame, the Maximum pip range value is 1938, and the minimum is 503. When we evaluate the trading fees for both the pip movements, we notice that for 503 pip movement fees is 12.13%, and for the 1938 pip movement, fess is only 3.15%. Therefore, from the above instance, we can determine that trading the NZD/SEK currency pair will be on the expensive side.

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Forex Assets

Analyzing the Trading Costs on ‘NZD/CZK’

Introduction

NZD/CZK is the abbreviation for the Euro Area’s Euro against the Czech Koruna. This pair is considered an exotic-cross currency pair. Here, the NZD is the base (first) currency, and the CZK is the quote (second) currency. NDZ is the official currency used in New Zealand, while CZK is the native currency of the Czech Republic.

Understanding NZD/CZK

The price of this pair in the foreign exchange market defines the value of CZK equivalent to one NZD. It is quoted as 1 NZD per X CZK. So, if the value of this pair is 14.8124, these many Korunas are required to purchase one NZD.

Spread

Spread is the mathematical difference between the bid and the asking price offered by the broker. This value is distinct in the ECN account model and STP account model. An approximate value for NZD/CZK pair is given below.

ECN: 43 pips | STP: 48 pips

Fees

The fee is the price/compensation that one pays for the trade. There are no charges on STP accounts, but a few additional pips are levied on ECN accounts.

Slippage

Slippage is a variation between the value proposed by the trader, and the trader indeed received from the broker.

Trading Range in NZD/CZK

The tabular interpretation of the pip movement of a currency pair in separate timeframes is called as the trading range is the. These values are helpful in influencing the profit that can be produced from a trade before-hand. To uncover the value, you must multiply the below volatility price with the pip value of this pair.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

NZD/CZK Cost as a Percent of the Trading Range

Trading Range is the interpretation of the total price variation of trades for distinct timeframes and volatilities. The values are achieved by discovering the ratio amongst the total price and the volatility value; it is expressed as a percentage.

ECN Model Account

Spread = 43 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 3 + 43 + 8 = 56 

 

STP Model Account

Spread = 48 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 48 + 0 = 53

Trading the NZD/CZK

The bigger the percentage values, the higher is the price on the trade. From the preceding tables, we can see that the values are sizeable in the min column and relatively less significant in the maximum column. This means that the prices are high when the volatility of the market is low.

It is neither suitable to trade when the market’s volatility is elevated nor when the costs are high. To balance out between both these aspects, it is perfect to trade when the volatility of the pair is in the array of the average values.

Additionally, to decrease your costs even beyond, you may place trades using limit orders as a substitute for market orders. In executing so, the slippage will not be involved in the computation of the total costs. And this will put down the cost of the trades by a sizeable number. An example of the same is given below.

STP Model Account (Using Limit Orders)

Spread = 48 | Slippage = 0 |Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 0 + 48 + 0 = 48

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Forex Assets

NZD/PLN – Analyzing This Exotic Forex Currency Pair

Introduction

NZD/PLN is the short form of the currency pair New Zealand dollar vs. Polish Zloty. Here, the New Zealand dollar (NZD) is the base currency, and the Polish Zloty (PLN) is the quote currency. In this article, we intend to comprehend everything you need to know about trading this currency.

Understanding NZD/PLN

The price of NZD/PLN signifies the value of the Polish Zloty corresponding to one New Zealand Dollar. It is estimated as 1 NZD (New Zealand Dollar) per X PLN (Polish Zloty). So, if the market value of NZD/PLN is 2.4940, these many Polish Zloty are required to buy one NZ dollar.

Spread

The distinction between the ask & bid costs is recognized as the spread. It changes with the implementation model used by the stockbrokers. Further down are the spreads for NZD/PLN currency pairs in both ECN account models & STP account models:

ECN: 30 pips | STP: 35 pips

Fees

There are certain charges levied by the broker to open every spot in the trade. These charges can be referred to as the commission or fees applicable to the trade. Note that these charges are only applicable to the ECN accounts and not on STP accounts. However, a few additional pips are changed on STP account models.

Slippage

Due to high market volatility and the broker’s slow implementation speed, slippage is common. It is a variance in price intended by the trader and price implemented by the broker.

Trading Range in NZD/PLN

The trading range is essentially a tabular interpretation of the pip movement in the NZD/PLN currency pair for distinct timeframes. These figures can be used to ascertain the trader’s risk as it helps us determines the approx. gain/loss that can be incurred on a trade.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

NZD/PLN Cost as a Percent of the Trading Range

The total cost consists of slippage, trading fee, and the spread. This fluctuates with the volatility of the market. Therefore, traders need to place themselves to avoid paying high costs. Below is a table demonstrating the variation in the costs for various values of volatility.

ECN Model Account

Spread = 30 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 30 + 8 = 43 

 

STP Model Account

Spread = 35 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 35 + 0 = 40

The Ideal way to trade the NZD/NOK

NZD/PLN is an exotic-cross currency pair. In this case, we can see, the average pip movement in 1hr timeframe is 46, which signifies higher volatility. The smaller the volatility, the higher is the risk, and lesser is the cost of the trade and the other way around. For example, we can see from the trading range that when the pip movement is lesser, the charge is higher, and when the pip movement is higher, the charge is smaller.

To further decrease our costs of trade, the costs can be reduced even more by placing orders as a limit or stop as an alternative to the market orders. In executing so, the slippage will become zero and will lower the total cost of the trade further. In doing so, the slippage will be eliminated from the computation from the total costs. And this will assist us in decreasing the trading cost by a significant margin. An instance of the same is given below using the STP model account.

STP Model Account (Using Limit Orders)

Spread = 35 | Slippage = 0 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 0 + 35 + 0 = 35