Home Beginners Forex Education Forex Assets Costs Involved While Trading The ‘AUD/PLN’ Exotic Pair

Costs Involved While Trading The ‘AUD/PLN’ Exotic Pair

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Introduction

The expansion of AUD/PLN is the Australian Dollar and Polish Zloty. Here, AUD is the official currency of Australia, and it is the fifth most traded currency in the Forex market. Hence, it is considered as a major currency. In contrast, the PLN (Polish złoty) is thinly traded, and it is the official currency of Poland.

Understanding AUD/PLN

In AUD/PLN currency pairs, the first currency (AUD) is considered the base currency, and the second (PLN) is considered the quote currency. In the foreign exchange market, we always buy the base currency and simultaneously sell the quote currency and vice versa. The market value of AUD/PLN helps us to understand the strength of PLN against the AUD. If the exchange rate of AUD/PLN is 2.7427, it means that we need 2.7427 PLN to buy 1 AUD.

Spread

In Forex, spreads are inevitable, and it is mainly controlled by the broker. Forex brokers have two prices for currency pairs: the bid and ask price. The bid is the price at which we sell an asset, and ask is the price at which we buy it. The difference between the ask price and the bid price is called the spread. Below are the ECN & STP spread values for AUD/PLN Forex pair.

ECN: 17 pips | STP: 20 pips

Fees & Slippage

A fee in Forex is the charges we pay to the broker for opening a trade. Mostly, these fees depend on the type of broker (STP/ECN) we use.

There are times when we want to execute a trade at a particular price, but instead, we end up executing it at a different price. This happens because of slippage. Slippage can take place at any time, but mostly it occurs, we can counter a volatile market.

Trading Range in AUD/PLN

As a trader, we must be aware of the risks involved before entering any trade. The trading range here will guide us about the amount of money we will win or lose in a given amount of time. In the below table, we have the representation of the minimum, average, and maximum pip movement in a currency pair. We will evaluate it 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 significant 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/PLN Cost as a Percent of the Trading Range

The cost of trade depends on the broker type and varies based on the volatility of the market. The total cost of trade involves spread, fees, and sometimes slippage if the volatility is more.

ECN Model Account

Spread = 17 | Slippage = 3 |Trading fee = 5

Total cost = Slippage + Spread + Trading Fee = 3 + 17 + 5 = 25

STP Model Account

Spread = 20| Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 20 + 0 = 23

Trading the AUD/PLN

AUD/PLN is an exotic currency pair that is rarely traded in the Forex exchange market. The average pip movement in 1hr is 63 pips, and that shows the volatility is at medium range.

Note – The higher the volatility, the higher is the risk, and the lower is the cost of the trade and vice versa. Taking an example, we can see from the trading range when the pip movement is more, the cost is low, and when the pip movement is low, the cost is high.

To reduce our trading costs, we may place trades using limit orders instead of market orders. In doing so, the slippage will not be included in the calculation of the total costs. This greatly helps us in reducing the overall cost of the trade. An example of the same is given below. In the below table, we can see how the trading costs have reduced comparatively.

ECN Model Account (But by using Limit Orders)

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

Total cost = Slippage + Spread + Trading Fee = 0 + 17 + 5 = 22

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