Introduction
The Great Britain pound versus the Japanese yen is a cross-currency pair in the forex market. It is a widely traded pair with great liquidity and volatility. In this currency pair, GBP is the base currency, and JPY is the quote currency.
Understanding GBP/JPY
The market price of GBPJPY shows the units of yens required to purchase one pound. It is quoted as 1 GBP per X JPY. For example, if the value of GBPJPY is 143.82, then 143.82 yen are to be produced by the trader to buy one pound.
GBP/JPY Specification
Spread
Spread is the difference between the bid price and the ask price set by the broker. These prices vary from broker to broker and type of account model as well. The approximate spread on ECN and SPT accounts is mentioned as follows.
ECN: 0.7 | STP: 1.6
Fees
There is a fixed round-trip fee on every trade a trader takes. On ECN accounts, the spread is around 6 to 10 pips. And on STP accounts, there is no fee as such. However, though there is no fee on STP accounts, the total fee is still compensated with the high spread on it.
Slippage
Slippage is another parameter that adds up to the total fee. It is the difference between price executed by the trader and price he actually received from the broker. This happens solely due to the change in volatility of the market and the broker’s execution speed.
Trading Range in GBP/JPY
The trading range is a pip depiction tool that determines the minimum, average, and maximum pip movement in a different timeframe. This volatility table is pretty useful in analyzing the amount of risk that is involved in a trade. For example, if the max pip movement on the 4H is 60 pips, then a trader can get an idea that he can gain/lose a max of $552.6 in a time frame of 4 hours.
Procedure to assess Pip Ranges
- Add the ATR indicator to your chart
- Set the period to 1
- Add a 200-period SMA to this indicator
- Shrink the chart so you can assess a large time period
- Select your desired timeframe
- Measure the floor level and set this value as the min
- Measure the level of the 200-period SMA and set this as the average
- Measure the peak levels and set this as Max.
GBP/JPY Cost as a Percent of the Trading Range
The cost as a percent of the trading range is again the volatility but combined with total cost on a trade. It is a tabular representation of the cost of trading in varying timeframes and volatilities. The percentages are obtained simply by finding the ratio between the total cost and volatility.
ECN Model Account
Spread = 0.7 | Slippage = 2 |Trading fee = 1
Total cost = Slippage + Spread + Trading Fee = 2 + 0.7 + 1 = 3.7
STP Model Account
Spread = 1.6 | Slippage = 2 | Trading fee = 0
Total cost = Slippage + Spread + Trading Fee = 2 + 1.6 + 0 = 3.6
The Ideal way to trade the GBP/JPY
The magnitude of the percentages basically determines how high or how low the costs are for each trade. If the percentage is high, the costs are high. If they are low, the costs are low. The very first observation that can be made is that the costs are high in the min column comparative to the average column and maximum column. Hence, the costs are high for low volatile markets, and low for high volatile markets. But, it is not ideal to trade in either of these markets. The best time to get into the pair is when the volatility is around the average values. As far as the timeframes are concerned, the cost decreases as the width of the timeframe increases.
Placing limit orders is another way to minimize your cost significantly. Because this will not take slippage into consideration for calculating the total costs. Thus, the total cost reduces greatly. An example of the same is illustrated below.
Hence, we can see that the percentages have reduced by around 50% or so.
