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#### 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.

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.

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.

#### 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.

#### Procedure to assess Pip Ranges

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
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.

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

= 10 + 5 + 8 = 23

#### STP Model Account

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

= 10 + 5 + 0 = 15

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

= 10 + 0 + 0 = 10

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## Asset Analysis – Exploring The GBP/AED Forex Currency Pair

#### Introduction

We all know that official currencies of the two countries are paired for being exchanged in reference to each other. In GBP/AED, GBP stands for the British pound sterling, and it is is the official currency of the United Kingdom. It is also the 4th most traded currency in the Forex Market and stands right after USD, EURO and YEN. Whereas the AED is known as the United Arab Emirates Dirham, and it is the official currency of the UAE.

#### GBP/AED

GBP/AED is the abbreviation of the Pound sterling against the Emirati Dirhams. In currency pairs, the first currency is the base currency, while the second currency is the quote currency. In this case, GBP is the base currency, and AED is the quote currency.

#### Understanding GBP/AED

In the Forex market, if the base currency’s value goes down, the value of the quote currency goes up and vice versa. Also, when we buy a currency pair, we buy the base currency and implicitly sell the quote currency.

The market value of GBP/AED determines the strength of AED against the GBP that can be easily understood as 1GBP is equal to how much AED. So if the exchange rate for the pair GBP/AED is 4.5748, it means that we need 4.5748 AED to buy 1 GBP.

Forex brokers have two different prices for currency pairs: the bid and ask price. The bid price is the selling price, and ask is the buy price. The difference between the ask and the bid price is called the spread. Spread is basically a type of commission by which brokers make their money. Below are the ECN and STP spread values for the GBP/AED pair.

ECN: 27 pips | STP: 30 pips

#### Fees

Each time we place a trade, we need to pay some commission on it. A Fee is simply that commission we pay to the broker for opening a particular position. The fee also varies from the type of broker we use; for example, there is no fee on STP account models, but a few pips on ECN accounts.

#### Slippage

Slippage refers to the difference between the trader’s expected price and the actual price at which the trade is executed. It can occur at any time but mostly happens when the market is fast-moving and volatile. Also, it occurs at the times when we place a large number of orders at the same time.

The trading range here is to measure the volatility of the GBP/AED pair. Whether we make a profit or loss in a given time period depends on the movement of a currency pair that can be assessed using the trading range table. It is a representation of the minimum, average, and maximum pip movement in a currency pair. This can be evaluated simply by using the ATR indicator combined with 200-period SMA.

#### Procedure to assess Pip Ranges

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
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.

#### GBP/AEDCost as a Percent of the Trading Range

The cost of trade mostly depends on the broker and varies based on the volatility of the market. This is because the total cost involves slippage and spreads apart from the trading fee. Below is the representation of the cost variation in terms of percentages. The comprehension of it is discussed in the following sections. We will look into both the ECN model and the STP model.

#### ECN Model Account

Total cost = Slippage + Spread + Trading Fee = 3 + 27 + 5 = 35