Tag: Australian Dollar

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Fundamentals of the Australian Dollar (AUD) and the New Zealand Dollar (NZD)

The two currencies, the Australian Dollar and the New Zealand Dollar are quite highly correlated, which is why this article will deal with them both at the same time. Here, we’ll cover their historical backgrounds, economic impacts, correlation, recent market activity, and much more.  Historical Background Australia was populated by the British in an attempt […]

The two currencies, the Australian Dollar and the New Zealand Dollar are quite highly correlated, which is why this article will deal with them both at the same time. Here, we’ll cover their historical backgrounds, economic impacts, correlation, recent market activity, and much more.  Historical Background Australia was populated by the British in an attempt […]

The two currencies, the Australian Dollar and the New Zealand Dollar are quite highly correlated, which is why this article will deal with them both at the same time. Here, we’ll cover their historical backgrounds, economic impacts, correlation, recent market activity, and much more. 

Historical Background

Australia was populated by the British in an attempt to alleviate the overcrowded capacity of British prisons and grow the British Empire. The new colony grew to the extent that they created their own government in the end. The Australian Dollar, which is also known under the ISO symbol of AUD, is one of the top 10 currencies in the world. When compared to the country’s size, as well as that of its population and economy, the official currency of Australia is truly impressively ranked among other world currencies. This currency replaced the Australian pound in 1966 and is now considered a proxy for some vital strategies in the currency market. As opposed to the EUR/USD or USD/JPY crosses, which entail a number of goods and services trades that get intertwined with currency trades, the AUD’s privileged position mostly stems from forex trading alone.

Apart from the name and the symbol, the currency is nowadays also referred to as $A, $AU, or Aussie. Similar to the AUD, the New Zealand Dollar (ISO symbol: NZD) is one of the most traded currencies worldwide, which is again an interesting fact considering the quantity of goods and services exchange between New Zealand and the rest of the world. Another manner in which the NZD resembles the AUD is the impact of forex trading on currency strength. The other terms the NZD is also known by are NZ dollar, kiwi, or $NZ.

Most Traded Pairs

The most traded pairs are the two currencies against other major currencies, in particular against the USD, JPY, EUR, and GBP. Most liquidity of these two currencies and their most common pairs is generated from trading. Compared to the EUR/CHF cross, which is influenced by the goods and services (money) exchange between Europe and Switzerland, the liquidity in AUD and NZD pairs is an important difference. Currency pairs such as AUD/CAD or NZD/CHF involve very few trades of goods and services, so the money exchange mostly comes from traders, who are also not so great in numbers when it comes to these crosses.

Whenever liquidity is low, traders are faced with wide spreads and increased volatility especially with regard to news events. News announcements greatly impact the currency market’s trades of NZD and AUD, which is why crosses such as AUD/CHF and NZD/CHF are considered dangerous around the time any news comes out. Therefore, the most important question in terms of trading these two currencies is liquidity, which is why professional traders mostly focus on the crosses including the USD, JPY, EUR, and GBP.

Central Banks

Before the establishment of Australia’s central bank, the Reserve Bank of Australia (RBA), in 1960, the country relied on the Commonwealth Bank of Australia to issue the currency for the country. This task was moved away from the private bank into the government, which is responsible for the monetary policy at present. The RBA numbers nine employees who are all appointed by the government. The current Chair of the RBA is Mr. Philip Lowe, who took over the position from Mr. Glenn Stevens in 2016. The RBA holds 11 meetings per year on the first Tuesday of the month (all except January) when traders can expect announcements will be issued. The bank has a trifold mandate, with the stability of the currency, i.e. price stability and fighting inflation, being their primary goal. Their second aim is to maintain employment across the country, whereas the last one is the economic prosperity and welfare of people in Australia.

Unlike the ECB, whose mandate is more singular (inflation), the mandate of the RBA is quite wide. This comprehensive list of goals and tasks enables them to be rather flexible with regard to monetary policy. Australia and New Zealand are generally likely to show similarities in terms of economic policy. New Zealand’s central bank, the Reserve Bank of New Zealand (RBNZ), was established in 1934. The RBNZ comprises 10 members/governors who meet eight times a year. As of 2016, Professor Neil Quigley has been working at the position of Chair of the bank. The bank has a single mandate – price stability, yet unlike the ECB, the RBNZ seems to be more flexible. 

Economies

Australia, the 10th largest economy in the world, is strong in mining and agriculture, which make more than half of the country’s exports. Australia is a major commodities (iron, gold, etc.) exporter to Asian countries. Australia’s largest trading partner is China, which is an important fact for the currency market traders. The Chinese yuan (CNY) is, like the Indian rupee (INR), not allowed outside the country, which is why Australia and New Zealand are the means to get to this currency. This is why there is so much volume in these currencies despite the fact that they are not the largest economies in the world. Traders interested in the AUD are always advised to think of the strength of mining in Australia, commodity prices, and China. New Zealand’s economy is slightly behind Australia, ranked 16th in the world. Their economy is mostly focused on agriculture, which is why the country largely exports food and textile. New Zealand’s largest trading partner is China as well.

Economic Reports

The reports traders should focus on are rather similar to those of the United States: quarterly GDP reports, monthly Employment Report, Retail Sales, and Producer and Consumer Price Index (CPI and PPI) for both the AUD and the NZD, including Westpac Consumer Sentiment for New Zealand. 

The AUD/SPX Correlation

Australia is not the biggest economy, but the AUD is used extensively in the currency market as a proxy for growth. If economies are growing, there will be a demand for natural resources, causing the Australian exports to be strong and the country’s relationship with China, as one of the greatest economies in the world, comes into place here as well. Some of the greatest correlations we can see are found between the AUD and the USD as well as AUD and the S&P 500. Since the AUD is perceived as a proxy for growth, if traders assume that economies are going to grow, this will be bullish for the equities market and the currencies such as the AUD. As we can see from the chart below, the nature of this correlation has changed, but it is still quite high, exceeding 50%. Correlations can in general vary in strength during different periods; however, the AUD/SPX correlation can allow traders to draw some conclusions and expect changes in the prices of the AUD should the price of equities increase.

Another important AUD/USD correlation concern is gold, which has historically been one of the most prominent correlations. Therefore, the increase in the price of gold has traditionally been bullish for the AUD. Any decrease in the price of gold is then bearish for the AUD.

With regard to the NZD, one of the strongest correlations exist between the AUD and the NZD, which is why many young traders make the mistake of going short on one and long on the other. Although the two tend to move in different directions at times, these currencies are still highly correlated. Therefore, due to their strong correlation, the insight into what is happening with the NZD should provide information on what is happening with the AUD and vice versa. 

Owing to the similarities described above, if equities prices start to move up, this change will likely be bullish both for the AUD and the NZD. Should you come to the conclusion that a change in the price of gold is going to be bearish for the price of the AUD, the same conclusion can be applied to the NZD as well. 

Trading the NZD and the AUD

Both currencies require traders to take liquidity, proper selection of crosses, and avoiding news events into consideration. Currency pairs such as GBP/NZD can be great for traders, but they tend to get really volatile around the news announcements, leading to unpredictable moves and wide spreads. It is also important to remember that both New Zealand and Australian economies are focused on commodities and Asian countries. Concerning interest rates, both Australia and New Zealand keep their rates at 0.25%, which places them right in the middle among all major currencies’ central banks. Inflation in both countries tends to vary according to CPI and PPI reports. The two countries typically do not have any challenges with the trade deficit, as they are large exporters that typically carry a surplus. What is more, as these two currencies are tightly connected with global growth, commodity prices are important factors that determine what is happening to the AUD and the NZD. 

As a proxy for global growth, the NZD and AUD pairs will reflect any global panic. The 2008 AUD/JPY chart below reflects a large drop (a 50% loss) in the midst of the crisis that was affecting the entire world. Traders use these currencies to trade growth as well as to short and sell when there is a recession.

Recent Market Activity

The AUD has been quite resilient lately with the price action slowly building up towards the end of the chart. While the chart did give a few breakouts in several places, they would simply fall. What is more, as we can see from the chart below, the past three months the price has been consolidating and this consolidation is likely to break out sometime soon. However, the CAD for example has shown how the breakdown itself is not as relevant, since the price of the Canadian dollar did break down for it to go up the very next day. The near future of the AUD may reveal similar tendencies, with the price either going straight up and growing even more or, on the other hand, going up and then pulling back in the opposite direction.

The longer the consolidation, the more difficult for the trader to assess the chart’s future movement as much resistance has been building up. Likewise, the shorter distances do allow the price to break out more easily, and the break-out and pull-back tendencies are generally much more often in such cases. The chart below shows how the currency has been doing well lately in 2020 from the technical point of view, with its strength supported by the equities and gold markets experiencing all-time highs, strong risk-on sentiments, and a weak USD. The end of the August 2020 chart reveals how the current trend should be bullish, but it is not, so it is a sign that something is wrong at the moment and that the currency should be handled with care. 

As the chart below reveals, the volatility seems to be on the low when it comes to the NZD lately. Compared to March, for example, the volatility level is much lower now. The NZD lost its momentum going upwards and in August 2020 started moving steadily in the opposite direction. The big move down may easily reach the bottom end, i.e. the support line, which would require a change in the overall outlook on behalf of traders.

Traders have been able to see some divergence with the AUD/NZD pair in the last few weeks. If traders are thinking of whether to go short on one or the other currency, the NZD is currently a much better pick. The AUD and the NZD are similar, but if they break the level they have been approaching for a while now, traders might be able to witness a more significant divergence happening. Should traders encounter a slowdown, the AUD may turn out to be a better choice after all. Owing to the current progressions, traders are advised to pay close attention to this currency pair in the time coming.

So, what does the future hold for these two currencies? It’s tough to know, the same as with any currency pair, as there are simply too many factors that determine how the market moves. What we can say with certainty is that at this time the pair is delivering some excellent trade opportunities if you only know where to look.

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Forex Fundamental Analysis

EUR/AUD Global Macro Analysis – Part 3

EUR/AUD Exogenous Analysis

EUR/AUD Exogenous Analysis

EUR/AUD Exogenous Analysis

  • The EU and Australia Current Account to GDP differential

The current account to GDP shows the percentage of a country’s international trade that makes up the GDP. Countries with higher current account surplus have a higher current account to GDP ratio while those running deficits have a negative current account to GDP ratio.

In this case, if the GDP differential is positive, it means that the exchange rate for the EUR/AUD pair will increase. But if the differential is negative, then the exchange rate for the pair will drop.

In 2020, the current account to GDP ratio in the EU is expected to hit 3.4% and -1.5% in Australia. Thus, the current account to GDP differential is 4.9%. We assign a score of 3.

Typically, investors put their money into financial instruments that offer higher interest rates. Therefore, the country with a higher interest rate should be expected to have more inflow of funds than that with a lower interest rate. Note that when foreign investors invest in the local economy, they have to convert their money into the domestic currency. This conversion increases the demand for the domestic currency in the forex market hence increasing its value.

In forex trading, if the EUR/AUD pair has a positive interest rate differential, it means that the exchange rate of the pair will increase. Conversely, a negative interest rate differential implies that the pair has a bearish outlook.

In 2020, the Reserve Bank of Australia cut the cash rate from 0.75% to 0.1%, while the ECB has maintained interest rates at 0%. Therefore, the interest rate differential for the EUR/AUD pair is -0.1%. We assign a score of -3.

  • The EU and Australia Growth Rate differential

In any economy, the value of the domestic currency is mostly determined by the growth of the local economy. Therefore, a country whose economy is growing faster will see its domestic currency appreciate faster.

If the growth rate differential is negative for the EUR/AUD pair, we can expect a bearish outlook. If it is positive, it implies that the exchange rate for the pair will rise.

For the first three quarters of 2020, the Australian economy contracted by 4% and the EU economy by 2.9%. The GDP growth differential is 1.1%. We assign a score of 2.

Conclusion

The EUR/AUD exogenous factors have a score of 2. If the conditions observed in the exogenous factors persist, we can expect that the pair will adopt a bullish trend in the short-term.

The technical analysis of the EUR/AUD shows the weekly price chart bouncing off the oversold region of the lower Bollinger bands. More so, the pair is still trading above the 200-period MA. All the best.

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Forex Assets

AUD/TWD – What Should You Know Before Trading This Exotic Pair

Introduction

Introduction

Introduction

The AUD/TWD is an exotic currency pair with the AUD representing the Australian Dollar, and the TWD is the Taiwan Dollar. Such exotic pairs experience high volatility in the forex market. In this pair, the AUD is the base currency, while the TWD is the quote currency. That means that the exchange rate of the AUD/TWD is the amount of TWD that can be bought by 1 AUD. If the exchange rate of the AUD/TWD pair is 20.091, it means that you can exchange 20.091 TWD for 1 AUD.

AUD/TWD Specification

Spread

The spread in forex trading represents the difference between the price at which you can buy a currency pair when going long and the price at which you can sell the pair when going short. The spread for the AUD/TWD pair is – ECN: 24 pips | STP: 29 pips

Fees

Holders of ECN type accounts are typically charged a fee for every position they open. This fee depends on the size of the positions and the broker. Traders with STP accounts usually don’t get charged trading fees.

Slippage

If your broker delays executing your trade or if the market is highly volatile, you will notice a difference between the price you placed on your order and the execution price. This difference is slippage.

Trading Range in the AUD/TWD Pair

When trading forex, you will notice that a currency pair fluctuates over time. The trading range shows the minimum, average, and maximum variation in pips over different timeframes. By analysis of the trading range, we can determine the potential profit from trading a particular pair across 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/TWD Cost as a Percentage of the Trading Range

To establish the Percentage of the trading range for CAD/TWD, we will express the total trading costs for both ECN and STP accounts as a percentage of the trading range above. This analysis will show us the true costs of trading the AUD/TWD pair across different timeframes, which will aid in determining the best timeframe to trade.

ECN Model Account costs

Spread = 24 | Slippage = 2 | Trading fee = 1 | Total cost = 27

STP Model Account

Spread = 29 | Slippage = 2 | Trading fee = 0 | Total cost = 31

The Ideal Timeframe to Trade  AUD/TWD Pair

From this analysis, we can tell that as the timeframe becomes longer, the trading costs become lower. For both accounts, the highest trading costs are at the 1H timeframe, which coincides with the lowest volatility of 2.7 pips. The lowest trading costs are at the 1-month timeframe coinciding with when volatility is highest at 256.8 pips.

Overall, we can also notice that the trading costs reduce when volatility changes from minimum to maximum across all timeframes. Therefore, traders of the AUD/TWD pair can reduce their trading costs by trading longer timeframes or trading when volatility approaches maximum. Furthermore, using forex limit order types can remove slippage costs.

Here’s an example.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 24 + 1 = 25

When the slippage costs are eliminated, the trading costs for the AUD/TWD pair drop. In this case, the highest cost dropped from 457.63% to 423.73%.

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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 […]

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 […]

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

How Best To Trade The ‘CHF/AUD’ Forex Currency Pair?

Introduction

Introduction

Introduction

CHF/AUD is the acronym for the Swiss Franc against the Australian Dollar, and it is an exotic Forex currency pair. Here, the CHF is the base currency, and the AUD is the quote currency. Both CHF and AUD are major currencies and are vastly traded in the foreign exchange market. CHF is the official currency of Switzerland, while AUD is the national currency of Australia.

Understanding CHF/AUD

The price of this pair in the trade market defines the value of AUD equivalent to one Swiss Franc. It is quoted as 1 CHF per X AUD. For instance, if the value of this pair is 1.5318, these many Australian Dollars are required to acquire one CHF. 

Spread

The difference between the ask-bid price is referred to as Spread, which is charged by the broker. This value is different in the ECN and STP accounts. The estimated Spreads for CHF/AUD pair is given below.

ECN: 17 pips | STP: 22 pips

Fees & Slippage

A fee is a price that one pays for the trade. There are zero fees charged on STP accounts, but a few pips are charged on ECN accounts. Slippage is the difference calculated between the price by the trader and the price the trader received from the broker.

Trading Range in CHF/AUD

The trading range is represented in the tabular format to showcase the pip movement of a currency pair in various timeframes. These values are useful in ascertaining the profit that can be generated from trade in advance. To discover the trading costs, we must multiply the below volatility value 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.

CHF/AUD Cost as a Percent of the Trading Range

The trading range is obtained by identifying the ratio between total cost and volatility; it expressed in terms of percentage. Below is the representation of the cost differences of traders in various timeframes and volatilities.

ECN Model Account

Spread = 17 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 17 + 8 = 30

STP Model Account

Spread = 22 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 22 + 0 = 27

Trading the CHF/AUD

When the percentage value is higher, the cost of the trade gets more expensive. From the above tables, we can conclude the values are significant in the min column and relatively less significant in the max column. It means that the costs are high when the market’s volatility is low. It is not advisable to trade when both the volatility and cost of trading is high. Balancing both these factors is ideal to trade when the pair’s volatility is in the range of the average values.

Additionally, to lower your costs even further, you can place trades using limit orders instead of market orders. By executing limit orders, the slippage will not be involved in the calculation of the total costs. And this will set the cost of the trades low by a decent number. An example of the same is given below.

STP Model Account (Using Limit Orders)

Spread = 22 | Slippage = 0 |Trading fee = 0

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

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Forex Assets

AUD/HRK – Analyzing The Costs Involved While Trading This Exotic Pair

Introduction

Introduction

Introduction

The abbreviation of AUD/HRK is Australian Dollar, paired with the Croatian Kuna. Here AUD is the official currency of Australia and is also the fifth most traded currency in the Foreign Exchange market. In contrast, HRK stands for the Kuna, and it is the official currency of Croatia. The Croatian National Bank issues this currency.

Understanding AUD/HRK

In the Forex market, to determine the relative value of one currency, we need another currency to compare. Here, when we buy a currency, which is known as the base currency and simultaneously sell the quote currency. The market value of AUD/HRK helps us to understand the strength of HRK against the AUD. So if the exchange rate for the pair AUD/HRK is 4.5571, it means to buy 1 AUD, we need 4.5571 HRK.

Spread

A spread is defined as the difference between the purchasing & selling price of a Forex pair. In simple words, it is the difference between the bid price and the ask price of an asset. Below is the spread charges for ECN and STP brokers for AUD/HRK pair.

ECN: 40 pips | STP: 43 pips

Fees

A Fee is the charges that we traders pay to the broker for executing a trade. Fees to a much depend on the type of broker(STP/ECN) we use.

Slippage

When we want to execute a trade at a particular market rate, but instead, the trade gets executed at a different rate, and that is because of the slippage. Slippage occurs when we counter a volatile market, and when we execute a large order at the same time.

Trading Range in AUD/HRK

The trading range here will determine 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. Here we will use the ATR indicator that indicates the price movement in a currency pair. We will evaluate it merely by using it 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/HRK 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 overall cost of trade includes spread, fees, and sometimes slippage if the volatility is more. To decrease the cost of the trade, we can use limit orders instead of market execution.

ECN Model Account

Spread = 40 | Slippage = 3 |Trading fee = 5

Total cost = Slippage + Spread + Trading Fee = 3 + 40 + 5 = 48

STP Model Account

Spread = 43| Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 43 + 0 = 46

Trading the AUD/HRK

AUD/HRK is an exotic currency pair. As we can see, the average pip movement in 1hr is 133, which implies higher volatility. The higher the volatility, the higher is the risk and lower is the cost of the trade and vice versa. Taking an example, we can see from the trading range that when the pip movement is lower, the charge is high, and when the pip movement is high, the charge is low.

To reduce our costs of trade, we may place trades using limit orders instead of market orders. In the below table, we will see the representation of the cost percentages when limit orders are used. As we can see, the cost of slippage is zero. In doing so, the slippage will not be included in the calculation of the total costs. And this will help us in reducing the trading cost by a considerable margin. An example of the same is given below.

ECN Model Account (Using Limit Orders)

Spread = 40 | Slippage = 0 |Trading fee = 5

Total cost = Slippage + Spread + Trading Fee = 0 + 40 + 5 = 45

Categories
Forex Assets

AUD/RON – What Should You Know Before Trading This Exotic Pair?

Introduction

Introduction

Introduction

The abbreviation of AUD/RON is Australian Dollar paired with Romanian Leu. Here AUD is the official currency of Australia and is also to be the fifth most traded currency in the Forex market. While RON stands for The Romanian leu, and it is the currency of Romania.

Understanding AUD/RON

In AUD/RON currency pairs, the first currency (AUD) is the base currency, and the second currency (RON) is the quote currency. In the Foreign Exchange market, we always buy the base currency and simultaneously sell the quote currency and vice versa. Here, the market value of AUD/RON helps us to understand the strength of RON against the AUD. So if the exchange rate of the pair AUD/RON is 2.9141, it means to buy1 AUD we need 2.9141 RON.

Spread

Forex brokers charge some commission on the trade we open, and that depends on the ask and the bid price by the broker. Spread is the difference between this Ask and Bid price. Every broker has different ask and bid prices. Below is the spread charges for ECN and STP brokers for AUD/RON pair.

ECN: 33 pips | STP: 35 pips

Fees

A Fee is the charges that we traders pay to the broker for opening a trade. This fee depends on the type of broker we use (STP/ECN).

Slippage

When we want to execute a trade at a particular market rate, but instead, the trade gets executed at a different rate. This is because of slippage. Slippage can take place at any time, but mostly we can counter a volatile market, and when we execute a large order at the same time.

Trading Range in AUD/RON

As a trader, our main motive should be to know the market volatility and avoid losses. The trading range here will determine the amount of money we will win or lose in a given amount of time. ATR is a technical indicator that indicates the price movement in a currency pair. In the below table, we have the representation of the minimum, average, and maximum pip movement in a currency pair. We will evaluate it merely 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 determine 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/RON 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 overall cost of trade includes spread, fees, and sometimes slippage if the volatility is more. To decrease the cost of the trade, we can use limit orders instead of market execution.

ECN Model Account

Spread = 33 | Slippage = 3 |Trading fee = 5

Total cost = Slippage + Spread + Trading Fee = 3 + 33 + 5 = 41

STP Model Account

Spread = 35| Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 35 + 0 = 38

Trading the AUD/RON

AUD/RON is an exotic currency pair. As we can see, the average pip movement in 1hr is 127, which shows the volatility is very high. Note, the higher the volatility, the higher is the risk and lower is the cost of the trade and vice versa.

Taking an example, we can see from the trading range that when the pip movement is lower, the charge is high, and when the pip movement is high, the charge is low. AUD/RON must be traded with proper risk management because of its volatile nature. If we have our strategy with adequate risk management, we can trade in a volatile market too.

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Forex Assets

Trading The AUD/DKK Forex Pair & Analyzing The Trading Costs Involved

Introduction

Introduction

Introduction

The abbreviation of AUD/DKK is the Australian Dollar paired with the Danish Krone. Here, AUD is the official currency of Australia and many others like Christmas Island and Norfolk Island. AUD is also to be the fifth most traded currency in the Forex market. In contrast, DKK stands for the Danish Krone, and it is the currency of Denmark, Greenland, and the Faroe Islands.

Understanding AUD/DKK

In AUD/DKK currency pairs, the first currency(AUD) is the base currency, and the second currency(DKK) is the quote currency. In the foreign exchange market, when we sell a currency pair, we always sell the base currency and simultaneously buy the quote currency and vice versa. Here, the market value of AUD/DKK helps us to understand the strength of DKK against the AUD. So if the exchange rate for the pair AUD/DKK is 4.4625, it means we need 4.4625 DKK to buy 1 AUD.

Spread

Forex brokers have two prices for currency pairs: the bid and ask price. The bid price is the price in which we sell an asset, and ask is the price at which we buy it. The difference between the ask and the bid price is called the spread. Below are the spread values for the AUD/DKK Forex pair.

ECN: 20 pips | STP: 23 pips

Fees

A Fee is the charges that we traders pay to the broker for opening a trade. This fee depends on the type of broker (STP/ECN) we use.

Slippage

When we want to execute a trade at a particular price, but instead, if the trade gets executed at a different price, we call that difference as Slippage. The Slippage can take place at any time, but mostly we can counter a volatile market.

Trading Range in AUD/DKK

As a trader, our main motive should be to avoid losses and risks. The trading range here will determine the amount of money we will win or lose in a given amount of time. ATR is a technical indicator that indicates the price movement in a currency pair. In the below table, we have the representation of the minimum, average, and maximum pip movement in a currency pair. We will evaluate it merely 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/DKK 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 = 20 | Slippage = 3 |Trading fee = 5

Total cost = Slippage + Spread + Trading Fee = 3 + 20 + 5 = 28 

STP Model Account

Spread = 23| Slippage = 3 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee = 23 + 3 + 0 = 26

Trading the AUD/DKK

AUD/DKK is an exotic currency pair that less traded in the forex exchange market. The average pip movement in 1hr is 183, which shows the volatility is very high.

Note, The higher the volatility, the higher is the risk and 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.

Trading using LIMIT ORDERS

To reduce our costs of trade, we can place the trades using limit orders instead of market orders. In doing so, we can eliminate the Slippage that will help reduce the overall cost of the trade. An example of a Limit order is given below.

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

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

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Forex Assets

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

Introduction

Introduction

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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Forex Assets

Everything About Trading The ‘AUD/NOK’ Forex Exotic Pair

Introduction

Introduction

Introduction

The abbreviation of AUD/NOK is the Australian Dollar and the Norwegian Krone. AUD is the official currency of Australia and many others like Christmas Island, Cocos Islands, and Norfolk Island. This currency is also proven to be the fifth most traded currency in the Forex market right after USD, EURO, JPY, and GBP. Whereas the NOK stands for Norwegian Krone, and it is the official currency of Norway and its dependent territories.

Understanding AUD/NOK

In the Forex, Currency pairs are the national currencies from two countries coupled for being exchanged in reference to each other. The first currency here is the base currency, and the second currency is the quote currency. Here, the market value of AUD/NOK helps us to understand the strength of NOK against the AUD. So if the value for the pair AUD/NOK is 6.5921, it means we need 6.5921 NOK to buy 1 AUD.

Spread

All Forex brokers have two different prices for currency pairs: selling price and buying price, and they are known as bid and ask price. Spread is the difference between the selling price and the buying price. Below is the spread for ECN and STP brokers for the AUD/NOK pair.

ECN: 50 pips | STP: 53 pips

Fees & Slippage

A Fee in Forex is the commission we need to pay to the broker for executing a particular position. If we subtract the trader’s expected price with the actual price at which the trade is executed, we get the Slippage. It occurs when the volatility of the currency pair is high. It may also occur when a large number of orders are placed at the same time.

Trading Range in AUD/NOK

Volatility is a basic measure of risk every trader should be well aware of before entering the market. Whether we have a profit or loss in a given time period relies on the pip movement of that currency pair. This can be assessed using the trading range table. The trading range here represents the minimum, average, and maximum movement of the pip in AUD/NOK.

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/NOK Cost as a Percent of the Trading Range

We must be aware of the over cost we will pay to trade a currency pair. The cost of trading a currency pair depends mostly on the volatility and also the broker, which we use. The overall cost here involves spread, slippage, and the trading fee. Below we will see the calculation of the cost variation in terms of percentages.

ECN Model Account

Spread = 50 | Slippage = 3 |Trading fee = 5

Total cost = Slippage + Spread + Trading Fee = 3 + 50 + 5 = 58

STP Model Account

Spread = 53 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 53 + 0 = 56

Trading the AUD/NOK

We are much aware of major and minor currency pairs, but there are few currencies that are less traded in the foreign exchange market. These currencies are called exotic-cross currency pairs. AUD/NOK is one such exotic pairs. As we see in the trading range chart, the average pip movement of AUD/NOK is 205, and by this, we can conclude that AUD/NOK is a volatile market.

To have a better understanding of the volatility, we will try to understand this with the help of an example. In the 1H time frame, the average pip movement is 205, and the cost percentage is 28.29%. Where in the minimum pip movement in 1hr is 81 and trading, it will cost us 71.60%.

This shows us that higher the volatility lesser is the cost of a trade. But trading in a volatile market involves risk as the movement of the pips is very fast. However, we can trade a volatile market if we follow proper money management rules.

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Forex Assets

What Should Know About The AUD/JPY Currency Pair?

Introduction

Introduction

Introduction

AUDJPY is the abbreviation for the Australian dollar and the Japanese yen. It commonly referred to as “Aussie yen.” It is one of the cross-currency pairs in the forex market. AUD, being on the left, is termed as the base currency and JPY as the quote currency.

Understanding AUD/JPY

The market price of AUDJPY corresponds to the value of JPY that needs to be paid to buy one AUD. It is quoted as 1 AUD per X JPY. For example, if the value of AUDJPY is 74.571, then these many units of the yen are to be produced to purchase one Australian dollar.

AUD/JPY Specification

Spread

Spread is the medium through which brokers generate their revenue. They set different prices for buying a currency and selling a currency. The difference amount becomes their profit margin. The spread usually changes from time to time and varies on the type of execution model.

ECN: 0.7 | STP: 1.6

Fees

Apart from spreads, one needs to pay a charge for every execution a trader makes. It is essentially the commission levied by the broker on each trade. As a matter of fact, there is no fee on STP accounts. But, on ECN accounts, there is a fee of few pips.

Slippage

Going by the definition, slippage is the difference between the price executed by the trader and the price he actually received. It could be in favor of the trader or against him. It all depends on the broker’s execution speed and the change in the volatility of the market.

Trading Range in AUD/JPY

A trading range is a tabular representation of the minimum, average, and the maximum pip movement in a currency pair on different timeframes. These values help in determining the profit that can be made or loss one must bear in a given time frame. And this can be found out by simply finding the product between the pip movement and the value per pip ($9.15).

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 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.

AUD/JPY Cost as a Percent of the Trading Range

Cost as a percent of the trading range is an illustration of the cost variation by considering the total cost and the volatility of the market in different timeframes. These values are expressed in a ratio that is converted to percentages. And the magnitude of these percentages helps in determining the cost variation in each trade.

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 AUD/JPY

Though Forex is a 24/7 market, it is not ideal to enter any time in the market. There are certain times when you must enter the market, which can help reduce costs significantly. Let us determine that using the above tables.

Note that the higher the magnitude of the percentage, the higher is the cost of the trade. From the table, it can be ascertained that the values are high in the minimum column, implying that the costs are high when the volatility of the market is low. Similarly, the costs are low when the volatility is high. However, it is not ideal to trade during these times. To ensure optimum volatility and affordable cost, one must trade during those times when the volatility is around the average range.

Furthermore, there is another way through which you can reduce your costs. Trading using limit orders instead of the market orders brings down the total cost significantly, as the slippage becomes zero. The decline in the costs on the trade when slippage is made zero is shown below.

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Forex Assets

Basics Of Trading The AUD/CHF Currency Pair & Analyzing The Trading Costs Involved

Introduction

Introduction

Introduction

AUDCHF is the abbreviation for the Australian dollar and the Swiss franc. It is a cross-currency pair in the market. AUD being on the left is the base currency, and CHF (on the right) is the quote currency. One can expect high volatility and liquidity during the Australian session.

Understanding AUD/CHF

The value of AUDCHF represents the amount of Swiss Francs required to buy one Australian dollar. It is quoted as 1 AUD per X CHF. For example, if the value of AUDCHF is 0.6885, then this number represents the CHF that is to be produced by the trader to buy one AUD.

AUD/CHF Specification

Spread

Spread is the difference between the bid price and the ask price of the market set by the brokers. It is not a fixed value. It differs from the account type as well as the broker.

ECN: 0.7 | STP: 1.7

Fees

Brokers charge a fee on every trade a trader takes. It could be per execution or finished trade (round trip). Also, it varies from the type of account model. Typically, fee on ECN type is 5-10 pips, and 0 on STP type.

Slippage

Slippage is the difference between the price demanded by the trader and the price he actually received from the broker. There is always a variation in this due to the broker’s execution speed and market volatility.

Trading Range in AUD/CHF

Wanting to know how much profit one can make in a given time? If so, then you may find the answer in the table illustrated below. This table is the representation of the min, average, and max volatility of the currency pair in different timeframes. And with these values in the table, one can determine the profit 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 determine 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/CHF Cost as a Percent of the Trading Range

The cost as a percent of the trading range is determined in the following table using different volatilities, assuming that the trading range can be seen as the potential profit on a given timeframe. The percentages are obtained by finding the ratio between the total cost of the trade and the range values. These values, thus, help in assessing the right moments in the day to trade the currency pair.

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 = 1.7 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.7 + 0 = 3.7

The Ideal way to trade the AUD/CHF

Firstly, the higher the value of the percentage, the higher is the cost of the trade. It is pretty evident from the above tables that the costs are higher in the min column and keep decreasing in the subsequent columns. Meaning, as the volatility increases, the total cost of the trade reduces. But, it is not ideal to trade in either of the extremes. To have an affordable cost and optimal volatility, it is best to enter during those times of the day when the pip movement for the pair is more or less equal to the average values.

Furthermore, the total cost can easily be reduced by trading using limit order instead of market orders. This methodology would bring down the slippage to zero. Hence, significantly affecting the percentage values. And an example of the same is depicted below.

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Forex Assets

Understanding The AUD/CAD Forex Currency Pair

Introduction

Introduction

Introduction

AUDCAD is the abbreviation for the currency pair, the Australian dollar, and the Canadian dollar. It is a cross-currency pair. One can expect great volatility and liquidity in the market during the Australian session. AUD is the base currency, and CAD is the quote currency.

Understanding AUD/CAD

The value of AUDCAD is the number of Canadian dollars required to buy one Australian dollar. It is quoted as 1 AUD per X CAD. For example, if the value of this pair is 0.9013, then 0.9013 CAD is needed to purchase one AUD.

AUD/CAD Specification

Spread

Spread in trading is the difference between the bid price and the ask price set by the broker. This pip difference is how brokers generate revenue. The spread always varies from broker to broker and the type of account model.

ECN: 1 | STP: 1.9

Fees

Apart from spreads, brokers charge a few pips of fee or commission on each trade you take. This exists only ECN accounts, as a fee on STP accounts is nil.

Slippage

Due to the delay in the broker’s execution speed and volatility of the market, a trader doesn’t get the exact price he intended. This difference in prices is referred to as slippage. It typically varies from 0.5 pips to 5 pips.

Trading Range in AUD/CAD

The trading range is the representation of the minimum, average, and maximum volatility in the market in a given timeframe. This proves to be useful in determining the profit/loss that can be made in a specific amount of time. One can determine this simply by finding the product of the pip movement on the required timeframe and the pip value (mentioned in the specification table).

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.

AUD/CAD Cost as a Percent of the Trading Range

The cost of trade is an essential point of consideration in trading. Cost is that factor that is not fixed and varies on different variables. For example, when the volatility changes, the costs change. The same is the case with timeframes as well. Below is a table that illustrates the variation in the costs on a trade for different timeframes and volatilities.

ECN Model Account

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

Total cost = Slippage + Spread + Trading Fee = 2 + 1 + 1 = 4

STP Model Account

Spread = 1.9 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.9 + 0 = 3.9

The Ideal way to trade the AUD/CAD

Comprehending the above tables is simple. The higher the magnitude of the costs, the higher is the total cost that has to be paid on a trade and vice versa. In the table, the percentages are on the higher side in the min column and lower in the max column. Hence, it can be concluded that the costs are higher when the volatility is low and vice versa. However, it isn’t ideal to trade in these situations. It is rather preferred to enter the market when the volatility is around the average values because the costs are affordable, and the volatility is as needed.

Moreover, it is recommended to design strategies such that limit orders are put to use. This shall completely eliminate the slippage on the trade. And with the elimination of slippage, the total cost would significantly reduce as well.

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Forex Assets

Fundamentals Of Trading The GBP/AUD Currency Pair

Introduction GBPAUD is an abbreviation for the Great Britain pound and the Australian dollar. This cross currency pair is widely traded with high volume in the forex market. In this pair, GBP is the base currency, and AUD is the quote currency. Understanding GBP/AUD The value of GBPAUD in the market is the value of […]

Introduction GBPAUD is an abbreviation for the Great Britain pound and the Australian dollar. This cross currency pair is widely traded with high volume in the forex market. In this pair, GBP is the base currency, and AUD is the quote currency. Understanding GBP/AUD The value of GBPAUD in the market is the value of […]

Introduction

GBPAUD is an abbreviation for the Great Britain pound and the Australian dollar. This cross currency pair is widely traded with high volume in the forex market. In this pair, GBP is the base currency, and AUD is the quote currency.

Understanding GBP/AUD

The value of GBPAUD in the market is the value of AUD equivalent to one pound.GBPAUD is quoted as 1 GBP per X AUD. For example, if the value of GBPAUD is 1.8505, then these many Australian dollars are to be given to receive one pound.

GBP/AUD Specification

Spread

The prices for buying and selling a currency pair are different. To buy, one must refer to the ask price; and to sell, one must refer to the bid price. The difference between the bid price and the ask price is called the spread. The spread varies from the type of account model.

ECN: 0.7 | STP: 1.7

Fees

Apart from the spread, brokers levy fee on every round-trip trade. This fee is fixed in for every trade. However, it varies from broker to broker. Usually, there is no fee on STP accounts. On ECN accounts, there is a fee of a few pips.

Slippage

Slippage is the difference between the price when the trader entered the market order and the price he was actually given. Most of the time, there is a variation in the prices. This difference could be in favor of or against the trader. There are two factors responsible for it. One, the volatility of the market, and two, broker’s execution speed.

Trading Range in GBP/AUD

The trading range of currency pairs simply depicts the volatility of the pair in a different timeframe. In other terms, the trading range represents the minimum, average, and maximum pip movement in different timeframes. These values are helpful in assessing one’s risk, as well as making trades much cost-effective.

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 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.

GBP/AUD Cost as a Percent of the Trading Range

Cost as a percent of the trading range is a very supportive tool in analyzing the cost of a trade, in different timeframes, and at different volatilities. This is done by finding the ratio of the total cost and volatility values and then expressing it as a percentage. The comprehension of the below tables shall be discussed in the subsequent topic.

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 = 1.7 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.6 + 0 = 3.7

The Ideal way to trade the GBP/AUD

Note that the higher the magnitude of the percentage, the higher is the cost of the trade. From the table shown above, we can observe that the values are highest on the min column and lowest on the max column. This means that the costs are higher when the volatility of the market is low and vice versa. Reading it horizontally, the cost gets lower as the timeframe widens. Hence, the ideal to trade when the pip movement of the currency pair is near the average values. This will ensure decent volatility by keeping the costs minimal.

Another effective way to reduce the total cost is by trading using limit orders, not market orders. Doing so, the slippage on the trade will shrink to zero. The following table shows the costs of the GBP/USD with no sleppage, for the same market conditions as on the preceding tables.

Total cost = Spread + trading fee + slippage = 0.7 +1 + 0 = 1.7

Hence, from the above table, it can be inferred that the cost percentages have a significant value.