BGN – Forex Academy

Introduction

CHF/BGN is the abbreviation for the Swiss Franc and the Bulgarian Lev exotic pair. Here, CHF is the base currency, while BGN is the quote currency. The pair as a whole explains the number of units of the quote currency (BGN) that is required to buy a single unit of the base currency (CHF). BGN stands for The Bulgarian Lev, and it is the official currency of Bulgaria.

Understanding CHF/BGN

In the Forex market, we always purchase the base currency while selling the quote currency and vice versa. Here, the market value of CHF/BGN helps us to comprehend the potential of BGN against the CHF. So if the exchange rate of the pair CHF/BGN is 1.8384, it means to buy1 CHF we need 1.8391 BGN.

CHF/BGN Specification

Spread

Spread in exchange is the distinction between the bid-ask price proposed by the broker. It is quantified in terms of pips and fluctuates on the type of account and kind of broker. Below is the spread for the CHF/BGN pair in both ECN & STP accounts.

Spread on ECN: 7 | STP: 12

Fees

Fees are the commission charged by the broker for each trade a trader takes. The fee varies on both types of accounts and brokers. For our analysis, we have maintained the fee flat at five pips.

Slippage

A trader will not get the price that he demands, due to the volatility in the market. The original price varies from the asked price. The difference is termed as slippage. For instance, if a trader performs a trade at 1.8384, the actual price received would be 1.8391. The difference between the two pips is called slippage.

Trading Range in CHF/BGN

The trading range is a tabular interpretation of the min, average, and maximum pip movement in a specific timeframe. Obtaining understanding about this is essential because it helps manage risk and determine the appropriate times of the day to enter-exit a trade with minor costs.

Below is a table representing the minimum, average, and maximum pip movement (volatility) in various timeframes.

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.

CHFBGN Cost as a Percent of the Trading Range

The above table illustrates the number of pips the currency pair move in the various timeframe. We will apply these values to identify the cost ratio when the volatility is minimum, average, and maximum. The cost percentage will then help us sort the ideal time of the day to enter the trades.

The understanding of the cost percentage is straightforward. If the percentage is elevated, then the cost is high in that specific timeframe and range. If the percentage is low, then the cost is comparatively low for that timeframe and range. The total cost on every trade is calculated by adding up the spread, slippage, and trading fee.

ECN Model Account

Spread = 7 | Slippage = 5 | Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 7 + 8 = 20

STP Model Account

Spread = 12 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 12 + 0 = 17

The Ideal way to trade the CHF/BGN

It is not recommended to enter and exit the trade at any time of the day. To manage their trade, a trader must consider various timeframes during the day to reduce both risk and cost of the trade. This is made possible by understanding the above two tables.

In the minimum column, the percentages are generally high. This means the cost is very high when the volatility of the market is low. For example, on the 1H timeframe, when the volatility is three pips, the cost percentage is 666%. This means that one must accept high costs if they enter or exit trades when the volatility is around three pips. Preferably, it is advised to trade when the market’s volatility is above the average.

Additionally, it is considerably better if one trades placing the limit orders instead of market orders, as it invalidates the slippage on the trade. In doing so, the costs of each trade will reduce by approximately 40%.

STP Model Account (Using Limit Orders)

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

Total cost = Slippage + Spread + Trading Fee = 0 + 12 + 0 = 12

Introduction

GBP stands for the British pound sterling, which is sometimes also known as the Pound. It is the 4th most traded currency in the Foreign Exchange market after USD, EURO and YEN. Whereas, BGN is the abbreviation of the Bulgarian lev, and it is the official currency of Bulgaria.

Understanding GBP/BGN

In Forex, the currencies are traded in pairs. In this case, GBP is the base currency, and BGN is the quote currency. Generally, if the value of the base currency goes up, the value of the quote currency goes down and vice versa. The market value of GBP/BGN determines the strength of BGN against GBP. It can be easily comprehended as 1GBP is equal to how much of BGN. So, if the exchange rate of GBP/BGN is 2.2409, to buy 1GBP, we need 2.2409 BGN.

Spread

Spread is the athematic difference between the bid and ask prices. Here, the bid is the selling price, whereas ask is the buying price of the currency pair. So basically, the spread is a type of commission brokers make for the services they provide. Below are the ECN and STP spread values for the pair GBP/BGN.

ECN: 19 pips | STP: 22 pips

Fees

It is obvious that we need to pay some commission to the broker every time we place a trade. A Fee is simply that commission we pay to the broker for opening a particular position. This fee varies from the type of broker we use. For example, there is no fee charged for STP account models, whereas a few pips are charged by ECN brokers.

Slippage

Slippage is referred to as the difference between the expected price at which the trader wants to buy/sell a currency pair and the price at which the trade is executed in real-time. It is important to know that slippage can occur at any time. However, it mostly happens when the market is extremely volatile.

Trading Range in GBP/BGN

Whether we make a profit or loss in a given time period depends on the movement of a currency pair. This can be assessed using the trading range table that is given below. It is basically a representation of the min, avg, and the maximum pip movement in a Forex currency pair. Evaluating the volatility of the market before taking the trade is the most important thing to do. The trading range here is to measure the volatility of the GBP/BGN pair.

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 significant 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/BGN Cost as a Percent of the Trading Range

Most of the time, the cost of trade depends on the type of broker we choose. This varies based on the market’s volatility. The total cost involves the costs incurred from slippage and spreads along with the trading fee. Below we have discussed the cost variation in terms of percentages. Let’s look into both the ECN and the STP models.

ECN Model Account

Spread = 19 | Slippage = 3 |Trading fee = 5

Total cost = Slippage + Spread + Trading Fee = 3 + 19 + 5 = 27

STP Model Account

Spread = 22| Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 22 + 0 = 25

Trading the GBP/BGN

The GBP/BGN is an exotic-cross currency pair and is a low volatile market. As seen in the Range table, the average pip movement on the 1-hour time frame is only 36. This clearly shows that if we trade this pair, we will have to wait for a more extended period to get some good profit as the pip movement is very less.

On any given day, if the market volatility is high, the cost of the trade is lower and vice-versa. However, this shouldn’t be considered as an advantage always because more the volatility, the riskier is our trade.

For instance, in the 1M time frame, the maximum pip range value is 1559, and the minimum is 336. When we compare the fees for both the pip movements, we find that 8.04% is the fee for the former, and it is only 1.73% for the latter. Hence we can infer that the prices are higher for low volatile markets and low for highly volatile markets.