Tag: Commodity Trading

Categories
Forex Assets

XPT/USD – How Expensive Is It To Trade This Commodity Asset Class?

Introduction

Introduction

Introduction

Platinum is one of the rarest precious metal found in the Earth’s crust. Only a few hundred tons are produced annually. The name Platinum is derived from a Spanish word platina (little silver).

Similar to how other precious metals like Gold and Silver are traded in the exchange market, Platinum is also actively traded in the market. Its ISO code is XPT and is highly traded against the US Dollar with the ticker XPT/USD.

Understanding XPT/USD

Platinum is a precious metal that is measured in troy ounces (Oz). The market price of XPT/USD represents the value of the US Dollar for one troy oz of Platinum. It is quoted as 1 XPT per X USD. For instance, if the current market price of XPT/USD is 814.50, then it means that each oz of Pl is worth 814.50 USD.

XPT/USD Specification

Spread

It is the difference between the bid and the ask prices. The typical spread in Platinum is usually around 700 pips.

Fee

Unlike currency pairs, Platinum is traded as a Contract for difference (CFD). There are three different types of the fee charged for such trades:

  • Commission charge
  • Overnight fee

Thus, the total fee will be,

Total fee = Spread + commission + overnight

For our example, we shall ignore the overnight fee as it completely depends on how long aa trader is willing to hold his positions. So, the revised fee will be,

Total fee = Spread + commission = 700 + 200 = 900 pips

Trading Range in XPT/USD

The trading range is a representation of volatility in the pair for different time frames in a tabular format. It gives the minimum, average, and maximum volatility in the pair for various time frames.

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.

XPT/USD Cost as a Percent of the Trading Range

Cost as a % of the trading range illustrates the variation in the cost of trade by considering the time frame and volatility of the instrument. Mathematically, it is the ratio of the volatility value and the total cost represented in terms of a percentage.

Total fee = Spread + commission = 700 + 200 = 900 pips

Trading the XPT/USD

Platinum is one of the highly traded commodities in the exchange market. But its trading volume is lesser than Gold Spot and Silver Spot. Nonetheless, it has enough volatility and liquidity for retail traders to participate in the market.

Platinum is primarily driven by supply and demand that comes from fundamental factors. These factors are different from that of Gold and Silver, yet some do apply on Pl. When it comes to technical analysis, all the techniques apply that is used in other markets.

As mentioned, Platinum is traded as CFD, and each trade has a commission, overnight, and spread involved in it. This fee is fixed irrespective of the volatility of the market and the time frame traded. But there is a catch here. Even though the fee is fixed, the fee varies relatively. Meaning, a trader aiming high profit must pay the same fee as a trader aiming for small profits. The former is typically a large time frame trader, while the latter is a trader trading relatively smaller time frame.

Since the timeframe is something that cannot be fixed, one can relatively reduce costs by considering the volatility of the market. As the above table evidently depicts, as the volatility increases, the relative fee on the trade decreases. Thus, one must consider trading when the volatility of the pair is at or above the average volatility.

Categories
Forex Basic Strategies

Trading The CAD/JPY Pair Using ‘Commodity Correlation Strategy’

Introduction

Introduction

Introduction

Oil is one of the largest commodities in the world that is traded heavily. The reason for high liquidity is that it is a basic necessity. It is needed to run factories, machinery, ships, and cars. Canada is one of the largest exporters of Oil, and it forms a major part of the total volume of commodities exported. Due to these reasons, Canada is positioned in the world’s top ten oil-producing nations, and as a consequence, it’s economy is severely impacted when oil prices decline. Many traders today predict the movement of the Canadian dollar using the price of Oil.

When oil prices rise, the Canadian dollar tends to strengthen. Similarly, when oil prices are low, the Canadian dollar tends to weaken. Japan, in contrast, is considered as the net importer of Oil. So, when oil prices rise, Japanese yen weakens, and when oil prices drop, Japanese yen strengthens. Many traders are not very comfortable trading Oil due to the volatility it possesses.

An alternate and improvised way trading oil directly would be to utilize knowledge of oil prices to trade the CAD/JPY currency pair. As Canada is the net exporter and Japan is the net importer of oil, oil price becomes a major indicator for the movement of the CAD/JPY currency pair. That is why we have named this strategy a ‘Commodity Correlation Strategy.’ Let us dive into the strategy and explore the steps involved.

Time Frame

The commodity correlation strategy works well with the daily (D) and weekly (W) time frame charts. Swing trading is the most suitable trading style for this strategy as it has a long-term approach to the price. Therefore, the strategy cannot be used for day trading or on 4-hours’ time frame chart.

Indicators

We use just one technical indicator in this strategy, and that is the Average True Range (ATR) to set the stop loss for the trade. We don’t use any other indicator during the application of the strategy. If one is not familiar with the ATR indicator, it is recommended to refer our article on ATR before understanding the strategy.

Currency Pairs

This strategy can be used with CAD/JPY currency pair only, with the movement of oil prices as our leading indicator.

Strategy Concept

The price movement of crude Oil is used as a reference to catch a ‘trade’ in CAD/JPY currency pair. Key levels of support and resistance on the crude oil chart are used to spot long and short opportunities in CAD/JPY pair. If price closes above resistance on the oil chart, a long trade is activated on the CAD/JPY the following day. Similarly, if the price closes below support on the oil chart, a short trade is triggered on the CAD/JPY the following day. The risk to reward of trade taken based on this strategy is a minimum of 1:2, which is above normal. A bigger target can be achieved by allowing the trade to run.

Trade Setup

In order to explain the strategy, we focus on the price chart of crude Oil and CAD/JPY currency pair. We are not concerned with any other forex pair. The strategy can be easily understood by those who have basic knowledge of support and resistance.

Step 1

Firstly, we need to open the chart of crude Oil and then find key levels of support and resistance. After marking support and resistance levels, we wait for a breakout or breakdown of the range. After the breakout happens, make sure that the breakout is real and a faker. A close candle well above the resistance area gives us a confirmation of the breakout, and thus we can expect a continuation of the price in the direction of the breakout.

The below image shows how the breakout should be along with the confirmation candle.

Step 2

Now, we need to open the chart of CAD/JPY currency pair and locate the price on the day when the breakout took place on the oil chart. Since the breakout on the oil chart is above the resistance, we will ‘long’ in CAD/JPY currency pair after a suitable confirmation sign from the market. A bullish candle on the next day is the confirmation signal for going ‘long.’ In a case of a breakdown below the support, a bearish candle in the CAD/JPY pair on the next day of the breakdown is suitable for going ‘short’ in the pair.

In the above example, we see the formation of a bullish candle on the following day, which triggers a ‘buy’ trade. Let us see what happens further.

Step 3

In this step, we determine take-profit and stop-loss levels for our strategy. The stop loss for this strategy is calculated by multiplying the value of ATR by 2. The stop loss is placed by the number of pips obtained after performing the calculation. The take-profit is placed at the price where the risk to reward of the trade will be at least 1:2. However, in most cases, the trade has the potential to provide move higher.

In this example, the risk to reward of the trade was 1.5 as the major trend was down.

Strategy Roundup

Using the Commodity Correlation Strategy, traders can take advantage of the positive correlation between Crude oil prices and the CAD/JPY currency pair. This strategy is especially suitable for traders who want to trade in Oil but do not enjoy the volatility associated with it. This strategy is also suitable for traders who do not have the time to day trade and prefer long-term positions in the pair.

Crude Oil has the highest correlation with CAD and JPY Forex pairs. Hence we have considered these asset classes. You can use this strategy for different Forex pairs depending on which commodities they are correlated with. We hope you found this strategy informative. All the best.

Categories
Forex Assets

Costs Involved While Trading The XBR/USD Asset Class

Introduction

Introduction

Introduction

BCO is an acronym for Brent Crude Oil, which is one of the two types of crude oil and is a benchmark for determining the price of oil, along with West Texas Intermediate (WTI) crude oil. BCO is also known by Brent Blend, Brent Oil, and London Brent. It is the benchmark for the majority of the crude oil from the Atlantic basin, which marks for two-thirds of the crude oil price traded internationally. In the market, it is traded with the ticker XBR/USD.

Understanding XBR/USD

Brent Crude is a commodity traded in barrels. The price of XBR/USD depicts the value of the US Dollar for 1 barrel of crude oil. It is quoted as 1 XBR per X USD. For example, if the market price of XBR/USD is 41.42, then it means that each barrel of crude oil is worth $41.42.

XBR/USD Specification

Spread

It is the basic difference between the bid price and the ask price. The spread on ECN and STP account model is as follows:

ECN: 11 | STP: 15

Fee

There is a fee (commission) for every position a trader opens. However, this fee is only on the ECN account, not the STP account.

Slippage

Slippage is the difference between the price intended by the trader and the price given by the broker. It occurs due to two factors:

  • Broker’s execution price
  • The volatility of the market

 Trading Range in XBR/USD

It is the representation of the volatility of the market in different time frames. The table values represent the minimum, average, and maximum pip movements in various time frames. 

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.

XBR/USD Cost as a Percent of the Trading Range

The following are two tables that represent the variation in the fee in terms of a percentage for different time frames. The percentage values are calculated by finding the ratio between the total cost and the volatility values.

ECN Model Account

Spread = 11 | Slippage = 5 | Trading fee = 5

Total fee = Spread + Slippage + Trading fee

Total fee = 11 + 5 + 5 = 21 (pips)

STP Model Account

Spread = 15 | Slippage = 5 | Trading fee = 0

Total fee = Spread + Slippage + Trading fee

Total fee = 15 + 5 + 0 = 20 (pips)

Trading the XBR/USD

Crude oil is a commodity that is rigorously traded in the market. Its volatility and liquidity are comparable to major and minor currency pairs, providing good opportunities for traders to participate in the market. The crude oil prices are driven by various fundamental factors and its Demand and Supply. The reflection of the same is seen on the charts. Thus, traders can apply technical analysis as well to forecast the price movements.

There is a fee on every trade you take with a forex broker. This fee is the same irrespective of the time frame you trade on. So, traders must place themselves in a position that will have a reasonable cost for a sufficient P/L. The trading range and the cost percentage table are the tools for it.

The larger the percentage value, the higher is the relative fee on the trade and vice versa. For example, let’s there are two traders – 1D and 4H trading with the same lot size. The 1D trader places a take profit to 200 pips, while the 4H trader places it at 100 pips. But the fee paid by both the traders is the same. But, seeing the relative fee, the 4H trader pays a higher fee than the 1D trader because his take profit is only 100 pips. Thus, the percentage values are higher in the 1D time frame than the 4H time frame.

There is another scenario where the relative cost changes based on the volatility of the market. In simple terms, the relative fee can vary even if a trader trades in the same time frame. Precisely, the relative fee is higher when the volatility of the market is around the minimum values. Therefore, to balance between the total fee and the P/L, one must trade when the market volatility is above the average volatility, irrespective of the time frame traded.

Categories
Forex Assets

Asset Analysis – Analyzing The XAG/USD Asset Class

Introduction

Introduction

Introduction

Silver is a precious metal standing after Gold. It is a vital asset to understand and forecast the potential movements in the commodity market. This is because buyers and sellers trade the silver market based on global macro trends. Moreover, Silver highly correlates with the Gold Spot prices. XAG/USD is the ticker for Silver against the US Dollar. XAG can be traded against other fiat currencies as well.

Understanding XAG/USD

Silver is a commodity that is traded in troy ounces (Oz), just like any other precious metal. The market price of XAG/USD represents the value of the US Dollar for 1 ounce (Oz) of Silver. It is quoted as 1 XAG per X USD. For example, if the market price of XAG/USD is 17.432, it signifies that each ounce of Gold is worth $17.432.

XAG/USD Specification

Spread

Spread is essentially the difference between the buying price and the selling price. The spread varies on the based account-model used.

ECN: 15 | STP: 21

Fee

A fee is basically the commission on the trade. It applies only to ECN accounts, not STP accounts.

Slippage

The arithmetic difference between the price asked by the trader and the price given by the Broker is referred to as slippage. It occurs due to two reasons: High market volatility & Broker’s execution speed

Trading Range in XAG/USD

The minimum, average, and maximum pip movement in different time frames is represented in the following table. It can be used to assess your risk on the 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 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.

XAG/USD Cost as a Percent of the Trading Range

Cost a percent of the trading range is the representation of the variation in fees on the trade-in different time frames for varying volatility.

ECN Model Account

Spread = 15 | Slippage = 5 | Trading fee = 5

Total fee = Spread + Slippage + Trading fee

Total fee = 15 + 5 + 5 = 25 (pips)

STP Model Account

Spread = 21 | Slippage = 5 | Trading fee = 0

Total fee = Spread + Slippage + Trading fee

Total fee = 21 + 5 + 0 = 26 (pips)

Trading the XAG/USD

Silver Spot is extensively traded in the commodity market, after Gold Spot. It offers enough volatility and liquidity for traders to participate in the market. Silver highly correlates to Gold. Traders can use it as a proxy to place their bets on Silver prices. The technical analysis can be used on Silver as applied to any other market. Even though there is enough volatility in this pair, it is not ideal for entering any time into the market. The reason for it can be accounted for through the cost percentage table.

The cost percentage table represents how expensive a trade is going to be based on the time frame and volatility. Note that, the absolute total cost will remain the same irrespective of the two factors but will vary relatively. For instance, a 1H trader must pay the same fee a 4H trader pays for their trade. But, there a catch; the 4H trader generates more P/L than a 1H trader.

Thus, to have a balance between the P/L and fee on the trade, one must trade when the market volatility at or above the average values. Trading in low volatility markets will cause hurdles in the market to reach your target. Hence, we will have to pay the same costs, even for a small P/L.