Fiat Crypto Pair – Forex Academy

Introduction

XRP/USD is the abbreviation for Ripple against the US Dollar. This pair is used for trading the Ripple cryptocurrency. Also, traders can trade Ripple against other fiat currencies.

Understanding XRP/USD

The value of XRP/USD represents the value of the US Dollar equivalent to one Ripple. It is quoted as 1 XRP per X USD. For example, if the value of XRP/USD is 0.1912, then it can be said that each Ripple is worth 0.1912 US Dollars.

XRP/USD specifications

Spread

Spread is the difference between the bid and the ask price quoted by the brokers. It varies based on the execution model used. Below are the ECN & STP spreads for the XRP/USD pair.

Spread on ECN: 50 pips | Spread on STP: 53 pips

Fee

The fee is the commission that is levied by the brokers on each trade. This fee is only applicable to ECN brokers, not STP brokers.

Slippage

When orders are executed on the ‘market,’ the price requested by the trader is different from the price given by the broker. This can happen either because of high market volatility or broker’s execution speed

Trading Range in XRP/USD

The minimum, average, and maximum pip movement in XRP/USD are given below. One can use these values to determine the profit/loss they could make in a given timeframe.

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.

XRP/USD Cost as a Percent of the Trading Range

By applying the volatility values to the total cost of a trade, the variation in the costs for varying volatilities can be determined. Below are two tables representing the same.

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 XRP/USD

While trading a pair, there are two factors that must be taken into consideration, namely, volatility and cost.

Volatility

The minimum in the 4H timeframe is 18 pips, while 142 pips are the maximum. And the average stands at 63. So, if a trader wishes to trade the 4H timeframe, then they should make sure that the current volatility is at or above the average volatility. This is because one can make money only when there is movement in the market.

Cost

Cost is not constant but varies as the volatility changes. The cost percentages in the minimum column are the highest compared to the average and maximum columns. This means that the costs are very high for highly volatile markets. Hence, it must be avoided.

The benefit with limit orders

Traders who trade with limit orders have an added benefit than those who trade with market orders. With limit orders, the total cost of the trade does not include the slippage. This hence brings down the cost of the trade to a decent extent.

This concludes the analysis of BCH/USD. We hope you found it interesting and useful. Stay tuned for more such asset analysis. Cheers!

Introduction

Apart from currencies pairs, exchanges allow trading of cryptocurrencies as well. Cryptocurrencies can be bought and sold in the exchange market through Forex brokers. Trading cryptocurrencies can be closely related to Forex trading but not stock trading. This is because cryptos are traded as pairs and not individually. In this series, we will be analyzing the trading costs involved while trading cryptocurrencies that are paired with fiat currencies (Ex: USD).

BTC/USD is a cryptocurrency pair where BTC stands for Bitcoin, and USD stands for US Dollar. This pair is traded through Forex brokers as CFDs, or through cryptocurrency exchanges where cryptos are bought and sold exclusively.

Understanding BTC/USD

The price of BTC/USD in the exchange market represents the value of the US Dollar equivalent to one 1 Bitcoin. It is quoted as 1 BTC per X USD. For example, if the current market price of BTCUSD is 7356.50, then it can be said that one Bitcoin is equal to the US $7356.50.

BTC/USD specifications

Spread

Spread is the difference between the bid and the ask price in the exchange market. It is determined by the brokers and exchanges, and it hence varies from time to time. Typically, the spreads for trading cryptocurrencies are very high. In recent years, the spread of coins having two decimal places is between 1500-6000 pips. The approx. spread on ECN and STP accounts are given below.

Spread on ECN: 3000 pips (30 USD)
Spread on STP: 3050 pips (30.5 USD)

Fees

The fee is simply the commission paid for the position a trader takes. It is charged only for ECN and Pro accounts and not for STP accounts. For our analysis, we shall keep the fee at 45 pips.

Slippage

Slippage is the difference between the price at which a client executed trade and the price which was actually given by the broker. This difference occurs either because of high market volatility or speed of trade execution.

Trading Range in BTC/USD

The trading range is the representation of the pip movement in the pair for different timeframes. The values are calculated using the average true range indicator. And the procedure to assess it is given below as well.

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.

BTC/USD Cost as a Percent of the Trading Range

Cost is a factor that varies with the change in the volatility of the market. By finding the ratio between the total cost and volatility, the variation in the costs is measured.

ECN Model Account

Spread = 3000 | Slippage = 25 |Trading fee = 45

Total cost = Slippage + Spread + Trading Fee = 25 + 3000 + 45 = 3070

STP Model Account

Spread = 3050 | Slippage = 25 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 25 + 3050 + 0 = 3075

The Ideal way to trade the BTC/USD

It is a general impression that trading cryptos are very risky because of its high volatility. But it is not completely true. To clear the misconception, consider the following example.

The pip value of BTC/USD per lot is 0.01 USD. That is, for every pip up or down, you will gain or lose 0.01 USD. The average pip movement in the 1H timeframe is 9100 pips. So, if you trade one lot of BTC/USD, you will win or lose about $0.01 x 9100 = $91 in a time frame of one hour. Hence, though the pip movement seems to be high, the profit/loss remains within decent boundaries.

Considering the cost variation in the above tables, it can be inferred that the costs are more for low volatile markets and less for a highly volatile market. But, the cost for average volatility acts as a median. Hence, trading when the volatility is around the average values is recommended. Furthermore, costs can be lowered by trading via limit orders instead of market orders. In doing so, the slippage on the trade will be nullified and will not be included in the total cost. In the above example, the total cost would reduce by 25 pips.

That’s about the trading costs involved while trading the BTC/USD pair. We will be discussing more Crypto/Fiat pairs in the upcoming articles. In case of any queries, let us know in the comments below. Cheers!