Tag: Forex Currency Pairs

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Forex Assets

Trading Costs Involved While Trading The AUD/PKR Forex Exotic Pair

Introduction

Introduction

Introduction

In this exotic, AUD is the Australian Dollar, and PKR is the Pakistani Rupee. Trading exotic currency pairs can be highly volatile compared to major currency pairs. The AUD is the base currency, and the PKR is the quote currency. That implies that the exchange rate of the AUD/PKR is the number of Pakistani Rupees that a single Australian Dollar can buy. Thus, if the exchange of AUD/PKR is 112.584, it means that with 1 AUD, you can buy 112.584 PKR.

AUD/PKR Specification

Spread

The spread in forex trading represents the value difference between the buying price of a currency pair and its selling price. These prices are referred to as “bid” and “ask.” The spread for the AUD/PKR pair is – ECN: 32 pips | STP: 37 pips

Fees

Some forex brokers charge a fee whenever a trader opens a position. The fee is not standardized and depends on the broker and the size of the trade. Note that STP accounts normally don’t attract broker fees.

Slippage

Whether long or short, when you open a position, it can be executed at a different price than what you requested. This price difference is called slippage in the forex market and is a direct result of extreme volatility or broker delays.

Trading Range in the AUD/PKR Pair

If you observed a currency pair’s price movement, you’d notice the difference in price changes across different timeframes. That is the trading range and is used to determine the volatility of a pair.

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/PKR Cost as a Percentage of the Trading Range

When you combine the total trading costs of a currency pair, you can analyze the percentage costs across different timeframes. This analysis can help you determine the best time to trade a currency pair.

ECN Model Account Cost

Spread = 32 | Slippage = 2 | Trading fee = 1 | Total = 35

STP Model Account Cost

Spread = 37 | Slippage = 2 | Trading fee = 0 | Total cost = 39

The Ideal Timeframe to Trade the AUD/PKR

As seen above, trading the AUD/PKR pair on shorter timeframes is costlier. In both the ECN and the STP accounts, it is cheaper trading the pair over longer timeframes since the trading costs are lower. Note that the trading costs decrease with an increase in volatility. The lowest trading cost for the AUD/PKR pair is when volatility is at the highest 852.4 pips.

The ideal trading time is evidently on the longer timeframes. But shorter-term traders can open positions when volatility is maximum across 1H, 2H, 4H. and 1D timeframes. Traders can also employ the use of forex pending order types, which eliminate the cost of slippage. Here’s an example with the ECN account.

Total cost = Slippage + Spread + Trading fee = 0 + 32+ 1 = 33

Notice how the trading costs have been reduced across all timeframes when forex pending orders are used. The maximum cost, for example, has reduced from 593.22% to 559.32%.

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Forex Assets

Analyzing The Costs Involved While Trading The CAD/NOK Exotic Pair

Introduction

Introduction

Introduction

CADNOK is a Forex currency pair, where CAD is the official currency of Canada, and NOK is the native currency of Norway. In this exotic pair, CAD is the base currency, and NOK is the quote currency.

Understanding CADNOK

This pair’s price determines the value of NOK, which is equivalent to one CAD. We can quote it as 1 CAD per X numbers of NOK. For example, if the CADNOK pair’s value is at 6.7135, it means we need almost 6.7135 NOK to buy one CAD.

CADNOK Specification

Spread

In forex trading, Spread indicates the difference between the Bid price and the Ask prices. Traders don’t have to do anything with this as it is deducted by the broker. This value changes with the type of execution model used for executing the trades. Below are the ECN and STP spread values of this currency pair.

Spread on ECN: 39 pips | Spread on STP: 44 pips

Fees

The trading fees that forex brokers take are similar to other financial markets. It is deducted from the traders’ accounts when they take a trade. Note that STP accounts do not take any charge, but a few pips are charged in ECN accounts.

Slippage

Slippage happens when a trader opens a trade at a price, but it opens at another price by expanding the Spread. The main reason to occur slippage is the market volatility and the broker’s execution speed.

Trading Range in CADNOK

The trading range is the representation of the minimum, average, and the maximum volatility of this pair on the 1H, 4H, 1D, 1W, and 1M timeframe. Using these values, we can assess our profit/loss margin of trade. Hence, this proves to be a helpful risk management tool for all types of traders.

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.

CADNOK Cost as a Percent of the Trading Range

If we look at the volatility values from the above table, we can see how the cost changes with the change in volatility. We have provided the ratio between the cost and the volatility values into percentages.

ECN Model Account 

Spread = 39 | Slippage = 5 | Trading fee = 8

Total cost = Spread + Slippage + Trading Fee

= 39 + 5 + 8

Total cost = 52

STP Model Account

Spread = 39 | Slippage = 5 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 39 + 5 + 0

Total cost = 44

The Ideal way to trade the CADNOK

The CADNOK is an exotic currency pair that has enough liquidity. As a result, traders may find it easy to trade in this exotic currency pair. The percentage values from the above table did not move above 138%, which is an indication of less volatility. However, the Percentage of trading cost is lower in the higher timeframe.

Therefore, traders should be cautious to determine the price where trading is suitable. An increase in volatility is risky, while the decrease in volatility is less profitable. Therefore, the best time to trade in this pair is when the volatility remains at the average value.

Furthermore, another way to reduce the cost is to place a pending order as ‘limit’ and ‘stop’ instead of ‘market.’ In that case, the slippage will not be considered in the calculation of the total costs. So, the total cost will be reduced by five pips.

STP Account Using Limit Model Account

Spread = 39 | Slippage = 0 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee

= 39 + 0 + 0

Total cost = 39

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Forex Assets

Assessing The USD/UAH Exotic Forex Currency Pair

Introduction

Introduction

USD/UAH is the abbreviation for the currency pair US dollar against the Ukrainian Hryvnia. It is classified as an emerging currency pair. The volatility, liquidity, and volume in this pair, is significantly low. In this pair, the US dollar is the base currency, and UAH is the quote currency.

Understanding USD/UAH

The value of the pair as a whole represents the value of UAH that is equivalent to one US dollar. It is quoted as 1 USD per X UAH. For instance, if the value of USDUAH is 24.19, then about 24 Hryvnias are required to purchase one US dollar.

Spread

The difference between the bid price and the ask price is referred to as the spread. Spread usually varies from broker to broker, and also on the execution model used by the brokers.

ECN: 20 pips | STP: 23 pips

Fees

As the name pretty much suggests, the fee is the charge paid to the broker on each trade. Below is the fee on ECN and STP accounts.

ECN – 5-10 pips | STP – 0 pips

Slippage

Due to the changes in the volatility and the broker’s execution speed on the trade, a trader does not get the exact price he needed. And the difference between the two prices is called slippage.

Trading Range in USD/UAH

Risk management is a vital factor in trading. The trading range is a tabular representation of the pip movement in a currency pair in different timeframes. And these values help in determining the gain or loss on a trade.

Note: The product of the pip movement value and the pip value (per standard lot) yields the profit/loss in a trade for a particular timeframe.

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.

USD/UAH Cost as a Percent of the Trading Range

The total cost of a trade is determined by the sum of the spread, slippage, and the trading fee. And this varies from time to time, based on the volatility of the market. Below are the tables that represent the costs for different volatilities and timeframes.

ECN Model Account

Spread = 20 | Slippage = 3 |Trading fee = 5

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

STP Model Account

Spread = 23 | Slippage = 3 |Trading fee = 5

Total cost = Spread + Slippage + Trading Fee = 23 + 3 + 5 = 31

The Ideal way to trade the USD/UAH

Firstly, the percentage values depict the cost variation on the trade. The magnitude of the percentage is directly proportional to the cost of the trade.

We can see that the minimum pip movement in 1H, 2H, and 4H timeframe is 0 pips. So, it is pointless to trade in the lower timeframes. However, one may trade this pair on the higher timeframes, like the 1D, 1W, and 1M. To reduce costs even further and to have decent volatility, one may preferably trade when the volatility of the market is above the average values.

Furthermore, limit orders is another way through which a trader can bring down their costs considerably. This is because limit orders, unlike the market orders, do not have any slippage on it. For instance, the total cost on an ECN account for limit orders would be,

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

Corollary

We can see that on average volatilities, it almost takes a week range to cover the costs if the trade goes in the direction of the trade.  That means this pair is unsuitable to trade short-term. The use of limit orders to catch the price entry at the absolute minimum of the week, combined with ultra-reliable timing, is the only way to succeed. There are lots of better pairs to choose from.