Tag: Limit Orders

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Forex Assets

Analysing The Costs Involved While Trading The AUD/MXN Exotic Pair

Introduction

Introduction

Introduction

In this exotic forex pair, the AUD represents the Australian dollar, while the MXN – the Mexican Peso. Exotic currency pairs have higher volatility in the forex market when compared to the other major pairs. Here, AUD is the base currency, where MXN is the quote currency. It means that the AUD/MXN exchange rate shows the amount that 1 AUD can buy in terms of MXN. Let’s say that the exchange rate for the AUD/MXN is 15.0346; it means that 1 AUD can be exchanged for 15.0346 MXN.

AUD/HUF Specification

Spread

When you go long in the forex market, you buy the currency pair from your broker at a higher price than when you sell it. The spread in forex is the difference between these two. The spread for the AUD/MXN pair is – ECN: 2 pips | STP: 7 pips

Fees

Some forex brokers charge a commission for every trade on ECN type accounts, depending on the value of the trade. STP accounts do not incur any trading fees.

Slippage

Sometimes when you place a market order, your broker will fill it in with a different price. This is slippage in forex trading; it is caused by increased volatility and the speed at which your broker executes the trade.

Trading Range in the AUD/MXN Pair

The trading range analyzes the spread between the highest and the lowest price movements across multiple timeframes. The trading range analysis ranges from the minimum, average, to the maximum volatility across all timeframes. It is used to assess the potential profitability of a currency pair across all 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/MXN Cost as a Percentage of the Trading Range

Further analysis of profitability can be aided by analyzing the percentage of the total cost to the volatility. These costs are put in terms of percentages of the volatility on all timeframes.

ECN Model Account costs

Spread = 2 | Slippage = 2 | Trading fee = 1 | Total cost = 5

STP Model Account

Spread = 7 | Slippage = 2 | Trading fee = 0 | Total cost = 9

The Ideal Timeframe to Trade  AUD/MXN Pair

For the AUD/MXN pair, the ideal trading timeframe appears to be the longer timeframes since trading costs are at their lowest here. We notice that the trading costs for the AUD/MXN pair decrease as the timeframes become longer. Also, note that at longer timeframes, the volatility is higher.

For traders wishing to trade the AUD/MXN pair for the shorter-term, timing their trades with when the volatility increases towards the maximum can help. More so, adopting the use of forex limit orders will lower the trading costs by ensuring there are no slippages.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee = 0 + 2 + 1 = 3

Notice how using the forex limit order types reduces the overall trading costs across all timeframes. The maximum trading cost of the AUD/MXN pair, for instance, decreased from 84.75% of the trading range to 50.85%.

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Forex Assets

Trading The AUD/INR Forex Exotic Pair & Analysing The Costs Involved

Introduction

Introduction

Introduction

AUD/INR is an exotic currency pair in the forex market, with the AUD representing the Australian Dollar and the INR representing the Indian Rupee. Here, the AUD is the base currency, and the INR is the quote currency. That means that the AUD/INR price represents the amount of INR which 1AUD can buy. For example, let’s say that the price of the AUD/INR is 52.2654. It means that 1 AUD can buy 52.2654 INR.

AUD/INR Specification

Spread

When you go long in forex trading, you have to buy the currency pair from your forex broker. Now, if you decide to sell back the pair to the broker, they will buy it at a lower price than they sold to you. The difference between these two prices – also known as “bid” and “ask” – is the spread.

The spread for the AUD/INR pair is:

ECN: 20 pips | STP: 25 pips

Fees

Some brokers charge a commission for positions opened using ECN accounts. They vary depending on the size of the trade. STP accounts are rarely charged any trading fees.

Slippage

Slippage in Forex is the difference between the execution price of a market order and the price at which that order was placed. The slippage comes about due to increased market volatility or inefficiency on the part of your broker.

Trading Range in the AUD/INR Pair

When a currency pair fluctuates, its volatility varies across different timeframes. The analysis of this volatility in different timeframes is done using the trading range. It can help the trader identify the most suitable timeframes for a particular currency pair.

The trading range is expressed in pips. It shows the value of pips you stand to gain or lose on 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/INR Cost as a Percentage of the Trading Range

Expressing the total trading costs of a currency pair as a percentage of the trading range helps to understand the trading costs that pair on multiple timeframes. It shows how the trading costs change with volatility.

Below are the trading costs for the AUD/INR  pair on ECN and STP accounts.

ECN Model Account Costs

Spread = 20 | Slippage = 2 | Trading fee = 1

Total cost = 23

STP Model Account

Spread = 25 | Slippage = 2 | Trading fee = 0

Total cost = 27

The Ideal Timeframe to Trade AUD/INR Pair

From the above analyses, we can observe that the lowest trading costs of the AUD/INR pair are on longer timeframes. The lowest trading costs for both the ECN and the STP accounts are when the AUD/INR volatility is at the highest – 518.3 pips. While the shorter timeframes have higher trading costs, intraday traders can take advantage of the maximum volatility periods during these timeframes.

Furthermore, traders can reduce the trading costs by implementing forex limit orders instead of market orders, which are prone to slippages. Here is an example of how the limit orders remove the slippage costs.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 20 + 1 = 21

You can notice that the forex limit orders lowers the overall costs by making the slippage cost 0. In this scenario, the highest trading cost has been reduced from 389.83% to 355.93%.

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Forex Assets

Analyzing the Trading Costs on ‘NZD/CZK’

Introduction NZD/CZK is the abbreviation for the Euro Area’s Euro against the Czech Koruna. This pair is considered an exotic-cross currency pair. Here, the NZD is the base (first) currency, and the CZK is the quote (second) currency. NDZ is the official currency used in New Zealand, while CZK is the native currency of the […]

Introduction NZD/CZK is the abbreviation for the Euro Area’s Euro against the Czech Koruna. This pair is considered an exotic-cross currency pair. Here, the NZD is the base (first) currency, and the CZK is the quote (second) currency. NDZ is the official currency used in New Zealand, while CZK is the native currency of the […]

Introduction

NZD/CZK is the abbreviation for the Euro Area’s Euro against the Czech Koruna. This pair is considered an exotic-cross currency pair. Here, the NZD is the base (first) currency, and the CZK is the quote (second) currency. NDZ is the official currency used in New Zealand, while CZK is the native currency of the Czech Republic.

Understanding NZD/CZK

The price of this pair in the foreign exchange market defines the value of CZK equivalent to one NZD. It is quoted as 1 NZD per X CZK. So, if the value of this pair is 14.8124, these many Korunas are required to purchase one NZD.

Spread

Spread is the mathematical difference between the bid and the asking price offered by the broker. This value is distinct in the ECN account model and STP account model. An approximate value for NZD/CZK pair is given below.

ECN: 43 pips | STP: 48 pips

Fees

The fee is the price/compensation that one pays for the trade. There are no charges on STP accounts, but a few additional pips are levied on ECN accounts.

Slippage

Slippage is a variation between the value proposed by the trader, and the trader indeed received from the broker.

Trading Range in NZD/CZK

The tabular interpretation of the pip movement of a currency pair in separate timeframes is called as the trading range is the. These values are helpful in influencing the profit that can be produced from a trade before-hand. To uncover the value, you must multiply the below volatility price 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.

NZD/CZK Cost as a Percent of the Trading Range

Trading Range is the interpretation of the total price variation of trades for distinct timeframes and volatilities. The values are achieved by discovering the ratio amongst the total price and the volatility value; it is expressed as a percentage.

ECN Model Account

Spread = 43 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 3 + 43 + 8 = 56 

 

STP Model Account

Spread = 48 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 48 + 0 = 53

Trading the NZD/CZK

The bigger the percentage values, the higher is the price on the trade. From the preceding tables, we can see that the values are sizeable in the min column and relatively less significant in the maximum column. This means that the prices are high when the volatility of the market is low.

It is neither suitable to trade when the market’s volatility is elevated nor when the costs are high. To balance out between both these aspects, it is perfect to trade when the volatility of the pair is in the array of the average values.

Additionally, to decrease your costs even beyond, you may place trades using limit orders as a substitute for market orders. In executing so, the slippage will not be involved in the computation of the total costs. And this will put down the cost of the trades by a sizeable number. An example of the same is given below.

STP Model Account (Using Limit Orders)

Spread = 48 | Slippage = 0 |Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 0 + 48 + 0 = 48