Tag: lot

Categories
Forex Assets

Understanding The Basics Of NZD/CHF Forex Pair

Introduction

Introduction

Introduction

NZDCHF is a cross-currency pair in the Forex market. It is an abbreviation for the New Zealand dollar and the Swiss franc. Here, NZD is the base currency, and CHF is the quote currency.

Understanding NZD/CHF

The value of NZDCHF simply represents the units of CHF equivalent to one unit of NZD. It is quoted as 1 NZD per X CHF. For example, in the market, if the price of NZDCHF is 0.64535, then it requires those many units of CHF to buy one NZD.

NZD/CHF Specification

Spread

The bid price and ask price in the market is typically not the same. The difference between these two prices is referred to as the spread. And this difference amount is used by the broker. It varies from the type of account model.

ECN: 1.1 | STP: 1.9

Fees

The fee is basically the commission that has to be paid on each trade you take. It varies from broker to broker and their execution type. Typically, there is no fee on STP accounts, but a few pips on ECN accounts.

Slippage

Another type of fee traders have to bear is the slippage. It is the difference between the trader’s requested price and the broker’s executed price. Slippage always is changing due to the ups and downs in market volatility and the broker’s execution speed.

Trading Range in NZD/CHF

Many novice traders randomly take trades without determining the amount they’re going to risk. The trading range is that representation, which indirectly illustrates the risk and profit area in a trade, in a given time frame. For example, if the average pip movement on NZDCAD on the 4H timeframe is 20 pips, then the trader will be risking $205.4 in an hour on an average.

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/CHF Cost as a Percent of the Trading Range

Apart from knowing the profit/loss that can be made from a trade in a given time, it is also necessary to know the cost variation in different volatilities and timeframes. Below is a table representing the cost as a percentage that is obtained by considering the volatility, timeframe, and the total cost on a trade.

ECN Model Account 

Spread = 1.1 | Slippage = 2 |Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 1.1 + 1 = 4.1

STP Model Account

Spread = 1.9 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.9 + 0 = 3.9

The Ideal way to trade the NZD/CHF

Trading on any timeframe and during any volatility is not an efficient way of trading. There are specific times in the market when you must enter/exit. This can be determined from the above two tables. Firstly, the higher the magnitude of the percentage, the higher is the cost of a trade for that particular timeframe and volatility. It can be ascertained from the table that the costs are low for high volatilities and high for low volatilities. And neither of the two states is ideal to trade. To keep your cost affordable and volatility moderate, it is ideal to trade when the volatility is nearby the average values.

Furthermore, it is recommended to have strategies that enable the use of limit orders. Because trading with limit orders will completely cut off the slippage on the trade Nullifying it, the total cost will significantly reduce, which, in turn, will reduce the cost percentage as well. For example, it was observed that cost percentages were reduced by about 50% when the slippage was removed.

Categories
Forex Assets

Information About The GBP/JPY Forex Currency Pair

Introduction

Introduction

Introduction

The Great Britain pound versus the Japanese yen is a cross-currency pair in the forex market. It is a widely traded pair with great liquidity and volatility. In this currency pair, GBP is the base currency, and JPY is the quote currency.

Understanding GBP/JPY

The market price of GBPJPY shows the units of yens required to purchase one pound. It is quoted as 1 GBP per X JPY. For example, if the value of GBPJPY is 143.82, then 143.82 yen are to be produced by the trader to buy one pound.

GBP/JPY Specification

Spread

Spread is the difference between the bid price and the ask price set by the broker. These prices vary from broker to broker and type of account model as well. The approximate spread on ECN and SPT accounts is mentioned as follows.

ECN: 0.7 | STP: 1.6

Fees

There is a fixed round-trip fee on every trade a trader takes. On ECN accounts, the spread is around 6 to 10 pips. And on STP accounts, there is no fee as such. However, though there is no fee on STP accounts, the total fee is still compensated with the high spread on it.

Slippage

Slippage is another parameter that adds up to the total fee. It is the difference between price executed by the trader and price he actually received from the broker. This happens solely due to the change in volatility of the market and the broker’s execution speed.

Trading Range in GBP/JPY

The trading range is a pip depiction tool that determines the minimum, average, and maximum pip movement in a different timeframe. This volatility table is pretty useful in analyzing the amount of risk that is involved in a trade. For example, if the max pip movement on the 4H is 60 pips, then a trader can get an idea that he can gain/lose a max of $552.6 in a time frame of 4 hours.

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.

GBP/JPY Cost as a Percent of the Trading Range

The cost as a percent of the trading range is again the volatility but combined with total cost on a trade. It is a tabular representation of the cost of trading in varying timeframes and volatilities. The percentages are obtained simply by finding the ratio between the total cost and volatility.

ECN Model Account

Spread = 0.7 | Slippage = 2 |Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.7 + 1 = 3.7

STP Model Account

Spread = 1.6 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.6 + 0 = 3.6

The Ideal way to trade the GBP/JPY

The magnitude of the percentages basically determines how high or how low the costs are for each trade. If the percentage is high, the costs are high. If they are low, the costs are low. The very first observation that can be made is that the costs are high in the min column comparative to the average column and maximum column. Hence, the costs are high for low volatile markets, and low for high volatile markets. But, it is not ideal to trade in either of these markets. The best time to get into the pair is when the volatility is around the average values. As far as the timeframes are concerned, the cost decreases as the width of the timeframe increases.

Placing limit orders is another way to minimize your cost significantly. Because this will not take slippage into consideration for calculating the total costs. Thus, the total cost reduces greatly. An example of the same is illustrated below.

Hence, we can see that the percentages have reduced by around 50% or so.

Categories
Forex Assets

Everything You Should Know About GBP/NZD Forex Pair

Introduction

Introduction

Introduction

GBPNZD is the abbreviation for the Great Britain pound against the New Zealand dollar. Here, the pound is the base currency, while the New Zealand dollar is the quote currency. Though it is not a major currency, it has considerable volatility and liquidity.

Understanding GBP/NZD

The value of GBPNZD represents the value of NZD equivalent to one pound. It is quoted as 1 GBP per X NZD. For example, if the value of GBPNZD is at 1.9677, then to buy one pound, the trader has to pay 1.9677 NZ dollars for it.

GBP/NZD Specification

Spread

Spread is the medium through which brokers generate revenue. They set two different prices for buying and selling a currency pair. The difference between the prices is their profit. This difference is referred to as the spread. The prices usually vary from type of account model.

ECN: 1.2 | STP: 2.1

Fees

The fee is basically the commission on each trade a trader must pay. Typically, there is no fee on STP accounts, but a small fee on ECN accounts. The fee is usually between 6 and 10 pips.

Slippage

Slippage takes place when positions are opened/closed using market orders. The trader wishes to pay a specific price, but in reality, he receives a different price. And the difference between these two prices is called slippage.

Trading Range in GBP/NZD

The trading range is the depiction of the pip movement of a currency pair on different timeframes. With it, one can analyze how many dollars they can win/lose in a given timeframe. For example, if the average pip movement on the 1H timeframe is 30 pips, then you will either be in a profit of $198.6 or a loss of $198.6 in an hour. Knowing this, a trader can plan their lot sizes accordingly.

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.

GBP/NZD Cost as a Percent of the Trading Range

Having knowledge of the cost of the trade is necessary. Note that the cost varies based on the volatility and the timeframe traded. So, it becomes vital to know when the right moments to enter the market are. Below are two tables illustrating the total costs as a percentage for varying timeframes and volatility.

ECN Model Account

Spread = 1.2 | Slippage = 2 |Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 1.2 + 1 = 4.2

STP Model Account

Spread = 2.1 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 2.1 + 0 = 4.1

The Ideal way to trade the GBP/NZD

The above tables show that the costs are high in the min column and low in the max column. The higher the value of the percentage, the high is the cost. So, this means that the costs are high for low volatility markets and vice versa. It is neither ideal to trade during low volatility nor during high volatility. To have an equilibrium between the costs and the volatility, it is best to enter the market when the volatility is around the average mark.

Slippage is a parameter for calculating the total cost. It has a great weight in the total cost. However, there is a way to minimize and nullify it. This can be simply be done by trading using limit orders instead of market orders.

Categories
Forex Assets

What Should You Know Before Trading The GBP/CHF Currency Pair?

Introduction GBPCHF is the abbreviation for the Great Britain pound and the Swiss franc. Since USD is not involved in this pair, it is called a minor currency pair. However, there is an excellent liquidity and volatility in this pair. In this pair, GBP is the base currency, and CHF is the quote currency. GBPCHF […]

Introduction GBPCHF is the abbreviation for the Great Britain pound and the Swiss franc. Since USD is not involved in this pair, it is called a minor currency pair. However, there is an excellent liquidity and volatility in this pair. In this pair, GBP is the base currency, and CHF is the quote currency. GBPCHF […]

Introduction

GBPCHF is the abbreviation for the Great Britain pound and the Swiss franc. Since USD is not involved in this pair, it is called a minor currency pair. However, there is an excellent liquidity and volatility in this pair. In this pair, GBP is the base currency, and CHF is the quote currency. GBPCHF is often referred to as “pound Swiss franc.”

Understanding GBP/CHF

The value of GBPCHF determines the Swiss francs required to purchase one pound. It is quoted as 1 GBP per X CHF. For example, if the value of GBPCHF is 1.2740, then one needs to pay 1.2740 Swiss francs to buy a pound.

GBP/CHF Specification

Spread

Spread is the difference between the bid price and the ask price in the market. The bid price is the price used for shorting, and the bid price is the price used for buying a currency pair. These prices differ from broker to broker as well as the account type.

ECN: 0.8 | STP: 1.6

Fees

For every trade a trader takes, there is a fee associated with it. This fee is basically the commission charged by the broker. This fee varies from broker to broker. Note that there is no fee on STP accounts, and on ECN accounts, the fee is around 6 to10 pips.

Slippage

Slippage in trading is the difference between the price requested by the trader and the price given by the broker. Due to variation in volatility and the broker’s execution speed, it is not quite possible to get the exact intended price. Slippage happens only on market orders.

Trading Range in GBP/CHF

Knowing the number of pips the currency pair moved in a given timeframe is a good add-on to a trader’s analysis. This will help them get an idea of the profit/loss that can be made in a specified amount of time. For example, if the average pip movement on the 1D timeframe is 50 pips, then a trader can expect to gain or lose $517.5 (50 pips x 10.35 value per pip).

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 an extensive 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.

GBP/CHF Cost as a Percent of the Trading Range

The cost as a percent of the trading range depicts the magnitude of the variation in the cost in different timeframes for different variable volatility. The percentages are useful in determining the ideal time to enter into this currency pair with marginal costs. Below are the tables representing the cost percentages for minimum, average, and maximum volatility.

ECN Model Account 

Spread = 0.8 | Slippage = 2 |Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.8 + 1 = 3.8

STP Model Account

Spread = 1.6 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.6 + 0 = 3.6

The Ideal way to trade the GBP/CHF

The lower the percentage, the lower are cost on the trade. In the table, we can infer that the costs are on the lower side in the max column. This implies that the cost of the trade is less when the volatility of the market is low and vice versa. Now, when it comes to the best time to trade this pair, it is ideal to pick at times when the volatility is decent, and the costs are affordable. For example, a 1D trader may trade during those times when the volatility is around 100 pips.

Moreover, the total cost of the trade can be reduced by entering and exiting trades using limit/pending orders. This way, the slippage on the trade will be fully cut off. The impact on the cost percentage when slippage is made 0 is shown below.

Total cost = Spread + trading fee + slippage = 0.8 +1 + 0 = 1.8

From the above table, it is evident that the costs have reduced by over 50% or so. Hence, it is preferable to trade using limit orders rather than market orders.

Categories
Forex Assets

Understanding The EUR/JPY Asset Class

Introduction

Introduction

Introduction

The Euro area’s euro against the Japanese yen, in short, is termed as EURJPY. This pair, too, like the EURCHF, EURNZD, EURCAD, EURGBP, etc. is a minor or cross currency pair. It is one of the most traded currency pairs in the forex market. Here, the EUR is the base currency, and JPY is the quote currency. The value of this pair is quoted in terms of the quote currency.

Understanding EUR/JPY

This currency pair is precisely quoted as 1 EUR per X JPY. In simple terms, the value determines the units of the quote currency (JPY) required to buy one unit of the base currency (EUR). For example, if the market value of EURJPY is 121.00, it basically means that these many yen are required to purchase one euro.

EUR/JPY Specification

Spread

Spread is the difference between the bid price and the ask price set by the broker. This value is not constant and varies from broker to broker. It also varies on the type of account model.

Spread on ECN model: 0.6

Spread on STP model: 1.5

Fees

Spread is not the only way through which brokers generate their revenue. They charge some fee (commission) on each trade as well. Fees again vary from broker to broker and account model. Typically, there is no fee on an STP account. However, there are a few pips or fees on an ECN account as their spread is lesser than an STP account.

Slippage

Slippage is the difference between the trader’s asked price and the actual price given to him. Two factors majorly affect slippage on a trade; one, the volatility of the market, and two, broker’s execution speed. The slippage is usually within 0.5 to 5 pips. For major currencies, the slippage is much lower.

Trading Range in EUR/JPY

The trading range is the illustration of the minimum, average, and the maximum number of the pips the currency pair has moved in a given time frame. These values help assess the profit/loss potential of a trade. For instance, if the max volatility on the 1H is 10 pips, then one can expect to win or lose a maximum of $92 (10 pip x 9.20 value per pip) in an hour or two.

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 an extensive 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.

EUR/JPY Cost as a Percent of the Trading Range

In addition to assessing the profit/loss in a timeframe ahead of time, we can use these values in determining the cost variation in different timeframes and volatility as well. The cost as a percent of the trading range tells the min, average, max costs by considering the timeframes and volatility as its variables.

ECN Model Account 

Spread = 0.6 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.6 + 1 = 3.6

STP Model Account

Spread = 1.5 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.5 + 0 = 3.5

The Ideal way to trade the EUR/JPY

Above are the costs of each trade in terms of percentages. Note that they do not represent the actual cost on trade in terms of dollars, but are magnitude values which can be used for comparing with other values. The higher the magnitude of the percentage, the higher is the cost on the trade for that particular timeframe and volatility. From the tables, it can be ascertained that the values are highest on the min column and lowest on the max column. This, in turn, implies that the costs are higher when the volatility is low and vice versa. Talking about the timeframe, the costs are high on the lower timeframes and low on the higher timeframes. So, a day trader may preferably trade on the 2H/4H when the volatility is around the average values. And long-term traders may trade the 1W/1M whatsoever be the volatility of the market.

Furthermore, a trader may reduce their costs by entering and exiting trades using limit order instead of market orders. This will completely erase the slippage on the trade. An example of the same is given below.

Total cost = Spread + trading fee = 0.6 +1 = 1.6

Categories
Forex Assets

Everything About EUR/CAD Currency Pair

Introduction EURCAD is the abbreviation for the currency pair Euro area’s euro and the Canadian dollar. This is a cross-currency pair, as it does not involve the US dollar. In EURCAD, EUR is the base currency, and CAD is the quote currency. The price of this pair basically tells the value of CAD w.r.t EUR. […]

Introduction EURCAD is the abbreviation for the currency pair Euro area’s euro and the Canadian dollar. This is a cross-currency pair, as it does not involve the US dollar. In EURCAD, EUR is the base currency, and CAD is the quote currency. The price of this pair basically tells the value of CAD w.r.t EUR. […]

Introduction

EURCAD is the abbreviation for the currency pair Euro area’s euro and the Canadian dollar. This is a cross-currency pair, as it does not involve the US dollar. In EURCAD, EUR is the base currency, and CAD is the quote currency. The price of this pair basically tells the value of CAD w.r.t EUR.

Understanding EUR/CAD

The current market price of EURCAD determines the required Canadian dollars to purchase one euro. It is quoted as 1 EUR per X CAD. For example, if the CMP of EURCAD is 1.4700, it is as good as saying that 1.4700 CAD is needed to buy one EUR.

EUR/CAD Specification

Spread

The algebraic difference between the bid price and the ask price set by the broker is known as the spread. Spread varies from time to time and broker to broker. The approximate spread value on an ECN account is 0.8, and on an STP account is 1.8.

Fees

For every position that a trader opens, there is some fee associated with it. And it depends on the type of account model. It is seen that there is no fee on STP accounts and a few pips on ECN accounts.

Slippage

Slippage is terminology in trading, which, by definition, is the difference between the trader’s wished price and the real executed price. That is, the trader does not get the exact price he had intended for. There is some variation due to the volatility of the market and the broker’s execution speed. It usually varies from 0.5 to 5 pips on these minor currency pairs. The slippage is typically lesser on major currency pairs.

Trading Range in EUR/CAD

The trading range is an illustration of the minimum, average, and maximum pip movement in EURCAD. It determines the volatility of the market. The volatility of the market is a vital piece of information in trading, as one can assess the time that can be taken on each trade. And by applying more variables to it, one can determine the cost varies on the trade as well.

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.

EUR/CAD Cost as a Percent of the Trading Range

Cost as a percent of the trading range is a simple yet very effective application of the above volatility table. There is a cost on every trade you take. The total cost of a trade is the sum of slippage, spread, and trading fee. This total cost is divided by the volatility values and is expressed in terms of a percentage. And the percentage values are used to figure out the best times of the day to enter and exit a trade with marginal cost.

ECN Model Account 

Spread = 0.8 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.8 + 1 = 3.8

STP Model Account

Spread = 1.8 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.8 + 0 = 3.8

The Ideal way to trade the EUR/GBP

To determine the ideal way of trading the EURCAD, let us first comprehend what the percentage means.

High percentage => High cost

Low percentage => Low cost

Min column => Low volatility

Max column => High volatility

From the table, we can infer that the percentages are high in the min column and low for the max column. So,

Min column => High percentage

Thus, Low volatility => High cost

Max column => Low percentage

Thus, High volatility => Low cost

It is not ideal during low volatility as costs are high. Also, trading during high volatility is not a good idea as it is quite risky. Hence, to have a balance between both volatility and cost, it is ideal to trade when the pip movement on the currency pair is at the average values.

Another simple hack to reduce the costs is to trade using limit orders instead of market orders. Doing so, the slippage will be automatically cut off from the trade, and the total cost will significantly reduce.

Categories
Forex Assets

Asset Analysis – EUR/NZD Forex Currency Pair

Introduction

Introduction

Introduction

EURNZD is the abbreviation for the Euro area’s euro and the New Zealand dollar. It is classified under the minor/cross currency pairs. In EURNZD, EUR is the base currency pair, and NZD is the quote currency. As a matter of fact, in all currency pairs with euro in it, EUR is the base currency.

Understanding EUR/NZD

The value of this pair defines the New Zealand dollars required to purchase one euro. It is quoted as 1 EUR per X NZD. For example, if the value of value in the market is 1.6650, it implies that to buy one euro, the trader has to pay 1.6650 New Zealand dollars for it.

EUR/NZD Specification

Spread

Spread is a very popular term in the forex industry. This is the way through which the broker makes revenue. Spread is simply the difference between the bid price and the ask price. It differs from the type of account model. The spread on ECN and STP is given below.

ECN: 0.9 | STP: 1.7

Fees

For every position that a trader opens, there is some fee associated with it. And it depends on the type of account model. It is seen that there is no fee on STP accounts and a few pips on ECN accounts.

Slippage

Slippage is the difference between the price the trader had demanded and the actual price the trade was executed. Slippage happens when trades are taken using market orders. Slippage has a significant load on the total cost of the trade. More on this shall be discussed towards the end of this article.

Trading Range in EUR/NZD

A part of the analysis in trading is knowing the volatility of the market. Volatiltiy will give an close idea on the number of pips the currency pair will move in a given timeframe. The trading range depicts the minimum, average, and maximum pip movement in a specified time frame. Below are the values for EUNZD.

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.

EUR/NZD Cost as a Percent of the Trading Range

Cost as a percent of the trading range represents the cost percentage that a trader is bearable for each trade they take. The percentage is obtained by finding the ratio between the total cost and volatility. With these percentage values, we come into the conclusion of the best time to enter and exit the market with minimal costs.

ECN Model Account 

Spread = 0.9 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.9 + 1 = 3.9

STP Model Account

Spread = 1.7 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.7 + 0 = 3.7

The Ideal way to trade the EUR/NZD

By analyzing the percentages obtained above, we can find ways to reduce risk and cost on every trade of EURNZD. Firstly, the percentage tells the cost variation for different volatilities in different timeframes. The values are large in the first (Min) column. Meaning, the costs are high in the min column. Also, since this column represents low volatility, it implies that costs are high when the volatility is low and vice versa. In the average column, the costs are neither too high nor too low. And the volatility is under balance as well. Hence, this turns out to be the ideal time to trade in the market.

Moreover, another feasible technique to reduce cost is by placing limit orders. By the use of limit orders, a trader will eradicate the existence of slippage on the trade, and, in turn, reduce the total cost on the trade considerably. An example of the same is given below.

Comparing this table with the previous table, it is evident that the percentages have almost halved. Hence, entering and exiting trades using limit orders can prove to be very advantageous to reduce costs on trade.

Categories
Forex Assets

Understanding The Fundamentals Of USD/JPY Forex Pair

Introduction

Introduction

Introduction

USDJPY is the abbreviation for the currency pair US dollar against the Japanese yen. This currency pair is very liquid and volatile. It is classified as a major currency pair. Here, USD is the base currency, and JPY is the quote currency. The currency pair shows how many JPY are required to purchase one US dollar.

Understanding USD/JPY

The exchange rate of USDJPY represents the units of JPY equivalent to one US dollar. For example, if the value of USDJPY is 109.550, then these many Japanese yen are required to buy one US dollar.

USD/JPY Specification

Spread

Spread is simply the difference between the bid price and the ask price. It depends on the account type. The average spread for ECN and STP account is shown below.

Spread on ECN: 0.5

Spread on STP: 1.2

Fees

The fee is basically the commission charged by the broker on each trade. Typically, the fee on STP accounts is nil, and there is some fee on the ECN account. There is no fixed fee on the ECN account and varies from broker to broker.

Slippage

Slippage is the difference between the price needed by the trader and the real price the trader was executed. Slippage happens when orders are executed as market orders. The slippage is usually within the range of 0.5 to 5 pips.

Trading Range in USD/JPY

The trading range is the representation of the minimum, average, and maximum volatility on a particular timeframe. It shows the range of pips the currency pair moved on a given timeframe. These values prove to be helpful in assessing a trader’s risk and controlling their cost on a trade.

USD/JPY PIP RANGES

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.

USD/JPY Cost as a Percent of the Trading Range

Just knowing how many pips the currency pair moved is pointless. To bring it some value, it is clubbed with the total cost to understand how the cost varies based on the volatility of the market. It shows cost and volatility are dependent on each other.

The relation between Cost and Volatility

Cost and volatility are inversely proportional to each other. When the volatility of the market is low, the costs are high; and when the volatility is high, the cost is low. More on this is discussed in the subsequent section.

ECN Model Account

Spread = 0.5 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.5 + 1 = 3.5

STP Model Account

Spread = 1.2 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.2 + 0 = 3.2

The Ideal way to trade the USD/JPY

The above two tables are formed by finding the ratio between the total cost and the volatility. It is then expressed in terms of a percentage. Comprehending the values is simple. It is based on the relation between cost and volatility. If the percentage value is high, then the cost is high for that particular volatility and timeframe. It can be inferred that the min column has the highest values compared to the average and max column. This simply means that the costs are high when the volatility of the market is low. Hence, it is recommended to open/close positions when the volatility is at or above the average mark.

Furthermore, apart from volatility, the cost is heavily affected by the slippage. As mentioned, this happens due to market order executions. Hence, to reduce your cost by up to 50% on each trade, it is recommended to trade using limit orders and not market orders.

Categories
Forex Assets

USD/CHF Currency Pair – Everything You Should Know!

Introduction

Introduction

Introduction

USD/CHF is the abbreviation for the US dollar and the Swiss franc. This pair is a major currency pair. USD is the base currency, while CHF is the quote currency. The pair as a whole tells how many units of the quote currency is needed to purchase one unit of the base currency. Trading USDCHF is as good as saying, trading the ‘Swissie.’

Understanding USD/CHF

The exchange value of USDCHF represents the number of Swiss francs required to buy one US dollar. For example, if the value of USDCHF is 0.9820, to purchase one USD, the trader must pay 0.9820 Swiss francs.

USD/CHF Specification

Spread

Spread in trading is the difference between the bid price and the ask price offered by the broker. It is measured in terms of pips and varies on the type of account and type of broker.

Spread on ECN: 0.8

Spread on STP: 1.6

Fees

There is a small fee or commission charged by the broker for every trade a trader takes. This depends on both types of accounts and broker. For our analysis, we have kept the fee fixed at one pip.

Slippage

Due to volatility in the market, a trader does not usually get the price that he demanded. The actual price differs from the demanded price. This difference is referred to as slippage. For example, if a trader executes a trade at 0.9890, the real price received would be 0.9892. This difference of two pips is known as slippage.

Trading Range in USD/CHF

The trading range is a tabular representation of the minimum, average, and maximum pip movement on a particular timeframe. Having knowledge about this is necessary because it helps in managing risk as well as determining the right times of the day to enter and exit a trade with minimal costs.

Below is a table that depicts the minimum, average, and maximum volatility (pip movement) on different timeframes.

USD/CHF PIP RANGES

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.

USD/CHF Cost as a Percent of the Trading Range

The number of pips the currency pair move in each timeframe is shown in the above table. Now, we apply these values to find the cost percentage when the volatility is minimum, average, and max. This cost percentage will then help us filter out the most optimal time of the day to take trades.

The comprehension of the cost percentage is simple. If the percentage is high, then the cost is high for that particular timeframe and range. If the percentage is low, then the cost is relatively low for that timeframe and range.

Note that, the total cost on a single trade is calculated by adding up the spread, slippage, and trading fee.

ECN Model Account

Spread = 0.8 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.8 + 1 = 3.8

STP Model Account

Spread = 1.6 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.6 + 0 = 3.6

The Ideal way to trade the USD/CAD

Entering and exiting trades during any time of the day might not be the smartest move. There are particular times of the day a trader must manage their trade to reduce both risk and cost on the trade. This can be made possible by comprehending the above two tables.

The percentages are highest in the min column. Meaning, the cost is pretty high when the volatility of the market is low. For example, on the 1H timeframe, when the volatility is 2.5 pips, the cost percentage is 152%. This means that one must bear high costs if they open or close trades when the volatility is around 2.5 pips. So, ideally, it is recommended to trade when the market volatility is above the average mark.

Apart from that, it is much better if one trades using the limit orders rather than market orders, as it nullifies the slippage on the trade. In doing so, the costs of each trade will reduce by about 50%.

Categories
Forex Assets

What Should You Know About USD/CAD Forex Pair?

Introduction

Introduction

Introduction

USDCAD is the short form for the US dollar against the Canadian dollar. USDCAD, just like the EURUSD, GBPUSD, AUDUSD, etc. is a major currency pair. In this pair, the US dollar is the base currency, and the Canadian dollar is the quote currency. Trading this currency pair is known as trading the “loonie” because it is the name for the Canadian one-dollar coin.

Understanding USD/CAD

The exchange price of USD/CAD is basically the value of 1 USD in terms of CAD. It is quoted as 1 US dollar per X* Canadian dollars. For example, if the value of USDCAD is 1.3300, it means that it takes 1.3300 Canadian dollars to buy one US dollar.

*X is the current market price of USDCAD

USD/CAD Specification

Spread

The difference between the bid price and the ask price mentioned by the broker is the spread. Typically, this differs from the type of account.

Spread on ECN: 0.7

Spread on STP: 1.2

Fees

There is a fee (commission) on every trade a trader takes. This again depends on the type of account registered by the user. There is no fee on the STP account, but a few pips on an ECN account.

Note: We are considering fees in terms of pips, not currency units.

Slippage

Sometimes a trader is executed at a different price from what he had intended. This variation in price is known as slippage. Slippage takes place when orders are executed as a market type, and it depends on the volatility of the currency pair and also the execution speed of the broker.

Trading Range in USD/CAD

Trading analysis is not all about predicting when the prices will rise and fall. Sometimes, even though a trader knows the prices are going to rise/fall, it might not be ideal to jump on the trade without the knowledge of volatility of the market. Volatility range plays a major role in managing the total cost of a trade. Hence, it is vital to know the minimum, average, and maximum pip movement in each timeframe to assess the trading costs.

Below is a table that depicts the minimum, average, and maximum volatility (pip movement) on different timeframes.

USD/CAD PIP RANGES

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.

USD/CAD Cost as a Percent of the Trading Range

With the min, average, and max pip movement, the cost range is calculated in terms of percentage. This percentage has no unit and determines if the width of the cost. That is, if the percentage is high, the cost is high for the trade, and if the percentage is low, the cost is low too.

Below are two tables representing the range of cost for an ECN account and an STP account.

ECN Model Account

Spread = 0.7 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.7 + 1 = 3.7

STP Model Account

Spread = 1.2 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.2 + 0 = 3.2

The Ideal way to trade the USD/CAD

As mentioned earlier, the higher the percentage, the higher is the cost for a trade. Applying this idea to the above tables, it can clearly be inferred that the percentages are high on the minimum column. This means that the costs are high when the volatility of the currency pair is very feeble.

Similarly, the costs are considerably low when the volatility is quite high. However, this does not mean that trading during high volatility is the ideal way. This is because the volatility is quite risky to trade volatile markets. Therefore, one must trade during those times of day when the market volatility is around the mentioned average. The costs are decent enough, and the risk is maintained just fine.

Another point of consideration is that costs are reduced significantly when the slippage is made nil. This can be made possible by entering and exiting a trade by placing a pending/limit order instead of executing them by market.

Below is the same cost percentage table after making the slippage value to 0.

Now it is evident from the above table that slippage eats up a significant amount of cost on each trade. Hence, limit orders are the way to go.

Categories
Forex Course

39. Understanding the Concept of Spreads in Forex

Introduction

Introduction

Introduction

Ever wondered how brokers make money from their clients? Well, it is through a simple concept of Spreads.

In the previous course, we discussed the terminologies such as pip, pip value, bid price, ask price, etc. In this lesson, we shall be extending our discussion and touch base on ‘Spreads’ in Forex.

What is Spread in Forex?

The difference between the ask price and the bid price is called the spread.

The “bid” is the price displayed by the broker at which one can Sell a currency pair. Similarly, the “ask” is the price offered by the broker at which one can Buy a currency pair. In both, “bid” and “ask,” Buying and Selling happen on the base currency.

So, the difference between these two prices yields some pips. And these pips become the profit of the brokers. This is how brokers make money without any commission.

In Forex, clients need not pay any additional fee to make a trade, as all the charges are built into the buy and sell prices itself. So, people must not get carried away by brokers who claim that they charge “Zero commission,” because traders will indirectly be paying commission in the form of spread.

How is spread calculated?

In the forex market, the spread is typically measured in pips, which is the smallest unit of price movement in a currency pair.

For example, let us say the current price of EUR/USD is 1.1500 / 1.1504. Here, the left quoted price is called the bid price, and the right quoted price is called the ask price.

Now, to calculate the spread, we just find the difference between the two prices.

So, Spread = ask price – bid price = 1.1504 – 1.1500 = 0.0004

Hence, the spread for this currency pair is 4 pips.

Note: Always subtract the lower price with the higher price.

Moving forward, let us say a trader wants to buy one mini lot of EUR/USD at this price. So, to do the buy, he/she will be paying the ask price (1.1504). And, to close the trade, he/she will be given the bid price (1.1500).

Assuming that they bought and closed (sold) immediately, they would be in a loss of 4 pips. Now, to obtain the loss in terms of cost, we need to multiply the cost of one pip by the number of lots they are trading.

Assuming that the value per pip is $1 for every mini lot, the total cost would sum up to $4. Total cost = 4 pips * 1 mini lot * $1 (per mini lot) = $4

Similarly, if they were trading eight mini lots, the total transaction cost would turn out to be $32. Total cost = 4 pips * 8 mini lots * $1 (per mini lot) = $32

Hence, this brings us to the end of this lesson. And in the next lesson, we shall elaborate more on this topic by understanding the types of spreads in forex.

[wp_quiz id=”54428″]
Categories
Forex Assets

What Should You Know About AUD/USD Forex Pair

Firstly, the abbreviation of the AUDUSD currency pair is the Australian dollar and the US dollar. AUDUSD is a major currency pair. It is considered a major pair because it is AUD is paired with the US dollar, and also, this is one of the pairs where a huge volume of trading takes place. In AUDUSD, AUD is the base currency, and USD is the quote currency.

Firstly, the abbreviation of the AUDUSD currency pair is the Australian dollar and the US dollar. AUDUSD is a major currency pair. It is considered a major pair because it is AUD is paired with the US dollar, and also, this is one of the pairs where a huge volume of trading takes place. In AUDUSD, AUD is the base currency, and USD is the quote currency.

Firstly, the abbreviation of the AUDUSD currency pair is the Australian dollar and the US dollar. AUDUSD is a major currency pair. It is considered a major pair because it is AUD is paired with the US dollar, and also, this is one of the pairs where a huge volume of trading takes place. In AUDUSD, AUD is the base currency, and USD is the quote currency.

Understanding AUD/USD

The exchange value of AUDUSD represents the units of USD equivalent to one unit of AUD. In technical terms, it is the value of AUD against USD. For example, if the current market price of AUDUSD is 0.6960, then it means that it takes 0.6960 US dollars to buy 1 Australian dollar. Trading the AUDUSD currency pair is basically trading the Aussie (Australian dollar).

AUD/USD Specification

Spread

Spread is the difference between the bid price and the ask price. The spread usually varies based on account type. The spread on an ECN account and an STP account is as follows:

ECN: 0.7 | STP: 1.4

Fee

There is charged by brokers for every trade a trader takes. However, this depends on the type of forex account. Typically there is a fee in ECN accounts and zero-fee in STP accounts. Also, there is no exact value of fee on a single trade, as it differs from broker to broker.

Slippage

Slippage is the difference between the trader’s requested price and the real executed price. Slippage happens when the volatility of the market is quite high. It happens for market orders. Slippage can be in favor of the trader or against him. If entering and closing of the trade is done by market execution, then slippage happens twice. The slippage is usually between 0.5 and 3 pips. However, it depends on the broker’s execution speed as well.

Trading Range in AUD/USD

There are several timeframes to trade this currency pair. A day trader may pick the 1H, 4H, or the 1D timeframe, while a positional trader may opt for the weekly or the monthly. Apart from analyzing these timeframes, it is also necessary to know the volatility range in each of the timeframes. Knowing the pip movement range in each timeframe, one can assess their risk involved in each trade.

Below is the table, which represents the minimum, average, and maximum pip movement in each timeframe.

Note: The below values are an approximation from the Average True Range (ATR) indicator.

AUD/USD PIP RANGES 

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.
GBP/USD Cost as a Percent of the Trading Range

This is where the above values are put into play. By considering the volatility range in each timeframe, the cost (fee) for a single trade is measured in terms of a percentage for every mentioned timeframe. The basic idea to this is that the higher the percentage value, the higher is the cost of the trade.

The cost is calculated by considering three variables, namely, slippage, spread, and trading fee. And the sum of these values gives the total cost of each trade.

As mentioned earlier, the cost varies from the type of trading account. So, there will be variation in cost percentages as well.

ECN Model Account

Spread = 0.7 | Slippage = 2 | Trading fee = 1

Total fee = Spread + Slippage + Trading fee = 0.7 + 2 + 1

Total cost = 3.7 (pips)

STP Model Account

Spread = 1.4 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.4 + 0

Total cost = 3.4

The Ideal Timeframe to Trade GBP/USD

The first observation that can be made from the above percentage values is that the minimum column has the highest percentages compared to other columns. This means that the cost is pretty high when the volatility of the market is too low irrespective of the timeframe. Contrarily, the costs are significantly less when the volatility of the market is high (max column). However, it is quite risky to trade when the market volatility is high though the fee is less. So, it is ideal during those times of the day when the market volatility is above average.

Note that volatility is not only one which decides on which is the best timeframe and time of the day to trade. The slippage value equally plays an important role, as well. For instance, if the slippage is made nil and the percentages are calculated, it is seen that the ranges drop down considerably. Hence, it is recommended to enter and exit trades using limit orders and not market orders.

Categories
Forex Assets

Everything You Should Know To Trade The GBP/USD Forex Pair

Introduction

Introduction

Introduction

Currency pairs are classified as major, minor, exotic, etc. Major currencies pairs are those pairs that involve the US dollar as one of the currencies. These currencies typically have high liquidity and volatility. GBPUSD is one such example. It is the currency pair where Great Britain Pound is traded against the US dollar.

In this article, we shall be covering all the basic fundamentals which are essential to know before trading this pair. And before getting into the specifications of this pair, let us first understand what actually the price of GBPUSD signifies.

In GBPUSD, GBP is the base currency, and USD is the quote currency. The value (price) of the pair determines the units of USD required to purchase one unit of GBP. For example, if the current value of GBPUSD is 1.3100, then the trader must possess the US $1.3100 to buy 1 Pound.

GBP/USD Specification

Spread

Spread is simply the difference between the bid price and the ask price. The spread depends on the type of account.

Spread on ECN: 0.7

Spread on STP: 1.3

Fees

Again, the fee depends on the type of account. Typically, there is no fee charged by STP accounts. There is a trading fee on ECN account, which depends from broker to broker.

Slippage

Forex is very liquid and volatile. Hence, this causes slippage. Slippage is the difference between the price requested by the trader and the actual price the trader received. And this depends on the broker’s execution speed and volatility of the market. The slippage in major currency pairs is usually within 0.5 and 5 pips.

Trading Range in GBPUSD

As a trader, it is vital to know the number of pips a currency pair moves in a period of time. This is basically the volatility in the currency pair. And volatility is one of the factors which are helpful in risk management.

The volatility is measured in terms of percentage or pips. For example, if the volatility on the 1H timeframe of GBPUSD is 15 pips, then one can expect to gain or lose $150 (15 pip x $10 per pip) within a time period of few fours.

Below is a table that depicts the minimum, average, and maximum volatility (pip movement) on different timeframes.

EUR/USD PIP RANGES

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.

(originally posted in our article here)

GBPUSD Cost as a Percent of the Trading Range

A Forex broker usually levies three type of charges for each trade. They are:

  • Slippage
  • Spread
  • Trading Fee

The sum of all the three costs will generate the total trading cost for one trade.

Total cost = Slippage + Spread + Trading Fee

Note: All costs are in terms of pips.

To bring up an application to the above volatility table, we bind these values with the total cost and find the cost variations (in terms of percentages) on different timeframes. And these percentages prove to be helpful in choosing the right timeframe with minimal costs.

ECN Model Account

Spread = 0.7 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.7 + 1

Total cost = 3.7

STP Model Account

Spread = 1.3 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.3 + 0

Total cost = 3.3

The Ideal Timeframe to Trade GBPUSD

Above are tables that illustrate the cost ranges in terms of percentage. Let us now comprehend the tables and figure out the ideal timeframe to trade this currency pair. From the above table, it is evident that the cost is highest (74% and 66%) in the 1H timeframe when the volatility is low. Hence, it is not ideal to pick the 1H timeframe when the volatility is around 5 pips (minimum).

On the flip side of things, the cost percentages are minimal on the 1M timeframe. Traders with a long term perspective on the market can invest with minimum costs.

Intraday traders, on the other hand, can pick the 1H, 2H, 4H, or the 1D timeframe when the volatility of the market is above average.

Another point to consider is that slippage eats up the costs significantly. So, it is recommended to plan strategies that involve placing of limit orders and not market orders.

As proof, below is a table that clearly shows the reduction in the cost percentages when the slippage is made NIL.

Total cost = Slippage + Spread + Trading fee = 0 + 0.7 + 1

Total cost = 1.7

Comparing these values to the table with slippage=2, it can be ascertained that the cost percentage has reduced by a considerable amount. Hence, all in all, it is ideal to trade by placing limit orders rather than executing at the market price.

Categories
Forex Assets

All you need before trading the EUR/USD Pair

The EUR/USD pair tracks the exchange rate of the Euro against the US Dollar. Since this pair represents a combination of the two stronger economies in the world, it is

The EUR/USD pair tracks the exchange rate of the Euro against the US Dollar. Since this pair represents a combination of the two stronger economies in the world, it is

The EUR/USD pair tracks the exchange rate of the Euro against the US Dollar. Since this pair represents a combination of the two stronger economies in the world, it is the most traded asset in Forex, and, therefore, the one with higher liquidity and less spread and slippage.

The value assigned represents how many US dollars are needed to buy a single EUR. That is, the quote is presented as 1 euro per x US dollars. For example, the current value is 1.1079, which means a trader needs to use 1.1079 dollars for every Euro he is willing to buy.

EUR/USD SPECIFICATIONS

LOT SIZE 100,000 EUR
MAGIN CURR. EUR
DIGITS 5
PIP VALUE $10
MIN TRADE SIZE 0.01 LOTS
MAX TRADE SIZE 1000 LOTS
AVERAGE 24H  VOLUME $575 BILLION

 

Spread

Spread is the difference between the bid and the ask prices. The EUR/USD spread varies depending on the account type. 

ECN: 0.3 pip

STP: 1 pip

Fees

The broker charges a fee per lot on ECN accounts, and usually, no fee on STP accounts The usual fee on an STP broker is from 6 to 10 pips per round trip and lot. Other

Slippage: Slippage is the difference between the trader’s intended price and the real price he received from the broker. It depends on the current volatility at the moment of the order. Slippage can be in favor of or against the trader.

Depending on the broker’s execution speed, slippage can be as low as 0.5pip or as high as 3 pips. 

Note:  Slippage happens twice: At the open and the close of a position.

Trading Ranges:

The following trading range tables measure the min, average, and max volatility of the asset at different timeframes.  Range figures usually multiply by the square root of two for every doubling of the timframe. That is, if the hourly timeframe volatility is 1, its 2h timeframe will show 1.41 on the same date. Trading ranges are useful tools to assess the risk. If the hourly volatility of the EURUSD is 20 pips, it means a potential $200 gain or loss in an hourly time span ( 20 pips + $10 value per pip).

The values shown depict ranges occurring at the moment of the creation of this document. The trader should assess the actual values at the moment of his trading activity.

        EUR/USD PIP RANGES  

MIN AVERAGE MAX
1H 5.9 10.4 26
2H 8.5 14.5 37
4H 13 22.1 49
D 45 64 114
W 119 160 210
M 290 537 918

  

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.

EURUSD Cost as a percent of the Trading Range

To compute the costs, we add the trading fee, an average slippage value x 2 converted to pips, and we calculate what percent represents the min, average, and max of the ranges, assuming a range represents the amount of potential profit for one unit of time.

ECN MODEL ACCOUNT

ECN MIN AVERAGE MAX
Total 3.3 1H 55.93% 31.73% 12.69%
Slippage 2 2H 38.82% 22.76% 8.92%
Spread 0.3 4H 25.38% 14.93% 6.73%
Trading_Fee 1 D 7.33% 5.16% 2.89%
W 2.77% 2.06% 1.57%
M 1.14% 0.61% 0.36%

 

STP MODEL ACCOUNT

STP MIN AVERAGE MAX
Total 3.5 1H 59.32% 33.65% 13.46%
Slippage 2 2H 41.18% 24.14% 9.46%
Spread 1.5 4H 26.92% 15.84% 7.14%
Trading_Fee 0 D 7.78% 5.47% 3.07%
W 2.94% 2.19% 1.67%
M 1.21% 0.65% 0.38%

 

Best EUR/USD timeframe for trading

From the above charts, we see that hourly charts show a very high cost on entries with low volatility ( the Min column) therefore to trade these timeframes, traders need to spot the surges in volatility and be right most of the time to compensate for the 50%+ costs.

Intraday traders’ best timeframe is, definitively 4H, although the should optimize the costs using proper assessment of the volatility.

In both cases, strategies that take away slippage using limit orders would dramatically reduce costs and improve the results.

As an example, these are the results if we take away slippage using limit orders in entries and exits on an ECN account.

ECN MIN AVERAGE MAX
Total 1.3 1H 22.03% 12.50% 5.00%
Slippage 0 2H 15.29% 8.97% 3.51%
Spread 0.3 4H 10.00% 5.88% 2.65%
Trading_Fee 1 D 2.89% 2.03% 1.14%
W 1.09% 0.81% 0.62%
M 0.45% 0.24% 0.14%

 

We can see a percentual reduction of over 50% in costs, compared to market orders with slippage.