Tag: Margin Currency

Categories
Forex Assets

GBP/INR Exotic Pair – Analyzing The Trading Costs Involved

Introduction

Introduction

Introduction

GBP Pound sterling, also known as the pound, is the official currency of the United Kingdom. It is very well known, and in fact, it is the fourth most-traded currency in the Forex market. INR (Indian rupee) is the official currency of India. This currency is controlled and managed by the Reserve Bank of India.

GBP/INR

In the Forex market, one currency is always quoted against the other as the currencies are trades in pairs. GBP/INR represents the trading of the Pound sterling against the Indian rupee. In this case, the first currency (GBP) is the base, and the second (INR) is the quote currency. The GBP/INR is classified as exotic-cross currency pair.

Understanding GBP/INR

To find out the relative value of one currency, we need another currency to compare. If the value of the base currency goes down, the value of the quote currency goes up and vice versa.

The market value of GBPINR determines the strength of INR against the GBP. This can be easily understood as 1GBP is equal to how much INR. So if the exchange rate for the pair GBP/INR is 94.034, it means 1GBP is equal to 94.034 INR.

Spread

Forex brokers have two different prices for currency pairs: the bid and ask price. The bid price is the selling price, and ask is the buy price. The difference between the ask and the bid price is called the spread. The spread is how brokers make their money. Below are the spreads for GBP/INR currency pair in both ECN & STP brokers.

ECN: 55 pips | STP: 57 pips

Fees

A Fee is simply the commission we pay to the broker each time we execute a position. There is no fee on STP account models, but a few pips on ECN accounts.

Slippage

Slippage refers to the difference between the trader’s expected price and the actual price at which the trade is executed. It can occur at any time but mostly happens when the market is fast-moving and volatile. Also, sometimes slippage occurs when we place a large number of orders at the same time.

Trading Range in GBP/INR

The amount of money we will win or lose in a given amount of time can be assessed using the trading range table. It is a representation of the minimum, average, and maximum pip movement in a currency pair. This can be evaluated simply by using the ART indicator combined with 200-period SMA.

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 significant 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/INR Cost as a Percent of the Trading Range

The cost of trade mostly depends on the broker and varies based on the volatility of the market. This is because the total cost involves slippage and spreads apart from the trading fee. Below is the representation of the cost variation in terms of percentages. The comprehension of it is discussed in the following sections.

ECN Model Account

Spread = 55 | Slippage = 3 |Trading fee = 5

Total cost = Slippage + Spread + Trading Fee = 3 + 55 + 5 = 63

STP Model Account

Spread = 57 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 57 + 0 = 60

Trading the GBP/INR Exotic pair

The GBP/INR is an exotic-cross currency pair and is volatile in nature. For instance, the average pip movement on the 1H timeframe of this pair is about 432 pips. From the above tables, it is clear that the higher the volatility, the lower is the cost of the trade. However, this is not an advantage as it is risky to trade when the markets are highly volatile.

While reading the above tables, if the percentages are larger, higher are the costs on the trade. Likewise, if the percentages are small, lower are the costs. So, this can be interpreted as the trading costs are higher for low volatile markets and lower for high volatile markets.

It is always recommended to trade when the volatility is around the minimum values. Because at min values, the volatility is low, and the costs are a little high compared to the average and maximum values. But, if your priority is towards reducing costs, you may trade when the volatility of the market is around the average values. Cheers!

Categories
Forex Assets

Understanding The EUR/EGP Exotic Currency Pair

Introduction

Introduction

Introduction

The Euro Area’s euro against the Egyptian Pound is abbreviated as EUREGP. This is an exotic-cross currency pair in the forex market. In this pair, the EUR is the base currency, and the EGP is the quote currency.

Understanding EUR/EGP

The market price of the EUREGP depicts the value of EGP that is equivalent to one euro. It is simply quoted as 1 EUR per X EGP. So, for example, if the market price of this pair is 17.8341, then exactly 17.8341 Egyptian Pounds is required to purchase one Euro.

Spread

The difference between the bid price and the ask price is referred to as the spread. These two values are set by the brokers. Hence, it is different for different brokers. The spread also varies based on how the orders are executed.

ECN: 100 pips | STP: 111 pips

Fees

The fee is simply the commission paid on the trade. There is no fee on STP execution model but a few pips on the ECN execution model. However, the fee absence on STP accounts is usually compensated by higher spreads.

Slippage

Slippage is the difference between the price which was wanted by the trader and the price the broker actually gave the trader. It is typically not possible for brokers to give the exact price intended by the traders due to reasons:

  • Broker’s trade execution speed
  • Market volatility

Trading Range in EUR/EGP

Trading range is an illustration of the pip movement in a currency pair for different timeframes ranging from 1H to 1M. These volatility values help in assessing the risk involved in a trade. Basically, it acts as an effective risk management tool. Another application to it is discussed in the subsequent section.

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/EGP Cost as a Percent of the Trading Range

This is a very helpful application of the trading range. In the cost as a percent of the trading range, we combine the volatility values with the total cost on the trade and observe how the cost varies for changing volatilities.

ECN Model Account

Spread = 100 | Slippage = 10 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 10 + 100 + 3 = 113

STP Model Account

Spread = 111 | Slippage = 10 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 111 + 0 = 114

Trading the EUR/EGP

The EUR/EGP is an exotic-cross currency pair. This pair is highly volatile, but the trading volume is pretty low. However, this pair can still be traded in certain situations.

Firstly, we can see that the spreads on this pair are high. This is because the volatility in this pair is very high. For example, the average pip movement in the 1H timeframe is over 400 pips. So, we can’t really say that the spread of this pair is high.

Consider the table representing the variation in the costs. We can see that the percentages are highest in the min column. And the values are considerably small in the average and max column. If we were to interpret this, the cost of the trade reduces as the volatility of the market increases. So, based on the type of trader you are, you can choose to enter the market. For example, if you’re concerned about the high costs, then you may trade when the volatility of the market is at its peak. If you’re a conservative trader who needs petty low volatility, then you may use it during low volatilities, but you’ll have to bear high costs for it.

Furthermore, there is a way through which you can bring down your existing cost on the trade. This is simply by executing trades using limit or stop orders instead of the market. In doing so, the slippage will be nullified. So, in our example, the total cost would reduce by ten pips.

Categories
Forex Assets

Analyzing The EUR/PLN Exotic Currency Pair

Introduction

Introduction

Introduction

EUR/PLN is the abbreviation for the Euro Area’s euro against the Polish Zloty. This European currency is classified as an exotic-cross currency pair. In this pair, the EUR is the base currency, and the PLN is the quote currency.

Understanding EUR/PLN

The value of this pair simply represents the value of PLN equivalent to one Euro. It is quoted as 1 EUR per X PLN. An example of the same is shown below.

Spread

The spread is a popular terminology used in the forex industry, which is defined as the difference between bid and ask prices in the market. This is not the same on all brokers but varies based on the execution model they use.

ECN: 30 pips | STP: 34 pips

Fees

A Fee is similar to the commission that is paid to the brokers. Fee on ECN accounts is between 5-10 pips, while it is nil for STP accounts.

Slippage

Slippage is the difference between the price wanted by the client and the price they actually received from the broker. There is this difference due to two reasons:

  • Broker’s execution speed
  • Market volatility

Trading Range in EUR/PLN

A trading range is a table that represents the minimum, average, and maximum volatility of the market for various timeframes. With these pip movements from the past, we can determine the profit/loss that can be made from a 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.

EUR/PLN Cost as a Percent of the Trading Range

In calculating the total costs, spread and slippage are variables. These values change as the volatility of the market changes. And below, we have represented the variation of the costs by applying the values from the trading range table.

ECN Model Account

Spread = 30 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 30 + 3 = 36

STP Model Account

Spread = 34 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 34 + 0 = 37

Trading the EUR/PLN

Trading the EURPLN is not a hurdle. Though this pair is a major/minor currency pair, its characteristics are similar to that of majors/minors.

Firstly, the spread is around 30 pips, which are lower compared to other exotic-cross currencies involving EUR as the base currency. Secondly, the volatility of this pair is pretty decent. It is neither too high nor too low.

Coming to the above two tables, we can see that the percentage values are large in the min column and gets smaller as we move towards the max column. Since the values in the min column are significant, it is not advisable to trade this pair during low volatility. To have enough volatility with inexpensive costs, one may trade when the volatility is around the average values.

Placing orders through ‘limit’ and ‘stop’ would further decrease the costs. In doing so, the slippage on the trade will be nullified, and this will, in turn, bring down the total costs.

Categories
Forex Assets

Analyzing The USD/BND Forex Currency Pair

Introduction

Introduction

Introduction

USD/BND is the abbreviation for the US Dollar against the Brunei Dollar. Brunei is located on the Asian continent, and this pair is classified as an emerging currency pair. In the USD/BND, USD is the base currency, and BND is the quote currency.

Understanding USD/BND

The market price of this currency pair specifies the value of BND equivalent to one USD. It is quoted as 1 USD per X BND. For example, if the value of this pair is 1.3711, then these many units of the quote currency (BND) are required to purchase one unit of the base currency (USD).

Spread

The difference between the bid and the ask price is called the spread. The spread varies from broker to broker and also by execution model used.

ECN: 5 pips | STP: 8 pips

Fees

A fee is a synonym for commission. This is similar to the one that is paid to the stockbrokers. Below is the fee on ECN and STP brokers.

Fee on ECN – 0 pips | Fee on STP – 5-10 pips

Slippage

The difference between the price requested by you and the price you actually received from the broker is called slippage. There are two reasons for slippage to place:

  • Market volatility
  • Broker’s execution speed

Trading Range in USD/BND

A trading range is a tabular representation of the minimum, average, and the maximum volatility of this currency pair. And these values help in determining the profit/loss of a trade in a given timeframe. Hence, this is a great risk management tool for 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.

USD/BND Cost as a Percent of the Trading Range

The cost as a percent of the trading range is the representation of the cost variation in a trade for different volatilities are timeframes. This variation is represented as a percentage. The magnitude of these percentages depicts the highness and lowness of a trade.

ECN Model Account

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

Total cost = Slippage + Spread + Trading Fee = 3 + 5 + 3 = 11

STP Model Account

Spread = 8 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 8 + 0 = 11

The Ideal way to trade the USD/BND

Trading the USD/BND is simple. This pair is not so volatile, like the other emerging pairs. Moreover, the spreads are low too.

From the above tables, we can see that the percentage values are pretty high in the minimum column, and comparatively lower in the max column. This means that the costs are high for low volatile markets and low for high volatile markets. So, traders who need high volatility may enjoy low costs. And trades who want to minimize their risk and trade low volatile markets will have to bear higher costs. Finally, traders who need a balance between the two may trade when the volatility of the market is around the average values. This will ensure the equilibrium between volatility and costs.

Moreover, there is a way through which you can cut off the slippage on your trade. Placing orders as limit orders instead of market orders will take away the slippage and bring down the total cost on the trade. So, in our example, the total cost would reduce by three pips.

We hope this article will change the way you trade this currency pair. Happy trading!