Tag: Pip

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Understanding The AUD/CAD Forex Currency Pair

Introduction

Introduction

Introduction

AUDCAD is the abbreviation for the currency pair, the Australian dollar, and the Canadian dollar. It is a cross-currency pair. One can expect great volatility and liquidity in the market during the Australian session. AUD is the base currency, and CAD is the quote currency.

Understanding AUD/CAD

The value of AUDCAD is the number of Canadian dollars required to buy one Australian dollar. It is quoted as 1 AUD per X CAD. For example, if the value of this pair is 0.9013, then 0.9013 CAD is needed to purchase one AUD.

AUD/CAD Specification

Spread

Spread in trading is the difference between the bid price and the ask price set by the broker. This pip difference is how brokers generate revenue. The spread always varies from broker to broker and the type of account model.

ECN: 1 | STP: 1.9

Fees

Apart from spreads, brokers charge a few pips of fee or commission on each trade you take. This exists only ECN accounts, as a fee on STP accounts is nil.

Slippage

Due to the delay in the broker’s execution speed and volatility of the market, a trader doesn’t get the exact price he intended. This difference in prices is referred to as slippage. It typically varies from 0.5 pips to 5 pips.

Trading Range in AUD/CAD

The trading range is the representation of the minimum, average, and maximum volatility in the market in a given timeframe. This proves to be useful in determining the profit/loss that can be made in a specific amount of time. One can determine this simply by finding the product of the pip movement on the required timeframe and the pip value (mentioned in the specification table).

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.

AUD/CAD Cost as a Percent of the Trading Range

The cost of trade is an essential point of consideration in trading. Cost is that factor that is not fixed and varies on different variables. For example, when the volatility changes, the costs change. The same is the case with timeframes as well. Below is a table that illustrates the variation in the costs on a trade for different timeframes and volatilities.

ECN Model Account

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

Total cost = Slippage + Spread + Trading Fee = 2 + 1 + 1 = 4

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 AUD/CAD

Comprehending the above tables is simple. The higher the magnitude of the costs, the higher is the total cost that has to be paid on a trade and vice versa. In the table, the percentages are on the higher side in the min column and lower in the max column. Hence, it can be concluded that the costs are higher when the volatility is low and vice versa. However, it isn’t ideal to trade in these situations. It is rather preferred to enter the market when the volatility is around the average values because the costs are affordable, and the volatility is as needed.

Moreover, it is recommended to design strategies such that limit orders are put to use. This shall completely eliminate the slippage on the trade. And with the elimination of slippage, the total cost would significantly reduce as well.

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AUD/NZD – Everything About This Forex Currency Pair

Introduction

Introduction

Introduction

AUD/NZD is derived from the full-form of the currency pair, the Australian dollar, and the New Zealand dollar. It comes under the classification of cross currency pairs. In this pair, AUD is the base currency, and NZD is the quote currency.

Understanding AUD/NZD

The value of AUD/NZD depicts the value of NZD that is equivalent to AUD. It is simply quoted as 1 AUD per X NZD. For example, if the current value of this pair is 1.0405, then these many New Zealand dollars are needed to purchase one Australian dollar.

AUD/NZD Specification

Spread

Spreads are a typical way through which brokers make money. The pip difference between the bid price and the ask price is their profit margin, which is referred to as the spread. It varies from the type of account model.

ECN: 0.9 | STP: 1.8

Fees

The fee is basically the commission on a trade levied by the broker on each trade. Again, it varies from the type of account model.

Fee on STP = 0

Fee on ECN = 6 to 10 pips (starts from as low as one pip)

Slippage

The slippage is the difference between the broker’s executed price and the trader’s execution price. There is this variation as the order is executed using market execution. There are two reasons for slippage to take place.

  • Broker’s execution speed
  • Market’s volatility

Trading Range in AUD/NZD

Assessing the profit/risk is a great add-on to one’s trading analysis. With this, the trader can know how long he must before his trade performs. And below is the table that enables the analysis of it.

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.

AUD/NZD Cost as a Percent of the Trading Range

This is one great application of the above table. By combining these values with the total cost of trade, one can determine variations in the costs by varying the parameters like volatility and timeframe.

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 = 1.8 | Slippage = 2 | Trading fee = 0

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

The Ideal way to trade the AUD/NZD

Before getting into finding the best way to trade this pair, let us comprehend what the above table has got to say.

The higher the magnitude of the percentages, the higher is the cost on the trade for that particular volatility and timeframe. The min column represents low volatility, and the max column represents high volatility.

It can clearly be ascertained from the table that the percentages are comparatively higher on the min column and lower on the max column. This means that the costs are high when volatility is low and vice versa.

But, it is not ideal to trade in neither of the two situations mentioned below.

When the volatility is high -> because of the risk involved
When the volatility is low -> because the costs are high

Now, to maintain a balance between all the parameters, it is best to trade when the pip movement is around the average values.

Furthermore, another simple way to reduce cost is by trading using a pending/limit order instead of market orders, as it will nullify the slippage on the trade. And this, in turn, will reduce the total cost of the trade as well.

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What Should You Know Before Trading The NZD/JPY Currency Pair

Introduction

Introduction

Introduction

NZDJPY, or the NZD/JPY or the New Zealand dollar against the Japanese yen, is a cross-currency pair in the Forex market. The left currency (NZD) represents the base currency, and the one the right (JPY) represents the quote currency.

Understanding NZD/JPY

The market value of NZDJPY is a value of JPY that is required to buy one NZD. It is quoted as 1 NZD per X JPY. For example, if the CMP (current market price) of NZDJPY is 72.657, then it takes 72.657 yen to buy one New Zealand dollar.

NZD/JPY Specification

Spread

Spread is the difference between the bid price and the ask price controlled by the broker. It varies across brokers and their type of execution.

ECN: 0.8 | STP: 1.7

Fees

On every trade a trader takes, there are few pips of fee on it. And this is only on ECN accounts because the fee on STP accounts is nil.

Slippage

Slippage, which happens on market orders, is the difference between the price asked by the client and the price he actually received. There are two primary reasons for it, namely, the broker’s execution speed and the change in volatility of the market.

Trading Range in NZD/JPY

The average, minimum, and maximum pip movement is determined in the trading range table. This comprehensive table helps traders assess the profit they can generate and loss they can incur in a given timeframe. Moreover, this table is helpful in analyzing the cost variation in a trade, which shall be discussed in the next 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.

NZD/JPY Cost as a Percent of the Trading Range

The cost of a trade is not the same throughout the trading day. It varies based on the volatility of the market. Hence, it is necessary to know during what times the cost is high and what times it is low. This could be found out from the table illustrated below.

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 = 1.7 | Slippage = 2 | Trading fee = 0

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

The Ideal way to trade the NZD/JPY

The magnitude of the cost percentage is directly proportional to the cost of a trade. So, the higher the value of the percentage, the higher is the cost of a trade. From the table, it can be observed that the cost is highest in the min column compared to the other two columns. This means that the costs are highest when the volatility of the market is low and vice versa, irrespective of the timeframe you’re trading. It is neither ideal to trade when the volatility of the market is high, nor when the costs are high. The average column is on the one we focus on. Trading when the volatility is at the average value is when you can expect moderate volatility and decent costs.

Also, you may reduce your costs by trading using limit or pending orders instead of market orders. This will bring the slippage to ground zero. This, in turn, will reduce the total cost of the trade as well. An example of the same is illustrated below.

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

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

Hence, it is seen that the costs have reduced by around 50% of the previous value.

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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.

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What Should You Know Before Trading The NZD/CAD Currency Pair

Introduction NZDCAD is the abbreviation for the currency pair New Zealand dollar against the Canadian dollar. It is referred to as a cross-currency pair. Here, NZD is the base currency, and CAD is the quote currency. In this article, we shall be going over everything you need to know about this currency. Firstly, let’s get […]

Introduction NZDCAD is the abbreviation for the currency pair New Zealand dollar against the Canadian dollar. It is referred to as a cross-currency pair. Here, NZD is the base currency, and CAD is the quote currency. In this article, we shall be going over everything you need to know about this currency. Firstly, let’s get […]

Introduction

NZDCAD is the abbreviation for the currency pair New Zealand dollar against the Canadian dollar. It is referred to as a cross-currency pair. Here, NZD is the base currency, and CAD is the quote currency. In this article, we shall be going over everything you need to know about this currency. Firstly, let’s get started by understanding what the value of NZDCAD depicts.

Understanding NZD/CAD

Comprehending the value of a currency pair is simple. The value of NZDCAD determines the Canadian dollars that must be paid to buy one New Zealand dollar. It quoted as 1 NZD per X CAD. For example, if the current value of NZDCAD is 0.86595, then 0.86595 CAD is required to purchase one NZD.

NZD/CAD Specification

Spread

Spread is the primary way through which brokers make revenue. They have a different price for buying and selling. The difference between these prices is called the spread. It varies from broker to broker and their execution type.

ECN: 1 | STP: 1.8

Fees

For every execution, there is a fee levied by the broker. This fee is also referred to as the commission on a trade. It is nil on STP accounts. And on ECN accounts, it is usually within 6 to 10 pips.

Slippage

Slippage is the variation in the price executed by you and the price you actually received. It happens on market orders. Slippage depends on two factors:

  • The volatility of the market
  • Broker’s execution speed

Trading Range in NZD/CAD

The trading range is a tabular representation of the pip movement in a currency pair in various timeframes. These values help in assessing the risk-on trade as it determines the minimum, average, and maximum profit that can be made on 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.

NZD/CAD Cost as a Percent of the Trading Range

Cost a percentage of the trading range is an excellent application of the above table. By manipulating the values with the total cost, the variations in costs in different at different volatilities and timeframes can be calculated. For this, the ratio between the total cost and pip movement is found out and represented in percentage.

ECN Model Account 

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

Total cost = Slippage + Spread + Trading Fee = 2 + 1 + 1 = 4

STP Model Account

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

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

Comprehending the above tables

There are two variables here, namely, timeframe and volatility. By varying these two, the variation in the total cost is examined. Note that the higher the percentage, the higher is the cost on a trade and vice versa. From this, we can make out that the prices are high when the volatility is low. And prices are low when volatility is high. Also, as the timeframe widens, the cost decreases.

The Ideal way to trade the NZD/CAD

It is not ideal to trade when the volatility is high, as it is risky. It is also not the best choice to trade when the volatility is low, as the costs are high. So, to keep a balance between both volatility and cost, it is ideal to trade when the pip movement of the pair is around the average values.

Talking about timeframes, trading the 4H or the Daily would be great, as the cost is bearable, and the trade wouldn’t take too long to perform as well.

Another simple hack to reduce cost is by trading using limit/pending orders instead of market orders. This will significantly reduce costs on a trade because the slippage on the trade becomes 0. It is observed that the cost reduces by about 50% of the original value. Below is a table representing the cost percentage when the slippage is made zero.

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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.

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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.

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Exploring The Basics Of GBP/CAD Forex Pair

Introduction

Introduction

Introduction

GBPCAD pronounced as ‘pound cad” is minor/cross currency pair in forex. GBP refers to Great Britain Pound, and CAD refers to the Canadian Dollar. Since GBP is on the left, it becomes base currency, and CAD on the right becomes the quote currency.

Understanding GBP/CAD

The current market price has of GBPCAD is not similar to the prices in the stock market. The value of GBPCAD represents the value of CAD equivalent to one GBP. It is simply quoted as 1 GBP per X CAD. For example, if the value of GBPCAD is 1.7192, then 1.7192 Canadian dollars are required to purchase one pound.

GBP/CAD Specification

Spread

Spread is the difference between the bid price and the ask price in the market. These values are controlled by the brokers. So, it differs from broker to broker as well as the type of account.

ECN: 0.8 | STP: 1.9

Fees

There is a small levied by the broker on every trade a trader takes. There are a few pips of fee on ECN accounts, while the fee is nil on STP accounts. The fee is usually between 6 to 10 pips.

Slippage

Slippage is the difference between the trader’s demanded price and the real executed price. Slippage happens when orders are executed by the market price. It happens solely due to the volatility of the market and the broker’s execution speed.

Trading Range in GBP/CAD

A trading range is the representation of the pip movement of GBPCAD in different timeframes. These values are helpful in getting a rough idea of the profit/loss that can be made from the trade in a given timeframe. For example, if the min pip movement on the 1H timeframe is 3 pips, then a trader can expect to gain/lose at least $22.38 when one standard lot is traded.

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/CAD Cost as a Percent of the Trading Range

Now that we know how much profit/loss can be made within a given time frame let us also calculate the cost on each trade by considering the volatility and timeframe. For this, the ratio between the total cost and volatility calculated and expressed in percentages. The magnitude of these percentages will then be used to determine the timeframe with marginal costs.

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 = 1.9 | Slippage = 2 | Trading fee = 0

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

The Ideal way to trade the GBP/CAD

From the above two tables, it can be ascertained that the percentages largest on the min column, moderate on the average column, and least on the max column. The higher the value of percentages, the higher is the cost of the trade. So with this, we can conclude that the costs are high during low volatility, and low during high volatility. Similarly, the costs are high on lower timeframes and considerably low on higher timeframes. Hence, to keep volatility and cost at a balance, it ideal to trade when the pip movement in the market is around the average values.

Market orders bring in an additional cost in the trade. To eliminate this, one can trade using limit orders. This will set the slippage value to 0, and eventually, reduce the total cost on the trade by a significant amount. An example supporting the statement is illustrated below.

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

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What Should You Know About The EUR/CHF Forex Pair?

Introduction

Introduction

Introduction

EURCHF is the abbreviation for the Euro area’s euro and the Swiss franc. This currency pair is a minor/cross currency pair. Here, EUR is the base currency, and CHF is the quote currency. Trading the EURCHF is commonly called trading the ‘swissie.’

Understanding EUR/CHF

The value of EURCHF determines the number of units of Swiss francs required to purchase one euro. It is quoted as 1 euro per X francs. For example, if the value of 1.3000, it means that one must pay 1.3000 francs to buy one euro.

EUR/CHF Specification

Spread

Spreads are the way by which brokers make their money. There is a separate price to buy a currency pair and a separate price to sell it. To buy, one must refer to the ask price, and to sell, one must refer to the bid price of the currency pair. The difference between these two prices is known as the spread. This spread usually differs from account type. The average spread on ECN and STP model account are as follows:

ECN: 0.9 | STP: 1.6

Fees

The fee is nothing but the commission charged by the broker on a single trade. The fee also varies base on account type.

Fee on STP account: NIL

Fee on ECN account: 1 pip

Note: The fee depends from broker to broker. Here, we have taken the average value by referring to some brokers.

Slippage

Slippage in trading is the difference between the trader’s desired price and the real executed price by the broker. The slippage value depends on two factors:

  • Broker’s execution speed
  • Currency pair’s volatility

Trading Range in EUR/CHF

The trading range in EURCHF is the representation of the minimum, average, and maximum pip movement in different timeframes. These values can be used to assess one’s approximate profit or loss in a given time frame. For example, if the volatility on the 1H timeframe is five pips, then one can expect to be in a profit or loss of $50.25 (5 pips x $10.05 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 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/CHF Cost as a Percent of the Trading Range

Apart from assessing your profit and loss, one can find the best time of the day to enter and exit a trade. For this, another table is inserted that represents costs in terms of percentage. And the magnitude of these percentages determines the range of costs on each trade.

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 = 1.6 | Slippage = 2 | Trading fee = 0

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

Comprehending ‘Cost as a percentage of trading range’

Note that the mentioned percentages are a unitless quantity, and we consider only the magnitude of it. If the percentage value is high, then the costs are high. If they’re low, the costs are low too. Relating it to volatility, if the volatility is high, the costs are low and vice versa.

The Ideal way to trade the EUR/CHF

Now that we’ve comprehended what the cost percentages mean, let us determine the best times to trade the EURCHF currency pair. The minimum column of the table has the highest percentages, while the max column has the lowest percentages for each timeframe. It is neither ideal to trade when the volatility is high & costs are low nor when the volatility is low, and the costs are high. The only option left is the average column. The average column consists of the median values for both volatility and costs. Hence, this becomes the most suitable time to enter into this currency pair for trading.

Limit orders and their benefits

Traders usually enter and exit trades using market orders. This is the sole reason for slippage to take place. This has a significant weight on the cost of the trade. However, placing a limit order instead will nullify the slippage on the trade.

The difference in the ‘costs as a percentage of trading range’ when the slippage is made nil is illustrated below.

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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.

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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%.

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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.

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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″]
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Knowing The Fundamentals Of NZD/USD Currency Pair

Introduction

Introduction

Introduction

New Zealand dollar versus the US dollar, in short, is referred to as NZD/USD or NZDUSD. This currency pair is classified as a major currency pair. In NZDUSD, NZD is the base currency, and USD is the quote currency. Trading the NZDUSD is as good as saying, trading the New Zealand dollar, as NZD is the base currency.

Understanding NZD/USD

The value (currency market price) of NZDUSD represents units of USD equivalent to 1 NZD. In layman terms, it is the number of US dollars required to purchase one New Zealand dollar. For example, if the value of NZDUSD is 0.6867, then 0.6867 USD is required to buy one NZD.

NZD/USD Specification

Spread 

The algebraic difference between the bid price and the ask price is called the spread. It depends on the type of execution model provided by the broker.

Spread on ECN: 1

Spread on STP: 1.9

Fees

Similar to spreads, fees also depend on the type of execution model. Usually, there is no fee on the STP model, but there is a small fee on the ECN model. In our analysis, we shall fix the fee to 1 pip.

Slippage

Slippage is the difference between the price asked by the trader for execution and the actual price the trader was executed. Slippage occurs on market orders. It is dependent on the volatility of the market as well as the broker’s execution speed. Slippage has a decent weight on the cost of each trade. More about it shall be discussed in the coming sections.

Trading Range in NZD/USD

The volatility of a currency pair plays a vital role in trading. It is a variable that differs from timeframe to timeframe. Understanding the range (min, avg, max) is essential for a trader, as it is helpful for reducing the cost of each trade.

The volatility gives the measure of how many pips the pair has moved on a particular timeframe. This, in turn, gives the approximate profit or loss on each timeframe. For example, if the volatility of NZDUSD on the 1H timeframe is 10 pips, then one can expect to gain or lose $100 (10 pips x $10 [pip value]) within an hour or two.

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

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.

NZD/USD Cost as a Percent of the Trading Range

With the volatility values obtained in the above table, the total cost of each trade is calculated on each timeframe. These values are represented in terms of a percentage. And these percentages will determine during what values of volatility it is ideal to trade with low costs.

The total cost is calculated by adding up the spread, slippage, and trading fee. As a default, we shall keep the slippage at 2 and the trading fee for the ECN model at 1.

ECN Model Account

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

Total cost = Slippage + Spread + Trading Fee = 2 + 1 + 1 = 4

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 Timeframe to Trade NZD/USD

The very first observation that can be made from the above two tables is that the total costs in both the model types are more or less the same. So trading on any one of the two accounts is a fine choice.

From the minimum, average, and maximum column, it can be ascertained that percentages (costs) are the highest on the minimum column of all the timeframes. In simpler terms, when the volatility of the currency pair is very low, the costs are usually on the higher side. Conversely, when the volatility is high, the costs are pretty low. Hence, it is ideal to trade during those times of the day when the volatility of the pair is at or above average. For example, a day trader can trade the 1H timeframe when the volatility of the currency pair is above 8.8 pips. This will hence assure that the costs are pretty low.

Another way to reduce the costs is by nullifying the slippage. This can be done by placing a limit order instead of executing them by a market order. This shall reduce the total costs by a significant percentage. An example of the same is given below.

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

From the above table with nil slippage, it is evident that the costs have reduced by about 50%. Hence, to sum it up, to optimize the cost, it is ideal to trade when the volatility is above average and also enter & exit trades using limit orders rather than market orders.

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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.

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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 Market

What Is Pip & Why Should You Know About It?

What is a pip?
Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that

What is a pip?
Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that

What is a pip?

Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that most currencies are priced to 4 decimal places, obviously, any change in price would start from the last decimal point. For example, in the price quote, $1.0002, ‘2’ indicates the pip value. A pipette means the 5th decimal place, while pip is the 4th decimal place.

For most pairs (except JPY), it is equivalent to 0.01% or 1/100th of one percent. In the forex market, this is referred to as Basis Point (BPS). One BPS is equal to 0.01% and denotes the percentage change in the exchange rate.

Calculation of move

Now that you know what pip means, let us see how it changes the profit and loss in your trading account. Large positions will have greater monetary consequences in your balance. The formula for calculating the value of the position is:

Position size x 0.0001 = Monetary value of pip

Let us use the above formula and apply it in some real pairs. If you open a position of 1000 units, the pip value can be calculated as 1000 (units) x 0.0001 (one pip) = $0.1 per pip.

When you open buy positions and market reacts in your favor, for every pip movement, you will earn $0.1, and the same is the case for a sell position. If the market moves against you after you buy or sell, $0.1 will be lost per pip movement as the trend continues in the opposite direction. Increasing or decreasing the number of positions will have the exact effect on the pip value.

Different currencies and their pip value

Pip value varies per currency as they are dependent on how it is traded. It also depends on the trading platform and the price feed. It is important to know that there are brokers who show four digits as pip, and some show five. One of the most important points you need to know is the average daily trading range, in order to gauge volatility in the market.

Average daily pip movement of major currency pairs

Conclusion

To conclude, pips are the smallest increment by which a currency pair can change in value and represents the fourth decimal of a currency pair other than the Japanese yen. In the case of Japanese yen, the pip is located at the second decimal place. Proper knowledge of pips will help you determine your stop loss size, as it is a major part of any strategy. One should never underestimate the simplicity of pip. Now that you have learned what a pip means, you can proceed to more trading concepts. Cheers!

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.

Categories
Forex Course

9. Understanding The Concept Of ‘Pip’ In Detail

Introduction
‘Pip,’ the word sounds pretty familiar, right? Well, that’s because this is a fundamental term when it comes to trading in the forex market. Pip forms the base

Introduction
‘Pip,’ the word sounds pretty familiar, right? Well, that’s because this is a fundamental term when it comes to trading in the forex market. Pip forms the base

Introduction

‘Pip,’ the word sounds pretty familiar, right? Well, that’s because this is a fundamental term when it comes to trading in the forex market. Pip forms the base for reading the price changes in the currencies. Hence, understanding this lesson is very important. So, let’s begin by defining what a pip is.

What is a pip?

Pip is a unit of movement in currency pairs. It basically tells, by how many values the price of the currency pair has changed. A pip is the same for all the pairs except for the currencies paired with JPY. One pip for every JPY pairs is 0.01 while it is 0.0001 for the rest. Hence, the fourth decimal place in the price of the currency pair represents a pip for non-JPY pairs, and the second decimal place in the price represents a pip for JPY pairs. Now, let us comprehend this with an example.

Let’s say the current market price of EURUSD is 1.1000. We say a currency price has moved by one pip when the price rises to 1.1001. Similarly, when the price goes up to 1.1008, we say the price has moved to by 8 pips (w.r.t 1.1000). Taking it further, if the price goes up even higher until 1.1010, we say the market has risen by 10 pips. From these three examples, we can come up with the formula for pip as follows:

Pip = current market price – initial price under consideration (For long position)

Pip = initial price under consideration – current market price (For short position)

Let’ say the CMP of USDCAD is 1.3230. Later, the price shoots to1.3293. Let us calculate how many pips have this pair increased.

Pip = 1.3293 – 1.3230

Pip = 0.0063

Hence, the currency has risen by 63 pips.

Pips extended

The change in the value of the price on the fourth decimal point represents the pip change between 0-9.

The change in the value of the price on the third decimal point represents the pip change between 10 and 99.

The change in the value of the price on the second decimal point represents the pip change between 100 and 999.

The change in the value of the price on the first decimal point represents the pip change between 1000 and 9999.

Let us understand this by an example. Let’s say the current market price of a currency pair is 0.5829.

Here, 9 indicates 9 pips,

2 indicates 20 pips,

8 indicates 800 pips, and

5 indicates 5000 pips.

What is Pip a value?

The pip value adds value to the pip by determining its ‘worth’ in terms of the base currency. Pip value for a currency pair can be calculated using the below formula.

Pip value = change in the value of counter currency * exchange rate ratio

Example: Let’s say the price of GBPUSD is 1.2450. That is, 1 GBP is equal to 1.2450 USD. Now, if price moved by one pip, i.e., to 1.245. The pip value for this can be calculated as follows.

Pip value = 0.0001 USD * (1 GBP/1.2450 USD)

Pip value = 0.00008032 GBP

Hence, by trading one unit GBPUSD, you will make 0.00008032 GBP. Similarly, trading 100,000 units of this pair, you will get 8.032 GBP.

What is Pipette?

Apart from pips, brokers represent quotes in pipettes, as well. An increase in the decimal place of a pip will get you the pipette value. So, the 5th decimal and 3rd decimal place represents pipettes for non-JPY pairs and JPY pairs, respectively.

For example, if the price of EURUSD increases from 1.21001 to 1.21002, we say the price has risen by 2 pipettes.

That’s all about Pips. If you have any more questions, let us know by commenting below. Don’t forget to check your learning by answering the below questions.

[wp_quiz id=”44951″]