Tag: slippage

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Forex Assets

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

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

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

Introduction

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

Understanding GBP/CHF

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

GBP/CHF Specification

Spread

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

ECN: 0.8 | STP: 1.6

Fees

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

Slippage

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

Trading Range in GBP/CHF

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

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine an extensive period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

GBP/CHF Cost as a Percent of the Trading Range

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

ECN Model Account 

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

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

STP Model Account

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

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

The Ideal way to trade the GBP/CHF

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

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

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

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

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Forex Assets

Understanding The EUR/JPY Asset Class

Introduction

Introduction

Introduction

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

Understanding EUR/JPY

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

EUR/JPY Specification

Spread

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

Spread on ECN model: 0.6

Spread on STP model: 1.5

Fees

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

Slippage

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

Trading Range in EUR/JPY

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

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine an extensive period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/JPY Cost as a Percent of the Trading Range

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

ECN Model Account 

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

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

STP Model Account

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

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

The Ideal way to trade the EUR/JPY

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

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

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

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Forex Assets

Everything About EUR/CAD Currency Pair

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

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

Introduction

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

Understanding EUR/CAD

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

EUR/CAD Specification

Spread

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

Fees

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

Slippage

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

Trading Range in EUR/CAD

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

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/CAD Cost as a Percent of the Trading Range

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

ECN Model Account 

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

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

STP Model Account

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

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

The Ideal way to trade the EUR/GBP

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

High percentage => High cost

Low percentage => Low cost

Min column => Low volatility

Max column => High volatility

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

Min column => High percentage

Thus, Low volatility => High cost

Max column => Low percentage

Thus, High volatility => Low cost

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

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

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Asset Analysis – EUR/NZD Forex Currency Pair

Introduction

Introduction

Introduction

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

Understanding EUR/NZD

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

EUR/NZD Specification

Spread

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

ECN: 0.9 | STP: 1.7

Fees

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

Slippage

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

Trading Range in EUR/NZD

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

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/NZD Cost as a Percent of the Trading Range

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

ECN Model Account 

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

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

STP Model Account

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

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

The Ideal way to trade the EUR/NZD

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

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

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

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Forex Assets

Understanding The EUR/AUD Forex Currency Pair

Introduction

Introduction

Introduction

EURAUD is a minor/cross currency pair traded in the forex market. EURAUD is the abbreviation for the euro area’s euro and the Australian dollar. The left currency, EUR is the base currency and the one on the right, AUD is the quote currency. The price of EURAUD basically tells the value of the Australian dollar.

Understanding EUR/AUD

The exchange rate of EURAUD shows the Australian dollars required to purchase one euro. It is quoted as 1EUR per X AUD. For example, if the value of EURAUD is 1.5995, it means that these many units of AUD are to be possessed by the trader to buy one unit of EUR.

EUR/AUD Specification

Spread

Spread is the way through which brokers make money. It is merely the difference between the bid price and the ask price set by the broker. These prices are often different from broker to broker. The spread differs based on the volatility of the market as well. The approximate spread on an ECN account and an STP account is given below.

ECN: 0.9 | STP: 1.7

Fees

For every trade a trader takes, there is some fee associated with it. And this fee is charged only by ECN type brokers. Typically, there is no fee on STP type brokers. The fee range is usually between 6 pips and 10 pips.

Slippage

A trader can place trades using either market order or using a limit order. In the case of market orders, the trader doesn’t get the exact price at which he executed the trade. The real price he received is different. This difference in the price is referred to as slippage.

Trading Range in EUR/AUD

As a professional trader, it is vital to know how many pips the currency pair moves in each timeframe. It gives the trader an idea of how long he must wait for his trade to perform. Traders can also assess their profit/loss in a given time frame. For example, if a trader takes a trade by analyzing the 1H timeframe, and the min market volatility is three pips, then he can expect to win or lose at least $20.91 (3 pips x $6.97 value per pip).

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can 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/AUD Cost as a Percent of the Trading Range

Apart from knowing the potential profit/loss from the volatility of the market in different timeframes, one can also determine the cost variation by considering the volatility and the timeframe. For this, the ratio between total cost and volatility is taken into account. It is then expressed in terms of percentage. The magnitude of the percentage determines the cost of 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 + 1.7 + 0 = 3.7

The Ideal way to trade the EUR/AUD

Now that we’ve got the values from the above table, here is our ideal way to trade the EUR/AUD.

The higher the magnitude of the percentages, the higher is the cost of the trade on that particular timeframe. Comprehending this to the above table, it is seen that the percentages are highest and lowest on the min and max columns, respectively. This, in turn, implies that the costs are high when the volatility of the market is feeble. And the costs are low when the volatility is high. So, it is ideal to trade on any timeframe, given the volatility of the market is above average volatility. This will ensure the fairly high volatility with affordable costs.

Furthermore, the costs can be made much lower by placing limit orders instead of market orders because this will reduce the slippage on the trade to zero. As an example, the cost percentage table is given by ignoring the slippage value.

Thus, comparing the two tables, it is evident that the costs have reduced by 50%.

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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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Forex Assets

Understanding The Fundamentals Of USD/JPY Forex Pair

Introduction

Introduction

Introduction

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

Understanding USD/JPY

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

USD/JPY Specification

Spread

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

Spread on ECN: 0.5

Spread on STP: 1.2

Fees

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

Slippage

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

Trading Range in USD/JPY

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

USD/JPY PIP RANGES

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/JPY Cost as a Percent of the Trading Range

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

The relation between Cost and Volatility

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

ECN Model Account

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

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

STP Model Account

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

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

The Ideal way to trade the USD/JPY

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

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

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USD/CHF Currency Pair – Everything You Should Know!

Introduction

Introduction

Introduction

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

Understanding USD/CHF

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

USD/CHF Specification

Spread

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

Spread on ECN: 0.8

Spread on STP: 1.6

Fees

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

Slippage

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

Trading Range in USD/CHF

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

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

USD/CHF PIP RANGES

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/CHF Cost as a Percent of the Trading Range

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

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

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

ECN Model Account

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

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

STP Model Account

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

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

The Ideal way to trade the USD/CAD

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

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

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

Categories
Forex Market Forex Risk Management

These Are Some Of The Best Position Sizing Techniques You Should Know!

Introduction
In our previous article, we addressed the concept of position sizing, drawdown, and techniques. Now we extend this discussion and look at other crucial aspects of position sizing, which

Introduction
In our previous article, we addressed the concept of position sizing, drawdown, and techniques. Now we extend this discussion and look at other crucial aspects of position sizing, which

Introduction

In our previous article, we addressed the concept of position sizing, drawdown, and techniques. Now we extend this discussion and look at other crucial aspects of position sizing, which are very important. In this article, let’s determine how one can position themselves in the forex market based on three different models. Each of these has its own merits that impose some sort of position sizing discipline in traders.

The three core position sizing techniques in terms of risk are:

  • Fixed lot per amount
  • Percentage margin
  • Degree of volatility

These models can be applied to all the asset classes and are time frame independent.

We suggest you stick to one model to estimate the position size or at most two position sizing techniques. Following every given method will increase complexity, and that is not good for a trader.

Fixed Lot Per Amount

This is a fairly simple model. It requires a trader to simply state how many lots he is willing to trade for a given amount of capital. For example, let us assume a trader is having $2000 in his trading account, and he trades only the major currency pairs like  EUR/USD, GBP/USD, GBP/JPY, USD/JPY, etc.

The trader simply needs to make a thumb rule that he/she will not trade more than one standard lot of futures (of major currency pairs) per $2000 at any given point.

The lot size can also be determined based on their risk appetite and money management principles. This technique of ‘fixed risk’ is based more on the discipline than strategy.

Percentage Margin

This position sizing technique is more structured than the ‘Fixed lot per amount’ technique, especially for intraday traders. It requires a trader to position themself based on the margin. Here, a trader essentially fixes an ‘X’ percentage of their capital as margin amount to any particular trade. Let’s see how this works with the help of an example.

Assume a trader named Tim has a trading capital of $5000; with this, he decides not to expose more than 20% as margin amount on a particular trade. This translates to a capital of $1000 per trade.

Now, if Tim gets an opportunity in another currency pair, he would be forced to let go of this margin as it would double to 40% (20% + 20%). This new opportunity will be out of his trading universe until and unless he increases his trading capital. Hence, one should not randomly increase the margin to accommodate opportunities.

The percentage margin ensures a trader pays roughly the same margin to all positions irrespective of the forex pair and volatility. Otherwise, they would end up in risky bets and therefore altering the entire risk profile of their account.

Degree Of Volatility

The degree of volatility accounts for the volatility of the underlying asset. To measure volatility, we make use of the ATR indicator, as suggested by Van Tharp. This position sizing technique defines the maximum amount of volatility exposure one can assume for the given trading capital.

Below we have plotted the ATR indicator on to the USD/JPY forex chart.

The 14-day ATR has a peak and then a decline, which shows a decrease in volatility. As you know that high volatility conditions are the best times to trade (less slippage, high liquidity, etc.), you can risk up to 5% of your trading capital on the trade while one should not risk more than 1% when the ATR is at the lowest point. Do not forget the risks involved while trading highly volatile markets. Only use this position sizing technique when you completely trust your trading strategy.

Conclusion

A trader should not risk too much on any trade, especially if their trading capital is small. Remember, your odds of making a profit are high when you manage your position size and risk the right amount on each of the trade you take.

Beginners should trade thin to get experience with open positions, so they can assess the stress of a loss and gradually increase the position size as he is comfortable with the strategy results and performance. As a matter of fact, this is also the right way to proceed when trading live a new strategy, be it a beginner or an experienced trader.

Cheers!

Categories
Forex Market

The Basics of Spread & Slippage

Spread
Did you know that each time you place a trade, you pay a fee to the broker for providing the opportunity & platform to trade? Spreads act as a

Spread
Did you know that each time you place a trade, you pay a fee to the broker for providing the opportunity & platform to trade? Spreads act as a

Spread

Did you know that each time you place a trade, you pay a fee to the broker for providing the opportunity & platform to trade? Spreads act as a fee on zero-commission accounts (STP accounts). A spread is simply the price difference between the purchase price and selling price of an asset. The broker always shows two quotes of currency – one at which they sell the underlying asset to you and another at which they buy the underlying asset from you. The spread between these two prices makes the broker’s revenue from the foreign exchange transactions they perform for their clients.

Bid-Ask spread

There are two types of forex rates, the Bid and the Ask.

The price you pay to buy the forex pair is called Ask. It is always slightly higher than the market price.

The price at which you sell the forex pair is called Bid. It is always slightly lower than the market price.

The price that you see on the chart is always a Bid price. The ‘Ask’ price is always higher than the ‘Bid’ price by a few pips. Spread is essentially the difference between these two rates.

Spread = Ask – Bid

For example, when you see EUR/USD rates quoted as 1.1290/1.1291, you buy the pair at the highest Ask price of 1.1291 and sell it lower Bid price of 1.1290. This particular quote shows a spread of 1 pip.

Types of spreads

The kinds of spread depend on the rules of the broker. Spreads can either be fixed or floating.

Fixed spreads remain fixed no matter what the market conditions are at any given point of time. The advantage of this type of spread is that the broker will not be able to widen the spreads during volatility.

Floating, also known as variable spreads, are continually changing. They widen or tighten depending on the supply and demand of currencies and market volatility.

Slippage

Slippage is a phenomenon in the forex market where currency prices change while an order is being placed, thus causing traders to enter or exit trades at prices higher or lower than they desire. Slippage happens because of the imbalance of buyers, sellers, and trade volumes. It also occurs when the market is less active with lower liquidity.

For instance, a trader wants to buy a currency pair at $1.0015 (Current Market Price) with a broker of his choice. Once he submits the buy order, the best-offered price suddenly changes to $1.0020. It is considered as a negative slippage of 5 pips. In the same example, if the best-offered buy price suddenly changes to $1.0005, it is regarded as a positive slippage of 10 pips.

How to avoid slippage?

Slippage cannot be entirely avoided if you trade using market orders, but it can be reduced. One way a trader can minimize slippage is to ensure that their broker has many liquidity providers. Another way is to avoid trading during periods of high volatility as prices move faster and at wider intervals. To check volatility, traders can make use of technical indicators such as Bollinger bands or Average True Range.

The only way to entirely avoid slippage is by using strategies that employ limit orders on entries and exits.

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.