Introduction
We all know that official currencies of the two countries are paired for being exchanged in reference to each other. In GBP/AED, GBP stands for the British pound sterling, and it is is the official currency of the United Kingdom. It is also the 4th most traded currency in the Forex Market and stands right after USD, EURO and YEN. Whereas the AED is known as the United Arab Emirates Dirham, and it is the official currency of the UAE.
GBP/AED
GBP/AED is the abbreviation of the Pound sterling against the Emirati Dirhams. In currency pairs, the first currency is the base currency, while the second currency is the quote currency. In this case, GBP is the base currency, and AED is the quote currency.
Understanding GBP/AED
In the Forex market, if the base currency’s value goes down, the value of the quote currency goes up and vice versa. Also, when we buy a currency pair, we buy the base currency and implicitly sell the quote currency.
The market value of GBP/AED determines the strength of AED against the GBP that can be easily understood as 1GBP is equal to how much AED. So if the exchange rate for the pair GBP/AED is 4.5748, it means that we need 4.5748 AED to buy 1 GBP.
Spread
Forex brokers have two different prices for currency pairs: the bid and ask price. The bid price is the selling price, and ask is the buy price. The difference between the ask and the bid price is called the spread. Spread is basically a type of commission by which brokers make their money. Below are the ECN and STP spread values for the GBP/AED pair.
ECN: 27 pips | STP: 30 pips
Fees
Each time we place a trade, we need to pay some commission on it. A Fee is simply that commission we pay to the broker for opening a particular position. The fee also varies from the type of broker we use; for example, there is no fee on STP account models, but a few pips on ECN accounts.
Slippage
Slippage refers to the difference between the trader’s expected price and the actual price at which the trade is executed. It can occur at any time but mostly happens when the market is fast-moving and volatile. Also, it occurs at the times when we place a large number of orders at the same time.
Trading Range in GBP/AED
The trading range here is to measure the volatility of the GBP/AED pair. Whether we make a profit or loss in a given time period depends on the movement of a currency pair that can be assessed using the trading range table. It is a representation of the minimum, average, and maximum pip movement in a currency pair. This can be evaluated simply by using the ATR indicator combined with 200-period SMA.
Procedure to assess Pip Ranges
- Add the ATR indicator to your chart
- Set the period to 1
- Add a 200-period SMA to this indicator
- Shrink the chart so you can assess a significant period
- Select your desired timeframe
- Measure the floor level and set this value as the min
- Measure the level of the 200-period SMA and set this as the average
- Measure the peak levels and set this as Max.
GBP/AED Cost as a Percent of the Trading Range
The cost of trade mostly depends on the broker and varies based on the volatility of the market. This is because the total cost involves slippage and spreads apart from the trading fee. Below is the representation of the cost variation in terms of percentages. The comprehension of it is discussed in the following sections. We will look into both the ECN model and the STP model.
ECN Model Account
Spread = 27 | Slippage = 3 |Trading fee = 5
Total cost = Slippage + Spread + Trading Fee = 3 + 27 + 5 = 35
STP Model Account
Spread = 30| Slippage = 3 | Trading fee = 0
Total cost = Slippage + Spread + Trading Fee = 3 + 30 + 0 = 33
Trading the GBP/AED
The GBP/AED is an exotic-cross currency pair and is mostly ranging. The volatility of this currency pair is on the lower side. As seen in the Range table, the average pip movement on the 1-hour time frame is only 64. This clearly shows that if we trade in this pair, we will have to wait for a more extended period of time to get some good profit because of such a less movement in the pips.
Note that the higher the volatility, the lower the cost of the trade. However, this is not an advantage as it is risky to trade highly volatile markets. Let’s take, for example, in the 1M time frame, the Maximum pip range value is 3825, and the minimum is 923. When we compare the fees for both the pip movements, we find that for a 923 pip movement, the fee is 3.79%, and for 3825pip movement, fess is only 1.07%.
So, we can confirm that the prices are higher for low volatile markets and low for highly volatile markets. It is safe to trade when the volatility is around the average values, but experienced traders who strictly follow money management can trade the volatile markets as the cost of trade is less there. Cheers!