ZAR – Forex Academy

Introduction

The AUD/ZAR is an exotic currency pair in the forex market. AUD is the Australian Dollar while ZAR is the South African Rand. Trading the AUD/ZAR pair is expected to attract higher volatility than trading major forex currency pairs.

The AUD is the base currency in this exotic pair, while the ZAR is the quote currency. It means that the price associated with the AUD/ZAR pair represents the amount of ZAR that you can buy with 1 AUD. Let’s say that the price of AUD/ZAR is 11.5077; it means that with 1 AUD, you can buy 11.5077 ZAR.

AUD/ZAR Specification

Spread

At any given moment, forex brokers display the “bid” and “ask” price, which represents the price at which you can buy or sell a currency pair. The spread is the difference between these two. The spread for the AUD/ZAR pair is – ECN: 7 pips | STP: 12 pips

Fees

Forex traders with ECN type accounts can sometimes be charged commissions by their forex brokers whenever they open a position. The fees vary with the broker and the size of the position. STP accounts are typically not charged commissions.

Slippage

The price at which we place our trades isn’t always the price at which the broker executes these trades. The difference between the two prices is called slippage in forex trading. It can be because of extreme market volatility or broker inefficiency.

Trading Range in the AUD/ZAR Pair

The trading range refers to the pip movement of a currency pair throughout a trading day. The pip movement can be analyzed across different timeframes to determine the volatility of the pair.

The 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 determine a larger 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.

AUD/ZAR Cost as a Percentage of the Trading Range

We can compare the total cost of trading a particular currency pair alongside the volatility of that pair. This will help us determine the total trading costs of the pair across different timeframes and find out the optimal trading periods.

ECN Model Account Cost

Spread = 7 | Slippage = 2 | Trading fee = 1 | Total = 10

STP Model Account Cost

Spread = 12 | Slippage = 2 | Trading fee = 0 | Total cost = 14

The Ideal Timeframe to Trade the AUD/ZAR

From the analysis of the trading range and the costs in terms of Percentage, we notice that low volatilities attract the highest costs. Since lower timeframes have the least volatilities, it means that trading costs are higher in lower timeframes.

We can say that the ideal timeframe to trade the AUD/ZAR pair is when the volatility is approaching the ‘Maximum”. Traders interested in this pair can also choose to use forex pending orders instead of market orders. With pending orders, you get to eliminate the costs associated with slippage.

Here’s an example with the ECN account when slippage is 0.

Total cost = Slippage + Spread + Trading fee = 0 + 7 + 1 = 8

Eliminating the slippage cost has helped reduce the trading costs of the AUD/ZAR pair across all timeframes. The highest cost in the ECN type account has been reduced from 169.49% to 135.59%.

Introduction

The CAD/ZAR is an Exotic forex currency cross. CAD represents the Canadian Dollar, and the ZAR corresponds to the South African Rand. CAD is the base currency in this pair, while the ZAR is the quote currency. This pair’s exchange rate shows the value of the ZAR, which is equivalent to 1 CAD. If the pair’s exchange rate is 12.7969, it means that 12.7969 ZAR is equivalent to 1 CAD.

CAD/ZAR Specification

Spread

The spread in forex is calculated by subtracting the bid price from the asking price. Brokers determine the spread since it’s their primary source of revenue. Below is the spread charges for ECN and STP brokers for CAD/ZAR pair.

ECN: 39 pips | STP: 44 pips

Fees

Forex traders with the ECN type accounts have to pay a commission to their brokers for every position they open. Brokers do not charge any trading fees on STP accounts.

Slippage

The difference between the trade price preferred by a trader and the broker’s execution price is the slippage. In forex, slippage depends on market volatility and the speed at which the broker executes the trade.

Trading Range in the CAD/ZAR Pair

The trading range is best described as the analysis of how the exchange rate of a currency fluctuates across different timeframes. This analysis will help to estimate the expected returns from trading a particular currency pair. If, for example, on the 1-hour timeframe, the volatility of the CAD/ZAR is ten pips, a trader can expect to gain or lose $78. The trading range for the CAD/ZAR pair is shown below.

The 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 determine a larger 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.

CAD/ZAR Cost as a Percentage of the Trading Range

To make an informed risk management decision when trading the CAD/ZAR pair, we can analyze how the trading costs vary across different timeframes with different volatilities. Here are the cost analyses for the CAD/ZAR pair for both ECN and STP accounts.

ECN Model Account

Spread = 39 | Slippage = 2 | Trading fee = 1

Total cost = 42

STP Model Account

Spread = 44 | Slippage = 2 | Trading fee = 0

Total cost = 46

The Ideal Timeframe to Trade CAD/ZAR

We can notice that shorter timeframes have higher trading costs than the longer timeframes for both the ECN and the STP accounts. Also, across all timeframes, the trading costs reduce as the trading range of the CADZAR pair increases from minimum to maximum.

Although longer-term traders enjoy lesser trading costs, intraday traders can reduce their trading costs by trading when the volatility ranges between medium to the maximum. We can also further reduce the trading costs by implementing forex limit orders, which ensures that slippage does not affect your prices. Here is how trading costs can be reduced using forex limit orders.

ECN Account Using Limit Model Account

Total cost = Slippage + Spread + Trading fee

= 0 + 39 + 1 = 40

Using limit orders has significantly reduced trading costs. For the CAD/ZAR pair, the highest cost has been reduced from 711.86% of the trading range to 677.97%.