Home Beginners Forex Education Forex Assets Trading The CAD/ZAR Forex Cross Currency Pair & Analyzing The Costs Involved

Trading The CAD/ZAR Forex Cross Currency Pair & Analyzing The Costs Involved

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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

  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 a larger 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.

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%.

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