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New Pairs

  #24 (permalink)

Market Wizard
Berlin, Europe
 
Trading Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,796 since Mar 2010
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mrphr View Post
Okay, let's forget about hamburgers, pairs and base currency and let's put it this way:

You have instrument X and Y:

Instrument X your profit potential is $1000 when you have a signal.
Instrument Y your profit potential is $800 when you have a signal.

Exactly, but you did not compare the profit potential, you compared pips!

Instrument X = EURUSD -> profit potential = 108 pips = $ 1,080
Instrument Y = USDJPY -> profit potential = 80 pips = Yen 80,000 = $1,029

Your statement: "USDJPY only gets me 60 pips, EURUSD 124 pips" does not compare profit potential. You are comparing apples and oranges.


mrphr View Post
On both instrument you have the same spread, the same commissions and the same amount initial risk.

What is the spread?

1 lot EURUSD = 100,000 Euros x 0.5 pips = $ 5.00
1 lot USDJPY = 100,000 USD x 0.5 pips = Yen 500 = $ 6.25

What is the commission (0.4 basis points x trade value per roundtrip)?

1 lot EURUSD = 100,000 EUR * 0.00004 = € 4.00 = $ 5.26
1 lot USDJPY = 100,000 USD * 0.00004 = $ 4.00

What is the risk?

1 lot EURUSD = 100,000 EUR = 131,500 $
1 lot USDJPY = 100,000 $

Neither spread, nor commissions nor the risk are similar.

Spread and commissions cancel out for this example - albeit just by chance.

The risk adjusted return for USDJPY is even higher than for EURUSD.

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