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Basic Forex question regarding cost.
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Basic Forex question regarding cost.

  #1 (permalink)
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Basic Forex question regarding cost.

I am considering doing some day-trading at forex.com. Which I think is the spot market. I am doing okay in equities, but I just want to take small amount of money and look at other things.

So, How do I figure out how much a currency has to move for me to actually make money? That seems like a dumb question. But the bid/offer seems to jump around quite a bit. And it is not clear to me if the commission is coming out of that or is a separate charge. So if trading the Euro, GBP, Yen, and Swiss frank, what kind of a move do you need to see in order to cover costs and at least break even. Thanks

fyi. I have no intention on jumping into this soon. Just trying to learn how it works.

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  #2 (permalink)
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  #3 (permalink)
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mcteague View Post
I am considering doing some day-trading at forex.com. Which I think is the spot market. I am doing okay in equities, but I just want to take small amount of money and look at other things.

So, How do I figure out how much a currency has to move for me to actually make money? That seems like a dumb question. But the bid/offer seems to jump around quite a bit. And it is not clear to me if the commission is coming out of that or is a separate charge. So if trading the Euro, GBP, Yen, and Swiss frank, what kind of a move do you need to see in order to cover costs and at least break even. Thanks

fyi. I have no intention on jumping into this soon. Just trying to learn how it works.

The value per pip changes depending on the currency pair you are trading. EURUSD is always $10 per pip for a full lot. Most spot forex brokers will let you go as low as 0.01 lots.

Here is a link to a site that will let you calculate the value per pip: https://www.xm.com/forex-calculators/pip-value For many pairs the value per pip will vary with price so you will need to know the current price for the calculator to work properly.

Not sure how Forex.com is set up but many spot forex brokers don't charge a commission (Oanda for example). They make all of their money on the spread. If Forex.com charges a commission you will see much lower spreads. Usually with a non-commission broker EURUSD will have a spread of around 1.2-1.5 pips. With commission you can see spreads down in the 0.1-0.3 range. If they charge commission you will need to overcome the spread and the cost of the commissions to get at least to break even. No commission then you just need to overcome the spread. Tricky part is as you have seen, the spread varies. During news events that effect that currency you will really see the spreads widen.

A good site to learn about spot forex trading: http://www.babypips.com It's free and has tons of good info.

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  #4 (permalink)
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mcteague View Post
I am considering doing some day-trading at forex.com. Which I think is the spot market. I am doing okay in equities, but I just want to take small amount of money and look at other things.

So, How do I figure out how much a currency has to move for me to actually make money? That seems like a dumb question. But the bid/offer seems to jump around quite a bit. And it is not clear to me if the commission is coming out of that or is a separate charge. So if trading the Euro, GBP, Yen, and Swiss frank, what kind of a move do you need to see in order to cover costs and at least break even. Thanks

fyi. I have no intention on jumping into this soon. Just trying to learn how it works.

hi, it depends, if you are trading with a broker who is a market maker (taking other side of your trade), you should only be paying the spreads, some brokers quote a variable spread, some quote a fixed spread, so you have to check with your broker.

also some brokers are ecn brokers, meaning you pay a commission on top of a spread, but usually the spreads a very small, but are also variable. say for example with pepperstone (not advertising for them, but thats the broker im with now, so i can only say this a more reliable information i have), you pay $9 per lot, so if its 0.01 lot, its $0.09, and on top of that there is spread. what i have seen is that the spread is variable but about 0.00002 to 0.00003 on average ( except for news where it widens).

Edit, pip as in decimal place, used to the old convention of 4 decimal points instead of the current 5 decimal points as from what i understand, retail has 5 dp, but in interbank its quoted in 4 dp.

This itself would be linked to market structure as well, when spreads widen its because markets become illiquid, and dealers are trying to discourage people from trading with him. Hence, the widening spread. But these are mainly market makers, then there is the broker whom only takes the commission but have to find a liquidity provider for you and that whom you are paying the spread to.


Last edited by CookieMonsta; December 16th, 2018 at 04:37 AM.
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  #5 (permalink)
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Don't forget the swap/roll/carry (whatever you decide to call it) if holding positions through the eod settlememt time. In theory on one side you should receive a credit, and on the other side a debit, but for many forex brokers their bid/ask on the interest rates is so wide that you end up paying whether your long or short.

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CookieMonsta View Post
hi, it depends, if you are trading with a broker who is a market maker (taking other side of your trade), you should only be paying the spreads, some brokers quote a variable spread, some quote a fixed spread, so you have to check with your broker.

also some brokers are ecn brokers, meaning you pay a commission on top of a spread, but usually the spreads a very small, but are also variable. say for example with pepperstone (not advertising for them, but thats the broker im with now, so i can only say this a more reliable information i have), you pay $9 per lot, so if its 0.01 lot, its $0.09, and on top of that there is spread. what i have seen is that the spread is variable but about 0.00002 to 0.00003 on average ( except for news where it widens).

Edit, pip as in decimal place, used to the old convention of 4 decimal points instead of the current 5 decimal points as from what i understand, retail has 5 dp, but in interbank its quoted in 4 dp.

This itself would be linked to market structure as well, when spreads widen its because markets become illiquid, and dealers are trying to discourage people from trading with him. Hence, the widening spread. But these are mainly market makers, then there is the broker whom only takes the commission but have to find a liquidity provider for you and that whom you are paying the spread to.

Thanks, interesting reply. I'm with Oanda and don't pay commissions, instead pay the spread.

I have looked at Pepperstone and the ECN model but thought you had to trade full lots to qualify. Are you saying that you can trade a micro lot (0.01) and pay a reduced commission pro rata? Also, what is your experience trading with them? Thanks.

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kazz View Post
Thanks, interesting reply. I'm with Oanda and don't pay commissions, instead pay the spread.

I have looked at Pepperstone and the ECN model but thought you had to trade full lots to qualify. Are you saying that you can trade a micro lot (0.01) and pay a reduced commission pro rata? Also, what is your experience trading with them? Thanks.

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Hi jazz,

For 0.01lot, you pay 0.09 dollar, which is pro rata from what you pay for 1 lot which is 9dollar.

Im very happy with both brokers, oanda and pepperstone, I'm having 2 brokers mainly for access and black swan protection in case the ISP has issues to specific countries.

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  #8 (permalink)
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CookieMonsta View Post
Hi jazz,

For 0.01lot, you pay 0.09 dollar, which is pro rata from what you pay for 1 lot which is 9dollar.

Im very happy with both brokers, oanda and pepperstone, I'm having 2 brokers mainly for access and black swan protection in case the ISP has issues to specific countries.

Thanks how do they give you black swan protection?

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kazz View Post
Thanks how do they give you black swan protection?

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For example, brokerage failure, one example is the snb intervention, even though you may not be overly exposed, but depending on how your broker stores your money, it can be gone when the broker goes down under, so this is to diversify against that.

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  #10 (permalink)
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CookieMonsta View Post
For example, brokerage failure, one example is the snb intervention, even though you may not be overly exposed, but depending on how your broker stores your money, it can be gone when the broker goes down under, so this is to diversify against that.

Ah, OK, a form of hedging. Here in the UK we do have government protection up to a certain level for registered brokers. This protection would cover most small traders and investors but those with larger accounts would need to spread their capital over more than one broker to protect it.

There is also a useful feature offered by some brokers called guaranteed protection. What this does is protect you in the event you suffer catastrophic losses trading a highly leveraged product. With guaranteed protection the most you will lose is your account balance and you will not be liable for further margin calls. This gives great peace of mind as you cannot owe a broker offering this protection more than your account balance.

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