My Approach to Forex Trading #4 Trades on the GBPJPY

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Best Time to Day Trade the GBP/USD Forex Pair

Just because the forex market is open 24-hours a day, doesn’t mean every one of those hours is worth trading. The GBP/USD, with a cross rate of 1.30 on August 3, 2020, has certain hours which make more sense for day trading because there is enough volatility to generate profits over and above the cost of the spread and/or commission. To be efficient and capture the largest moves of the day, day traders hone in even further, only trading during specific hours of the day.

Day Trading Sessions and Impact on Volatility

Due to global time zone differences, during the week there is always a market open for business somewhere. This is what makes forex trading available 24 hours a day. Not all markets actively trade all forex pairs, though. Therefore, different forex pairs are actively traded at different times of the day.

When London (and Europe) are open for business, pairs that involve the Euro (EUR), British Pound (GBP) and Swiss Franc (CHF) are more actively traded.

When New York (U.S. and Canada) are open for business, pairs that involve the U.S. dollar (USD) and Canadian dollar (CAD) are more active.

If trading the GBP/USD, the times that are likely to be most active for the pair, on average, will be when London and New York are open, according to the times on the attached chart.

These times are GMT. To convert to your own time zone (or your forex broker’s time zone), use the forex market hours tool available here: ​http://www.forexmarkethours.com/markethours.php.

Acceptable Times to Day Trade GBP/USD

The hourly volatility chart shows how many pips the GBP/USD moves each hour of the day. Times are in GMT.

There is an increase in the amount of movement starting at 0600, which continues through to 1600. After this, movement each hour begins to taper off, so there are likely to be fewer big price moves day traders can participate in.

Day traders should ideally trade between 0600 and 1600 GMT. Trading outside of these hours the pip movement may not be large enough to compensate for the spread and/or commissions.

Volatility changes over time. For example, daily average volatility at the time of writing is 78 pips per day. The daily average movement could increase to 100 pip per day, which means each hour is likely to see slightly higher pip movement.

Which hours are most volatile generally do not change, though. 0600 to 1600 GMT will continue to be the most acceptable time to day trade, regardless of whether daily volatility increases or decreases.

As a general rule, only day trade during hours where the price is moving at least 15 pips or more (preferably more).

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Also consider news in the equity markets and hours in which equities, options and futures trade. while these exchanges are open, key economic data is often released that could have impacts on the GBP/USD pair.

It helps to research issues ahead and attempt to anticipate potential market movements that could be triggered by favorable or unfavorable economic data released in either Great Britain or the United States.

Making money in forex is easy if you know how the bankers trade!

How to make money in forex?

I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market. It all comes down to understanding how the traders at the banks execute and make trading decisions.

Why? Bank traders only make up 5% of the total number of forex traders with speculators accounting for the other 95%, but more importantly that 5% of bank traders account for 92% of all forex volumes. So if you don’t know how they trade, then you’re simply guessing. First let me bust the first myth about forex traders in institutions. They don’t sit there all day banging away making proprietary trading decisions. Most of the time they are simply transacting on behalf of the banks customers. It’s commonly referred to as ‘clearing the flow”. They may perform a few thousand trades a day but none of these are for their proprietary book

How do banks trade forex?

They actually only perform 2-3 trades a week for their own trading account. These trades are the ones they are judged on at the end of the year to see whether they deserve an additional bonus or not.

So as you can see traders at the banks don’t sit there all day trading randomly ‘scalping’ trying to make their budgets. They are extremely methodical in their approach and make trading decisions when everything lines up, technically and fundamentally. That’s what you need to know!

As far as technical analysis goes it is extremely simple. I am often dumbfounded by our client’s charts when they first come to us. They are often littered with mathematical indicators which not only have significant 3-4 hour time lags but also often contradict each other. Trading with these indicators and this approach is the quickest way to rip through your trading capital.

Bank trader’s charts look nothing like this. In fact they are completely the opposite. All they want to know is where the key critical levels. Don’t forget these indicators were developed to try and predict where the market is going. The bank traders are the market. If you understand how they trade then you don’t need any indicators. They make split second decisions based on key technical and fundamental changes. Understanding their technical analysis is the first step to becoming a successful trader. You’ll be trading with the market not against it.

What it all comes down to is simple support and resistance. No clutter, nothing to alter their trading decisions. Simple, effective and highlighting the key levels. I’m not going to go into the ins and outs of where they actually enter the market, but let me say this: it’s not where you think. The trendlines are simply there to indicate key support and resistance. Entering the market is another discussion all together.

How to make money in forex?

The key aspect to their trading decisions is derived from the economic fundamentals. The fundamental backdrop of the market consists of three major areas and that’s why it’s hard to pin point currency direction sometimes.

When you have the political situation countering the central bank announcements currency direction is somewhat disjointed. But when there are no political issues and formulated central bank policy acting in accordance with the economic data, that’s when we get pure currency direction and the big trends emerge. This is what bank traders wait for.

The fundamental aspect of the market is extremely complex and it can take years to master them. This is a major area we concentrate on during our two day workshop to ensure traders have a complete understanding of each area. If you understand them you are set up for long term success as this is where currency direction comes from.

There is a lot of money to be made from trading the economic data releases. The key to trading the releases is twofold. First, having an excellent understanding of the fundamentals and how the various releases impact the market. Secondly, knowing how to execute the trades with precision and without hesitation. If you can get a control of this aspect of trading and have the confidence to trade the events then you’re truly set up to make huge capital advances. After all it is these economic releases which really direct the currencies. These are the same economic releases that central banks formulate policy around. So by following the releases and trading them you not only know what’s going on with regards central bank policy but you’ll also be building your capital at the same time.

Now to be truly successful you need an extremely comprehensive capital management system that not only protects you during periods of uncertainty but also pushes you forward to experience capital expansion. This is your entire business plan so it’s important you get this down pat first.

Our stringent capital management system perfectly encompasses your risk to rewards ratios, capital controls as well as our trade plan – entry and exits. This way when you’re trading, all your concerned about is finding entry levels. Having such a system in place will also alleviate the stresses of trading and allow you to go about your day without spending endless hours monitoring the market.

I can tell you most traders at banks spend most of the day wandering around the dealing room chatting to other traders or going to lunches with brokers. Rarely are they in front of the computer for more than a few hours. You should be taking the same approach. If you understand the technical and fundamental aspects of the market and have a comprehensive professional capital management system then you can.

From here it just takes a simple understanding of the key strategies to apply and where to apply them and away you go. Trust me you will experience more capital growth then you ever have before if you know how the bank traders trade. Many traders have tried to replicate their methods and I’ve seen numerous books on “how to beat the bankers”. But the point is you don’t want to be beating them but joining them. That way you will be trading with the market not against it.

So to conclude let me say this: There are no miraculous secrets to trading forex. There are no special indicators or robots that can mimic the dynamic forex market. You simply need to understand how the major players (bankers) trade and analyse the market. If you get these aspects right then your well on the way to success.

The risk of loss in Forex trading can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in the light of your financial condition. The high degree of leverage that is often obtainable in Forex trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains. Past performance is not indicative of future results.

How to Place My First Forex Trade

In this article we explain the factors you need to consider when placing a trade and the terminology behind them.

We will look at

  • How to choose a currency pair
  • How volatility affects the spread,
  • How market trends can affect your trading decision
  • How to choose the correct lot size
  • How to decide on a stop loss position and other risk management

By the time you finish reading this piece you will be able to place a well-thought out trade.

How to Select a Currency Pair

The trading approach you follow will influence your choice of currency pairs. But besides that, many people focus most of their attention on the pairs that are traded in large volumes, for example, the major currency pairs. These pairs have low spreads and because of their dense liquidity and high trading volumes, technical analysis can often be more accurate on these pairs than on exotic currency pairs, for example.

Significant slippage is also less likely when trading major currency pairs because of their high liquidity and trading volume. Here are the 7 major currency pairs:

  • EUR/USD (Euro/United States dollar) – the most liquid pair
  • USD/JPY (United States dollar/Japanese yen)
  • GBP/USD (Great British Pound/United States dollar)
  • AUD/USD (Australian dollar/United States dollar)
  • USD/CAD (United States dollar/Canadian dollar)
  • USD/CHF (United States dollar/Swiss franc)
  • NZD/USD (New Zealand dollar/United States dollar

Maybe you’ve learnt about trading in the direction of prevailing trends (which is one of the most important aspects of trading). In this case, you need to identify a currency pair that exhibits strong trending behaviour and ignore the pairs that are stuck in ranges.

Perhaps you have a range trading strategy in mind. Well, then you need to select a currency pair that is currently trading in a range.

If you choose to only trade currency pairs with very low spreads (like the majors), you will surely miss out on superb trading opportunities from time to time. Nevertheless, there are successful traders who focus only on major pairs.

Spread Compared to Volatility

Not all currency pairs have the same spreads. As mentioned already, the major currency pairs generally have low spreads. However, the spread is not all you need to consider. You also need to look at how much a currency pair can move in a certain amount of time. You see, some currency pairs have wider spreads than the major pairs, but their average price movements over a certain period of time can be much larger than that of the major currency pairs.

A good example is the GBP/JPY (Great British pound/Japanese yen) with a spread which is about twice as wide as that of the EUR/USD. A beginner may think that it isn’t worth trading the GBP/JPY because of its relatively wide spread. However, this pair can produce much larger price movements than the EUR/USD over the same period of time. So, if the GBP/JPY happens to throw a really strong trend at you, it surely makes sense to catch that trend.

Understanding the Spread – How Much Price Movement Will Cover Your Trading Fees?

This is a really important matter. You need to have an idea of how much the market needs to move in order to cover your trading fees. You see, if you have a small profit target in pips, like for example 10 pips, your transaction costs are actually very high in relation to your target. If you’re paying a spread of 2 pips, for example, it is 20% of your profit target, which is really high.

Did you know, that with a spread of 2 pips, you need the market to move 12 pips in order to hit a profit target of 10 pips? At the same time, the market only needs to move 8 pips to hit a stop loss of 10 pips. Now compare 12 pips to 8 pips… that’s quite a big difference. The distance to your take profit is 50% further than the distance to your stop loss.

We strongly recommend trading on charts that display both the bid and ask price lines. This makes the spread visual to you and gives you a good feel of its impact on your trading. Here is a screenshot of an MT4 chart with the bid and ask price lines plotted on it:

This screenshot was taken from a Pepperstone Razor MT4 trading platform. Because the spread is so thin with a Razor account, we had to open a 1-minute chart for the spread to be clearly visible.

With a Pepperstone Razor trading account, you pay the raw interbank spread plus a small commission, which is usually less than 1 pip. In this case, the spread on the GBP/JPY was 0.7 pips plus commission of roughly 1 pip. So, the total transaction cost amounts to 1.7 pips.

With the GBP/JPY, the average range of a 1-minute candlestick is about 3.5 pips. So, you could easily cover your trading costs in less than a minute if the price moves in your favour. Of course, we’re not considering rollover fees in this example. But if you’re planning on keeping trades overnight, you may incur rollover charges, depending on which pairs you trade. With some pairs, you will actually earn interest when you hold them overnight.

If you’re not sure how to plot the bid and ask prices on your MT4 charts, take a look at The Essential Forex Guide and follow the 4 easy steps.

Alternatively, you can open a cTrader trading account with FXPro or Pepperstone. cTrader is an institutional grade trading platform that automatically displays both the bid and ask prices on its charts. By the way, cTrader is great for beginners, especially because it is easy to place and modify trades. It is also more advanced than MT4 and boasts superior features.

Making My First Forex Trade

Use the Correct Lot Size

If you get this wrong you can easily blow your trading account! First of all, you need to know how much capital you want to risk per trade. It is recommended to risk less than 2% of your entire trading account per trade.

For this example, let’s just say you have a $1,000 trading account and you’re willing to risk no more than 1% per trade. This means that you can risk up to $10 per trade. But how can we calculate the trade’s lot size to fit a $10 stop loss into a certain number of pips?

To do this, you obviously need to know what the pip value is of the currency pair you’re trading. Let’s assume you have a trading account with a U.S. dollar base currency. With the following pairs, you needn’t make any calculations because they all have a pip value of $10 per standard lot:

GBP/USD EUR/USD AUD/USD NZD/USD
1 Lot (100,000) $10 per pip $10 per pip $10 per pip $10 per pip
0.1 Lots (10,000) $1 per pip $1 per pip $1 per pip $1 per pip
0.01 Lots (1,000) $0.10 per pip $0.10 per pip $0.10 per pip $0.10 per pip

In each of these currency pairs, the U.S. dollar is the quote currency (the currency after the ‘slash’. With these pairs, a pip is 0.0001 in decimal form. Multiply 0.0001 by the notional value of the trade to get the dollar value of one pip. For example, if you place a trade of 0.01 lots (1 micro lot), the notional size is 1000 units of the currency pair. Multiply 0.0001 by 1000, and you get a pip value of $0.10.

With pairs where the U.S. dollar isn’t the quote currency, the pip value is first calculated and expressed in the quote currency of that pair. If the quote currency of the pair is not the same as your trading account’s base currency, the value is then divided by the appropriate exchange rate to derive a pip value denominated in your trading account’s base currency.

Here is an example of calculating the pip value of the USD/JPY. If your trading account’s base currency is Japanese yen, the pip value is always the same. If you’re trading micro lots, it is 10 yen per pip.

If your account base currency is U.S. dollar, the pip value is still 10 yen, of course, but you need to convert that to USD. Let’s say the current exchange rate is 111.111 yen per USD. Divide the pip value of 10 yen by the exchange rate of 111.111 to get a pip value of $0.09 per micro lot.

Let’s say the USD/JPY exchange rate moved lower to 100.00. In that case, the pip value would be $0.10. (10 yen divided by 100.00). With this example, you can see that the pip values of some currency pairs are not constant and need to be calculated if you want to know exactly what the pip value is at the time of placing your trade.

Now that you know how to calculate pip values, the rest is pretty simple. Let’s say you’re looking at a trade setup on the EUR/USD which requires a stop loss of 50 pips. As you just saw in the table above, the pip value of the EUR/USD is always $0.10 if you’re trading a micro lot (1000 units).

Remember, we want to risk no more than $10 on the trade and we’re using a 50-pip stop loss. When trading a micro lot, a 50-pip stop loss is $5. (50 pips multiplied by the pip value of $0.10 equals $5).

Next, we need to divide the amount we’re willing to risk ($10) by the value of our stop loss calculated at one micro lot ($5) to get our lot size of 2 micro lots. Not very difficult, is it?

  • Most major currency pairs have micro lot pip values that are either fixed at $0.10 or that are close to $0.10. This can give you a good idea of the dollar value of your targets and stop losses without touching a calculator.
  • With cTrader, you can see what the pip value is of a particular currency pair in the order entry box:

Here you can also enter your stop loss and take profit distances in pips, which will automatically calculate its dollar (or other base currency) values:

Long and Short Positions

First of all, there are two directions in which you can trade – long (buy) and short (sell). Long positions make money when the price moves higher and short positions make money when the price declines.

Unlike short positions on stock CFDs, short positions on currency pairs do not carry unlimited risk. In fact, short forex trades carry the same amount of risk as long trades.

When a short (sell) position is opened on a currency pair, a take profit order is usually placed below the entry price. A stop loss can be placed above the entry price. You can read What is Stop Loss and Take Profit? for more information on this.

If you’re not sure if you should be buying or selling, here is some interesting info on How to Establish a Directional Bias. You will also find handy tips in the following chapters, so don’t stop reading…

Analyse the Market

Technical and fundamental analysis can often give you a good idea of where the market is likely to head and whether large or small market movements can be expected. For beginners, technical analysis is usually a more objective and practical way to assess the current market situation.

For example, a beginner may not possess the skill to accurately analyse U.S. labour market numbers, monetary policy decisions, GDP numbers, etc. However, with a little bit of training, an inexperienced trader will recognise trending behaviour and discern between impulsive and corrective price action. This brings us to one of the MOST IMPORTANT things about trading…

Trading With The Trend

Trading in the direction of strong trends gives you the best chance to make money in the forex market. The larger time frames (e.g. the weekly and daily) are usually the best to focus on when looking for predominant trends.

Smaller time frames like for example, the 4-hour and 1-hour can be used to fine-tune your trade entries which should be aligned with strong trends and impulsive moves on the higher time frames. Of course, there is money to be made with counter-trend trading, but it requires a lot of skill and mostly exposes you to more risk and smaller rewards.

Below is a good example of a powerful uptrend on a daily chart of the GBP/JPY. Notice how the 13-EMA, 50-EMA, 100-EMA, and 200-EMA are diverging from each other and also sloping upwards. Besides that, we can see that the price is above the 13-EMA most of the time. In this chart, the price is forming higher swing highs as well as higher swing lows. The bullish price waves are mostly impulsive while the bearish waves are mostly corrective in nature. Looks like a good trend to buy into!

*EMA stands for exponential moving average. This type of moving average place more weight on the most recent price action. It is therefore more reactive to price action than simple moving averages (SMAs). With any trading platform, you can choose between EMAs, SMAs, and even some other types of moving averages.

Crocodile (Ambush) Trading

Crocs are patient hunters who don’t waste energy on chasing their prey all day long. These creatures can sometimes wait days for the perfect opportunity to capture their victims.

New forex traders are often very impatient. Instead of strategically ‘lying in ambush’, they chase the market and snap at anything that almost looks like a good trade setup. Instead of taking high-probability trades only, they waste precious time, focus, and capital on low-probability setups.

Executing a trading plan with fine-tuned trade entries magnifies your chances of success over the long run. You will miss out on profitable trades from time to time, but your overall performance will be better, provided that you have a solid trading strategy that deploys a definite edge.

Manage Your Risk

The first steps in risk management are to use the correct lot size, risk a small amount of capital per trade, avoid overtrading, and apply high-probability trading strategies.

An important component of risk management is to exit losing trades at an optimal level. This should ideally be done with an automatic order called a stop loss. Let’s look at the different types of stop loss orders and how to use them correctly.

Static Stop Loss Orders

Risk management is extremely important when it comes to trading. This is especially true with margin trading accounts that allow you to trade with leverage. A single leveraged trade can wipe out your entire trading account if you use the wrong lot size and/or don’t use a stop loss.

Any forex trading platform allows you to attach stop loss orders to your trades. While you don’t always need to use a take profit order, it is highly recommended to always use a stop loss. Some institutions and experienced traders trade without stop losses but usually do so with very low leverage (if any) and large amounts of capital.

The safest way to apply a stop loss is to set it before you open your trade. You never know what could happen after you’ve opened the trade. You could experience a problem with your internet connection; your broker’s system could go down just after you’ve placed the trade; an emergency could arise forcing you to abandon your pc; your pc could shut down unexpectedly, etc.

Static stop loss orders are captured and stored on your broker’s server. This means that even though your trading platform isn’t running on your computer or if your internet connection is down, your broker’s server will automatically execute your stop loss, if necessary.

Trailing Stop Loss Orders

A trailing stop loss can sometimes increase the profitability of a trading strategy considerably, while at the same time reducing its drawdown. On the other hand, it can also reduce profits and increase the drawdown if it’s applied to the ‘wrong’ strategy.

A trailing stop loss can be set at a certain distance from the current market price, for example, 100 pips. So, if you open a buy trade with a 100-pip trailing stop loss, the stop loss will never be further away from the current market price than 100 pips. If the price moves higher, the trailing stop loss will move higher at the same rate as the price.

But when the price moves lower, the trailing stop loss remains at the same level; it cannot move lower. When the price moves above the level where the trailing stop loss was last modified, it will be modified again and continue to lock in your profits or at least reduce the amount you can lose on the trade.

For example, with a buy trade with a trailing stop loss of 100 pips, a bullish price movement of 110 pips will cause the stop loss to be trailed all the way past the entry price and lock in a profit of 10 pips. Then, if the price happened to reverse all the way back to the entry price, the trader would still end up with a 10-pip gain because the trailing stop loss was locked at the entry price plus 10 pips.

Here is an example of how a trailing stop loss improved an automated strategy’s performance:

As you can see from these screenshots, this trading strategy performed much better with a trailing stop loss than with a static stop loss. Not only was the return higher, but the drawdown was also smaller.

With any forex trading platform, you can attach a trailing stop loss to your trades. However, if you use MT4, you need to keep your trading platform open, logged in, and connected to the internet for the trailing stop to work. The trailing stop is controlled from your computer.

With cTrader, however, you have access to a server-side trailing stop loss, which means that your trailing stop loss will work correctly, even if your computer is not connected to your broker’s server.

*Maximum drawdown is the largest loss from a peak to a trough during a certain period of time. For example, a trading account grows steadily to $100 with a few minor capital drawdowns. Then, it declines from $100 all the way to $55, after which it quickly moves past $100 again. In this case, the maximum drawdown is $45, which is 45%. Look at this picture:

*The return on an investment is the percentage gained or the dollar amount gained during a certain period of time. For example, our ‘trailing stop loss’ example started out with $100 capital and made an additional $203.63. So, $203.63 divided by $100, is 2.0363. Multiply this by 100 to get the percentage gained, which is 203.63%.

Where to Place Your Stop Loss

This depends on your trading strategy or trading approach. Some traders like using really tight stops while others place their stops at a ‘safe’ distance which is not easily reached. Here are a few different approaches:

  • Placing stops above/below recent swings high/low.
  • Using a fixed stop loss, for example, 50 pips.
  • Placing a stop loss at a certain moving average in trending conditions, e.g. the 50-EMA.
  • Placing a stop loss below/above a certain moving average in trending conditions, e.g. 5 pips below/above the 20-EMA.
  • Using ATR (average true range) to set a stop loss that adapts to the market’s volatility. For example, using a stop loss of 2.5 times the current ATR value.
  • Placing a stop loss below/above the previous candlestick’s low/high.
  • Placing stops beyond the upper or lower Bollinger band.
  • Using the parabolic SAR indicator to set and trail stop losses.
  • Using the Donchian channel indicator to set and trail stop losses.

When you place a stop loss, you need to be reasonable and consider the ratio between your stop loss and take profit. A good risk-to-reward ratio could boost your profitability but if it’s too high, it may be too extreme to work well with your trading strategy.

You see, if you use really tight stops with extremely wide targets, you could have a very jagged equity curve, with drawdowns beyond your comfort zone. You also stand a good chance of losing money with this type of trading.

Give Your Trades Some Breathing Space

A stop loss can often be a hazardous stumbling block lying just before the finish line, so to speak. You need to give your trades a fair chance of winning and at the same time cut your losses when a trade turns sour. Few things can frustrate a forex trader like being stopped out just before the market moves in your favour.

Below is an example of a very rough GBP/USD strategy traded with a 10-pip stop loss and a 100-pip take profit. It follows the trend on the hourly time frame and only trades one position at a time:

With these settings, the strategy lost $250.26 (25.26%) in four years and experienced a maximum drawdown of 27.64%.

Now let’s look at how the same strategy performed with a stop loss of 80 pips and a take profit of 85 pips:

This time, it made a profit of $162.99(16.3%) with a maximum drawdown of 12.34%.

Here we can see that the lower risk-to-reward ratio performed considerably better than the massive 1:10 ratio. One of the most important reasons for this is the wider stops that gave the trades some space to breathe. The stop loss distance of 80 pips is much more suited to this pair’s volatility than a stop loss of 10 pips.

Final Thoughts

A common mistake made by forex beginners is to think that making money with forex trading is a breeze. The truth is, that a beginner has much to learn about the market. You also need discipline, proper risk management, and a profitable trading approach.

With this in mind, it is wise to first find your feet with a demo account before going live. It will also help you a lot if you can backtest and forward test your strategies before putting your money behind it. Even if you don’t have a trading robot (EA) to backtest with, you can probably do a manual backtest by looking at price history and observing how your strategy would have performed.

Low Spread Currency Pairs

In Forex, the spread is essentially one part of the cost for you as a trader to open any trades. It counts into the total price of trading.

As in life, the price for common things is lower compared to other, more exotic and in demand. The same applies to low spread currency pairs that are commonly traded on Forex.

Low spread is very important for frequent traders for which every part of the pip movement makes a difference.

Let’s start with the most commonly traded currency pair, EUR/USD.

EUR/USD pair, spreads from 0.1 pips!

Spread / Daily Range = 1.5% (the lower the better)

The most traded pair with around 20% of total trading volume on Forex. This also makes EUR/USD the pair with the lowest spread.

Variable spreads for this currency pair, in normal trading activity, range from 0.1 to 3 pips, depending on the broker. For fixed spreads, they go from 0.3 to 5 pips (excluding commission).

Table for Euro-Dollar spreads across different sessions (investing.com):

Volatility in this pair is known to spike during the news events, and EUR/USD is the most popular. News events, economic calendar, social media activity, and political events are frequent for the USD (United States). In addition, if we take that EUR (European Union) is composed of many countries, any crisis in one may affect the Euro.

Having this mix of trading sessions and volatility spikes makes this currency pair interesting to trade, even though it is the pair with typically the lowest spread.

If we compare the Daily Average Range (ADR), we can see if the spread is in line with the potential of the currency pair.

For the EUR/USD Daily Average Range (14) at the moment is around 58 pips. If we take an average 0.9 pips spread for EUR/USD pair it means (0.9/58=1.5%) spread takes 1.5% off our maximum potential profits in one trade.

USD/JPY, the second lowest spread pair

Spread/Daily Range = 2.1%

The two economies, one exporting type (Japan) and one big importer (US). Two distinct trading sessions. Combine this with typically low spreads and you have some trading opportunities here.

You can download the Spread Indicator to control the spread widening.

The variable spread for this currency pair is from 0.2 to 2 pips. Because of the big gap between trading sessions, it is great if you want to focus on one economy. A broker with three digits, average 1 pip spread accounts 2.1% off your maximum daily potential profit.

GBP/USD, a low spread pair that moves!

Spread/Daily Range = 2.0%

This pair is specific because of the big movements of the British pound. If you combine this with great liquidity and therefore low spreads, you get opportunities for low spread strategies that do not work on other pairs.

Nowadays if you follow the news, you will understand the obvious downfall of the GBP.

Variable spreads for this currency pair go from 0.3 to 2.7 pips excluding commissions. With high daily average range (68 pips) of the GBP/USD pair, the spread (1.4 pip) will eat your maximum potential profit by around 2.0% per trade, which is lower than USD/JPY pair.

USD/CHF, low spread – high stability

Spread/Daily Range = 2.6%

The Swiss Franc has close to zero inflation and the banking system is regarded as one of the best in the world for the investors. It is one of the most traded currency pairs on Forex with low spread.

Stability is one of the traits of the CHF but it does not mean that there are no opportunities for trading.

It is an easy-to-follow currency pair with low spreads that range from 0.5 to 5 pips. The average spread (1.2 pip) to profit ratio is 2.6% on the daily average range (45 pip).

EUR/JPY, non-USD pair with low spread

Spread/Daily Range = 1.9%

This currency pair is more sensitive and has big movements. Since the economies involved in this pair are smaller, one can expect bigger changes in the market caused by any events.

The spread may not be the lowest offered but low enough to boost the potential of this pair for frequent traders.

It is the perfect mix of low spread and opportunity. This can be seen by ADR (14) of 63 pips, spread range from 0.5 to 5.7 pips and average spread (1.2 pip) to potential profit ratio of 1.9%.

This currency pair is also interesting because it is rarely ranging, or moving sideways.

Even though the broker may offer low spreads, the commission may mask the total cost. If we take this into consideration, finding the broker with the right offer may be easier with this spreads table from Myfxbook:

Finally, you should understand that all the major 8 currency pairs combinations are liquid enough to have low spreads.

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