Discussion of article "Bid/Ask spread analysis in MetaTrader 5"
Hi, an interesting and informative article,
I enjoyed the advice tip about manually taking profit, as opposed to setting it. As a newbee trader I have found if you can catch
the initial spikes, you can increase your profits in scalping. Also enjoyed the spread advice. At a previous "flashy" broker
I kept checking my properties display on my graph, as I cound'nt find the [show] ask price line.
Thats how far apart the spread lines were. lol.
Thanks
Stuart.
Very helpful article.
I am trying to see the actual spread applied on each of the trades! I have realized that on a standard account, you end up paying up to 40% of your profit in the spreads. Even on ECN account, when you add the commission and the spread, you pay more than 20% of your profits. Brokers really fleece when they just state that spreads are 'floating'. On XAUUSD, they can float from as low as 9 to as high as 25!
I'm wildly apologising, but read below:
1. Any broker has a marketing department, which advertises the company's services, including through the lowest possible spreads. Don't confuse advertising with the real state of affairs. A marketer has one useful function for the public - to draw your attention; they are not responsible for quality.
2. Spread as a difference between buyers' and sellers' sentiments strongly depends on market liquidity. Liquidity, in turn, changes overnight, and depending on the state of the market. I saw usdjpy standing still for half a year in 2014, and the spread there was quite wide. You couldn't trade at all - price wasn't moving well and the spread was 2-3 times higher than in 2012-13. And then towards the end of the year an unstoppable trend started, liquidity was abundant, the market was roaring! Spread sometimes reached 1-2 pips on 3 digits (usdjpy). As for the time of day, Americans have the most money (USA is the financial centre of the planet). Also, the general liquidity of Europe overlaps with the American session. Therefore, at this time spreads are low, liquidity is high, everyone plays with excitement, the market is mobile. If you trade intraday, choose the American session only.
3. The market spread at one and the same moment of time for one and the same instrument is not the same! The more volume you buy or sell at the same time, the worse price you get. There is such a concept as a price stack. Usually, the larger the volume, the higher the price difference between them. And the smallest volume is traded next to each other. This trifle is displayed in ticks, which the author analysed so scrupulously for some reason. But this trifle is not the market itself. That is why large investment funds do not buy the whole volume in one deal. For a big fish to enter the market, it is necessary to work, and usually not one day. The largest players start to buy the asset in small amounts from those who trade close to each other, gaining a position sequentially. And they also have to exit sequentially. And if they are on fire, there is a collapse or a sharp rise due to a quick exit at any acceptable prices. So the big players often have to pay more in market costs. So they always play on a week to quarter scale.
And they pay $200 for an article like this ? Very controversial philosophy.
I and a number of signals - different. Based on the fact that we buy at the ask price, at the time of purchase we are interested only in this price. At closing it is actually a sell transaction, so we are interested only in the bid price. It does not matter what prices were, what spreads. If the price is good, we should trade in the appropriate direction.
Example: Usually in Rollover spreads are very wide and many pairs are flat. At one point you see that the Ask price is very much below the formed corridor. We buy knowing that the bid price will return to the top of the corridor when the spreads recover. And at the moment of buying we are not interested in Bid price at all.
You will see similar strategies in the signals service, where trading is carried out from 23 to 1 am. By the way, they are among the most stable. And even the increased spread does not prevent to earn steadily.
This is how the statement that it is not necessary to trade on the increased spread is crossed out in practice.
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New article Bid/Ask spread analysis in MetaTrader 5 has been published:
An indicator to report your brokers Bid/Ask spread levels. Now we can use MT5s tick data to analyze what the historic true average Bid/Ask spread actually have recently been. You shouldn't need to look at the current spread because that is available if you show both bid and ask price lines.
Looking at these charts, you can see that this broker says that most of the spreads are 5 points.
If that was the case then it should cost you 1 pip for the round trip of opening and closing a trade.
So, for a trade with a 1/1 reward risk ratio with a Stop Loss of 10pips and Take Profit of 10pips, it should cost you 10% of your risk/stake.
But, the actual average spreads, the red line, versus the brokers documented spread, (black dashed line) are mostly twice as large as the declared spread as confirmed by the data window below. Using the earlier example with the same SL & TP, the cost to you is normally at least 2pips or 20%.
Author: Paul Kelly