Indicators have been treating the types of trading in various items, including day trading. One of the most common questions that you can ask to yourself: what currency pair should be chosen for intraday trading? In this article I will try to describe how important it is to spread when choosing a pair of currencies as appropriate when the goal is to engage in day trading.
Overall the spread is an important factor in calculating the benefits and costs of operations. The influence is very easy to see, simply compare the spread and range of movement of a currency pair in one day, so, we will get the percentage that the spread and clearly see what I’m talking about. Of course, this does not mean a currency pair with higher spreads is not suitable for day trading or is less suitable than other currency pairs with a lower spread. Let us look to develop this approach.
Spread ratio / torque range
To understand the influence of peers spread and what can be more appropriate for day trading, you may need a base, this base is given by the ratio spread / midrange torque. This enables us to evaluate the spread versus maximum pips that could get in a day of trading. To see this relationship going to use the average daily range of motion to 12 days, although the same test can be done for any period you choose. Also keep in mind that the spread may vary from one broker to another, so you should do the math with your broker offering spreads.
I think the approach is clear that the spread has an important role in day trading and must be taken into account when choosing a currency pair to trade. In this sense, the pair EUR / USD and GBP / USD are those with the best ratio spread / profit potential, although these data will be updated with new data daily midrange periodically.
The currency management model incorporates fixed fraction of the risk directly in the calculation of the size of operations. Thus, the used number of lots will be based on the risk of the operation. This risk is a percentage (fraction) of the net. The percentage will be fixed always and thus the risk will remain proportional as the net increase or fall itself.
To use the fixed fraction model, therefore risk trading operation must be defined. However, the risk of a trading operation is the capital of the trader that would lose if the operation had just as losing trade. Typically, this quantity is taken from the application of each stops operation. Failure to use protective stop levels, the risk of the operation may be the Drawdown maximum or the average loss per trade recorded in the trading history.
It helps in preserving the trading capital for as long as possible. As the size of operations is proportional to the net balance of the account, it is theoretically impossible to utter ruin. Let’s get the benefits of compounding: Increasing the size of the operation after profit, monetary management model allows the growth of the account. Similarly, the size of the positions decreases after posting losses, which can protect the account balance of excessive damage during periods of losses. The size of the loss is directly proportional to the percentage risky.
If the account is small, the minimum deal size and increasing minimum set by the broker or dealer with which it can not operate to allow an increase or reduction in the size of operations properly to keep risky and fixed percentage.
Also due to the minimal increase, the monetary management model of fixed fraction yields results in different levels of unequal size for operation. This will make small accounts that can take longer to move from one level to another, for example, if you have 1000 USD and operas with 0.1 lots (10%), to reach the next level (0.2 lots), it will require a profit of 100% (up to 2000 USD) to accumulate, while for the next level (0.3 lots), it will have a accumulated profit of 50% (from 2000 to 3000 USD).
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The result of nonfarm payrolls can serve as an example to explain an operational binary option. Imagine the result of non-farm payrolls for the month was 150,000 and an investor believes that this trend will continue. So its operations would purchase a binary option, because it thinks the figure will be above the 150,000 at 8.30 am (EDT) Friday.
If otherwise the investor believes that the results of this Friday will be below 150,000, the operation will be selling the binary option.
At 8.30 am on Friday when the Labor Department revealed U.S. data on nonfarm payrolls binary option close to 100 or 0 depending on whether or not your prediction was correct, i.e., the option will close in 100 if the figure has been above the 150,000 or close to 0 if you have fallen short.
If the option closes at 100, the profit is the difference between the opening price of the position and the closing price (100), multiplied by the number of binary options you purchased and the contract value per point.
If the option close to 0, the losses result from the difference between the opening price and the closing (0), multiplied by the number of binary options purchased and the contract value per point.
Keep in mind that this example does not take into account the fees payable to the supplier. There are other economic indicators that make your investment safe.
The above comments do not constitute investment advice and IG therefore accepts no responsibility for any use that may be made of them. The CFDs are a supplemented product, acquire a higher level of risk and can make some losses that go beyond your primary deposit. Make sure you completely understand the risk concerned and continually monitor your investment.