Minimum Targets Based on Pip Spread

K

kidPWRtrader

Hi all, I was wondering what some intraday forex traders here use as a minimum target in relation to the spread on the pairs they trade.

I am coming from index futures where NQ and ES usually have a spread of 1 tick. Obviously, this is not the case with Forex.

So, if I am using ALL limit or stop limit orders for my system, as a proportion of the spread, is there a baseline rule someone could recommend?

As an example, lets take EURUSD with an average pip spread of 2. Comparing this to ES, where my minimum target is 1.5 pts (1.5 pts / .25 spread = 6), i would multiply the spread by 6 and so given an average pip spread of 2, I would be shooting for a 12 pip minimum target on the Euro.

I have traded Forex on tradestation for some time on simulation (near a year), but have yet to experience the real thing.

I am ok with dipping my toes in with very small risk and taking some live trades to test it, but before I get a new account with any broker I would just like some input on the matter.

Thank you very much for your time.



-Kid
 
I'm not aware of there being an accepted 'rule' regarding the ratio of spread and minimum target. I've seen some discuss the spread vs volatility ratio as a measure of which pairs are best for scalping.

- I don't see any reason why you couldn't attempt to apply the same strategy for trading 6 ES ticks, to 6 EUR/USD pips.

Also, you can certainly do much better than a spread of 2 pips for EUR/USD. For examle IB and Oanda would both give a spread of around 1 pip or less - which if you were aplying your ratio concept would make a big difference to the target.

Otherwise, I would simply look at the average range of the movements at the time scale you're interested in and determine if the strategy is sound. The stop loss level is likely a much more important factor than the spread alone. For example, the pair GBP/JPY has a spread of around 3 pips - but if your stop was 50 pips and your target was 100 pips then the proportion of the stop coming from the spread is not much different to trading EUR/USD with the same stop and target - but the volatility and range of the GBP/JPY pair is much greater.
 
Quote from BigFunky:

I'm not aware of there being an accepted 'rule' regarding the ratio of spread and minimum target. I've seen some discuss the spread vs volatility ratio as a measure of which pairs are best for scalping.

- I don't see any reason why you couldn't attempt to apply the same strategy for trading 6 ES ticks, to 6 EUR/USD pips.

Also, you can certainly do much better than a spread of 2 pips for EUR/USD. For examle IB and Oanda would both give a spread of around 1 pip or less - which if you were aplying your ratio concept would make a big difference to the target.

Otherwise, I would simply look at the average range of the movements at the time scale you're interested in and determine if the strategy is sound. The stop loss level is likely a much more important factor than the spread alone. For example, the pair GBP/JPY has a spread of around 3 pips - but if your stop was 50 pips and your target was 100 pips then the proportion of the stop coming from the spread is not much different to trading EUR/USD with the same stop and target - but the volatility and range of the GBP/JPY pair is much greater.
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Thank you for the suggestion, i have been doing some shopping around. Indeed, there are better options including dukascopy, IB, MBTrading.

GAIN is the counterparty to all TS forex trades and theres lots of hidden costs not reflected in the commission.

The only thing i liked about GAIN is they limit the max spread to 3x the size of the typical spread, although I was told by a friend who has traded in forex they are not likely to hold themselves to that...

Thanks again.
 
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