Trading is a business and it's a pretty tough business where you have to use all the means available to your success. In this kind of business, we can't just care about the revenues but we also need
to monitor the effectiveness with which we achieve them. In good times, the efficiency of our individual activities can be overlooked, but when going gets tough, less efficient activities tend to drag down much faster. In this article, let's look at the effectiveness of individual instruments trading. The aim of this article is to show that some instruments are not equal in terms of cost and profit potential. Talking about the cost, we understand the spreads and commissions charged by brokers. Talking about the potential, we understand the daily range that we can turn into profit in case we're in the right market direction. So we will compare the trading costs and the total range of the instrument. We compare 4 relatively popular instruments, such as the EUR/USD currency pair, the Gold, the DAX stock index, and the notorious Bitcoin.
For all instruments, we calculated the average daily range from January 1, 2018 to January 10, 2019 and compared it to the trading costs of our most popular brokers, such as Purple Trading (ECN Account), Admiral Markets, and IC Markets (ECN Account). Total trading costs are as follows:
For Purple Trading ECN, one traded EUR/USD lot costs 1.5 pips, with Admiral Markets 0.6 pips, etc. It is important to note that the amount of trading costs is not necessarily the most important. The trader must also take into account the quality of the filling and possible re-quotes. Purple Trading has come up quite expensive, but it is important to mention that they have a very good technical background and support. These are the qualities for which it is worth paying off. For these reasons, we have a deeper cooperation with Purple Trading.
Let's start with EUR/USD
The average daily range of EUR/USD for the past year is 0.07202 or in other words 72 pips.
- The cost with Purple Trading ECN account is 1.5 pips, which is 2% of the daily range.
- The cost with Admiral Markets is 0.6 pips, which is 0.8% of the daily range.
- The cost with IC Markets ECN account is 0.8 pips, which is 1.11% of the daily range.
What do the above figures really mean? In order to be at least break even, you need to be right in 2.2% of the instrument's daily range, in case of Purple Trading.
The average daily range of Gold for the past year is 12.25 points.
- The cost with Purple Trading ECN account is 0.11 point, which is 0.89% of the daily range.
- The cost with Admiral Markets is 0.24 point, which is 1.96% of the daily range.
- The cost with IC Markets ECN account is 0.08 point, which is 0.65% of the daily range.
The average daily range of DAX for the past year is 170 points. For DAX, the cost of the trade is converted according to the point value since DAX has a different lot sizing with individual brokers.
- The cost with Purple Trading ECN account is 2.1 point, which is 1.23% of the daily range.
- The cost with Admiral Markets is 0.8 points, which is 0.4% of the daily range.
- The cost with IC Markets ECN account is 1 point, which is 0.58% of the daily range.
And lastly, let's have a look at Bitcoin:
The average daily range of Bitcoin between 01 Jan 2018 and 10 Jan 2019 is 680 points.
- The cost with Purple Trading ECN account is 50 points, which is 7.3% of the daily range.
- The cost with Admiral Markets is 38.2 points, which is 5.6% of the daily range.
- The cost with IC Markets ECN account is 18 points, which is 2.6% of the daily range.
There is one thing to mention at Bitcoin. Last year's range is 680 points, but if we take a span over the past 6 months, the full-day range is just half, making it 336 points on average. This tool is still being traded by many traders, even though the costs vs. potential profit is totally disproportional. Considering the range being just half, the entry fee for the trade would be:
- 14,6 % with Purple Trading ECN
- 11,2 % with Admiral Markets Prime
- 5,2 % with IC Markets
This article serves to show that the trader should focus primarily on instruments that offer a good cost to benefit ratio. It is quite common for traders to trade a variety of instruments without even realizing that some instruments outside the majors are far less profitable and, in the case of losing streaks, they cut down from profits far more than their potentially better counterparts.