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Discussion in 'Forex' started by Zr1Trader, May 14, 2012.

How much are you willing to give up on a percentage basis ...spread cost vs range?

Just for this scenario we will assume 1:1 RR

Lets say you are trading EUR/USD with a spread of 1 pip and no added comish .
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If you target 10 pips then 10% of your profit went to spread.

Aim for 20 pips and 5% went to spread cost

Aim for 30 pips and 3.3% went to spread cost

Aim for 40 pips and 2.5% went to spread cost

Aim for 50 pips and 2% went to spread cost

Aim for 60 pips and 1.6% went to spread cost

Aim for 70 pips and 1.4% went to spread cost

Aim for 80 pips and 1.25% went to spread cost

Aim for 90 pips and 1.1% went to spread cost

Aim for 100 pips and 1% went to spread cost.
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Interested in others goals of where they like to keep their execution costs on a percentage basis in forex?

2. ### Jack_Larkin

I factor the spread into my 'risk' side of the R:R ratio.

Using your numbers (1:1 RR and 10 pip target, and 1 pip total cost): If I was aiming for 10 pips, then my stop would be set to 9 pips so my total risk was 10.

So if you were aiming for 10 pips and your target got hit, 10% of your profit goes to the house (spread)

Correct?

I also calculate spread into my initial risk per trade.... but what percentage of each trade are you willing to give up in execution cost to the house?

I would guess the majority of people don't even figure in execution costs as a percentage of each trade. I would think people would try to keep it under 2.5% or something like that.
For eur/usd that would mean with a 1 pip spread you'd have to aim for 40 pips on avg. to keep your execution cost at 2.5% or below.

Thing is in pairs like usd/cad with larger spreads you'd obviously have to aim for more pips to keep those costs down. Other folks have a "execution cost" figure you like to keep within?

4. ### abattia

Iâd look at this in terms of average trade, by which I mean...
"avg trade" = {what you win (before costs) x probability of winning} - {what you lose (before costs) x probability of losing}

[or
= {what you win (before costs) x # winners/all trades} - {what you lose (before costs) x # losers/all trades}]

And then Iâd compare the above "avg trade" with expected (and realistic!) per trade transaction costs (commission - rebates + slippage) .
Then Iâd assess whether there was enough of a realistic expected profit margin to make it all âworth itââ¦

= = = = = = = = =
Of course, the above assumes that you can model the system mechanically, and so test it against historic data.

5. ### ElectricSavant

What does this have to do with the market? Does the market know and respect your criteria? Have you also done a complete MAE or MFE study to arrive at your criteria?

Do not misunderstand me, I am not a fan of backtesting...but the market you are trading and how it moves could render a sensible strategy such as yours... meaningless.

Typically I have discovered that Retail Spot Forex Traders tolerate higher drawdowns. Even the professionals. I have observed that the industry norm of 15% is 30% in Retail Spot Forex.

ES

P.S. This is a good thread. I have been experimenting with Chandelier Stops and discovered that when I loosened them up I could stay in the trend longer.

6. ### oldtime

for me it depends on size and trading style. anything under 80 pips one way or the other is just noise, but if I was moving big size ...

I also pay commissions

and interest

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