Is Trading high spread pairs worthwhile for short term trading?

Is trading high spread pairs worthwhile for short term trading? Or no success is possible in the long run doing so.

higher spreads mean you will have a hard time scalping 3 or 5 pips here and there. because of the number of pips it has to move in your favor it is best suited to longer term trades like 40-100 pips a trade.

Yes! absolutely.

Just try it with a small account and see for yourself. You do need a fair swing to make pips, but usually the high spread pairs swing quite well. Have a look at EUR/JPY

I suppose higher spread will mean less other scalpers to compete with you, which will mean more and better trading opportunities. so in the end the higher spread may not impede you to successfully scalp.


I'm just speculating here, though, so don't take my word for it.

Its all relative. Compare the magnitude of the price action to the spread in question and the spread may not be that high, after all. XAU is a good example: 36-pip spread but it can move hundreds of pips in minutes...

Same with Gbp/Jpy, spread is usually 6-8 pips (GFT spreads) but usually moves hundreds of pips per day.

Go to Oanda calculators.. and see the costs and effect on your profitability. Why trade with one hand tied behind your back?

scalping to me is taking quick profits and keeping your losses small. so trading a pair with a huge spread can be potentially expensive if you are into scalping.

below 20 pips i call scalping. your stop should be similar to that. anything more is a trade. so yes you can be in pairs with healthy moves in a matter of minutes, but then your risk increases because you have to increase your stop. 30, 50 , 80...much too large a risk. for me anyway.

it all depends on the risk you want to take per trade. just make sure one trade doesn't wipe you out.

Jhig is absolutely correct. But you better be on your toes with this one, because it moves quickly. GBP/JPY is my number one choice, with EUR/JPY being a close second. But my short term trading is typically something less than an hour, so that may be different than other's definition of 'short term'....

Trade them on weekly TF.

Pound/yen and euro/yen can be effectively scalped, but you need the right tools and hours and hours of practice before you want to risk any real money. When trading these pairs it's a good idea, during the U.S. session to be watching a dow futures chart or at the very least know what it's doing. Many times when the dow makes a volatile move, the yen pairs react. You will see sometimes the pound/yen drop close to a 100 pips within minutes. Within that drop are several 10-20 pip scalping opportunities..But watching slow moving candle charts won't do the trick.

Ok here is as simple as I can get it. If every trade you take you go for 20 pips which is way more than scalpers go for, you have to make 15% on every trade just to break even if you are only using a 3 pip spread. A pro told me recently.............."Its mathematicaly impossible to be a scalper in forex and win." Id agree. I will say the exception would be banks that can buy and sell on the bid "all" the time. Thats another world we may never see. I personally think that th way stock spreads came down to 1 or 2 pennys on actively traded stocks, mostforex pairs will eventually trade with 1/2 pip spreads. Its absolute thievery what they get away with now IMHO.

Marc

Well lets compare EUR/USD(1-2pip spread) and a high spread pair like AUD/NZD(4-10 pip)

Ask yourself if you could be trading successfully the EUR/USD with 6-10 pip spread. I think you would agree that many trading systems will fail miserably, especially intraday ones.

There are a few other factors to consider:

1. How volatile is the high spread pair vs the low spread pair. In the above scenario the AUD/NZD moves like 40 pips a day AND you pay a 4-10 pip spread. While the Euro is moving 100-150 pips a day AND you only pay 1-2 pip spread. It's a no brainer which ones you should be trading.

2. Other factor to consider is if you are on an ECN and can get hit on the bid/offer with your limit orders, then that reduces the spread cost slightly, as you can get your entry and exit out of the market with limit orders filled at your prices. But then depending on your strategy, using only limit orders can mean you miss out on some opportunities.

3. You also need to consider what happens when your stop gets hit on those high spread pairs. You are paying a huge spread when your 'market order' stop loss order hits the market.

Isn't it all simple percentages? scalping 10 PIPS with a 1 PIP spread is much the same as scalping 20 with 2 PIPS, you would also risk half as much per pip.

I suppose if your system states that your profit target will be 10x whatever the spread is.

So lets say 1pip EUR/USD you use 10 pips target
With AUD/NZD with 4 pips spread you use 40 pip target.

Only problem is catching a 40 pip move on AUD/NZD means catching the day's highs and lows and who is good enough to do that?

With EUR/USD and a 10 pip target, you only need to catch a small blip in the price as it can move 100-150 pips/day

Good discussion. My experience is that a great many traders underestimate the long term effect of the spread. Overcoming –EV of 5% upward is daunting; you'd need to be a very proficient trader, to make trading such a pair worthwhile.

Coincidentally, the indy I just released here expresses both the spread, and also the spread as a % of the average daily range, across all currency pairs offered by your br0ker.

IMO there's one further consideration to what I've just said: correlation. If you look at the attached chart (generated by the indy here), you can see the red line (GBP across-the-board strength) and white line (USD across-the-board strength) following each other downward in the last few days. Due to this correlation, GBPUSD is going through a (relatively) 'sideways' period.

Compare this to while AUD (green line) and JPY (indigo line), which are converging sharply, denoting strength in AUD and weakness in JPY. So there's an argument that AUDJPY would have been a better pair to trade over the last 2-3 days than GBPUSD - i.e. exhibiting stronger, cleaner trends - despite having a higher spread. Compare the GBPUSD and AUDJPY price charts for yourself.

But everything else being equal, I definitely agree that spread is massively significant, and it's effect likely underestimated.

I once traded a pair that had 16 pips spread..Man it took 2 hrs for it to break even!

Ofcourse you can trade such pairs, but why to use them if you have ones that have low spread and such high liquidity such as EUR/USD and GBP/USD.

Hanover, because the last sentence of your post is absolutely correct, it will be a matter of time before every pair traded will trade in decimals and under 1 pip. Once one big player does it, and corners the market for around 6 months till everyone wakes up and makes 10 or 20 billion doing so, you will see the bigger brokers like fxcm and others be forced to all fall in line. If most liquid stocks trade with a penny spread, why wont we see currency pairs do the same? Remember before the internet it was considered normal to pick up your phone and pay your broker 50 or 100 dollars to place a trade for you? Today it is completely unacceptable. Same concept. In fact what if currency futures became much more competitive also they took away a lot of the speculators money from the spot market? This is a house of cards waiting to fall. The fleecing of the retail consumer is going to come to an end. I just hope my bankroll can survive until it does. But I admit Im spoiled, I am used to trading stocks and paying a one penny spread. Scalpers in this gane of forex must get chewed up even with a reasonable 2-3 pip spread. Thats why I will never scalp. -)

With the pairs that have high spreads I usually set a larger take profit ratio, enter/exit during NY/London crossover, and make sure rolls are in your direction. I been trading EUR/TRY lately, not as a scalp, but more of a carry trade.

If you can trade, then you can trade anything. My favorite exotics are USD/MXN (peso) and USD/ZAR (South African rand).

Your real question is if it is okay to find pairs with volatility since the majors are piling up on top of themselves. But, like I said, if you know how to trade, what is the big deal? Go where the money is, or sit and watch the paint dry. Up to you