Question about Fixed Spread VS Commission

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TheRumpledOne
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Postby TheRumpledOne » Fri Oct 27, 2006 7:45 am

4x=0 wrote:99.22 / 21 = 4.7 (commission round trip)

17.66/21 = .840952381 (p/l per pip)

4.7/.840952381 = 5.58 aka 6 pips.

6 commision pips + 1 real pip = 7 pip spread.


Your math is using apples and oranges.

Do the math for a 1 lot trade and see if you get a 7 pip spread.

SIMPLE.

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Postby TheRumpledOne » Fri Oct 27, 2006 7:47 am

Furthermore, you don't add in the 1 pip spread.

The spread is what the fixed spread brokers have you believing.

The price is the price PERIOD.

What you buy/sell at is the price you trade at.

The spread doesn't matter.

The spread could be 100 pips and if you make 3 pips on the trade, that is what you made... 3 pips.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!

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Postby 4x=0 » Tue Oct 31, 2006 2:30 am

After learning more about the EFX Navimagator, I believe the commission amount that I was using in my math was an ACCUMULATED commission of the last 2, 3 or 4 trades, I don't know. I'm not positive about this, but I'm pretty sure that would atleast partialy explain the large commission.

But you would still add the 1 pip spread though..

TheRumpledOne wrote:The spread could be 100 pips and if you make 3 pips on the trade, that is what you made... 3 pips.


And how many more pips would you need to gain to "BREAK EVEN"? To get you to the price you were supposedly at when you entered the trade? The answer is 97. Why is this? Because of the spread.

I know price is the price, but what the brokers are having us do is enter the trade at ONE price, and exit the trade at DIFFERENT price. It may not be fixed, but it still has to be paid for. So I was adding that 1 pip that CERTAINLY must be payed to break even -- to the commission, which is seperate.

IT'S NOT THAT SIMPLE, BUT IT'S TRUE

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Postby Luke » Tue Oct 31, 2006 4:19 am

Commissions are $5 per $100,000 (10 lots) each way.
That equals $10 round trip.
$10 = 1 pip in EUR/USD pair.
It's a little more because you are buying Euros so $12.72.
It's still about 1 pip, add that to the 1 pip spread and your total cost for the transaction is ~2 pips. I don't think it is that bad but commissions can add up. You can also trade with one tenth of a lot size (.1 or $1000) with your live account so that you can work out the order details with only risking a few pennies.

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Postby TheRumpledOne » Tue Oct 31, 2006 6:53 am

You guys STILL DON'T GET IT!

If I buy AAPL stock at $81.00 and sell it at $82.00, I make $1.00.

It doesn't matter if the bid was $80.99 or $79.99 at the time I bought it.

I dont' add in the spread. I made $1.00 and I subtract the commission to get my net profit before taxes.


IT IS THE SAME WITH FOREX WHEN YOU DON'T PAY A FIXED SPREAD BROKER!!


IT IS THAT SIMPLE!!
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby 4x=0 » Tue Oct 31, 2006 10:27 pm

Just now I wanted to short the loonie. After looking at the attached image, can anybody tell me why I would not want to do that? Believe it or not, this is not a rhetorical question.



Lets go a little further and say that I bought 1 lot, and then immediatly sold 1 lot. Under the theory of spreads don't exist, one would maintain there would be a zero net gain and a zero net loss.

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Postby jhtumblin » Wed Nov 01, 2006 5:27 pm

You are still missing the point. Go short the same lot under your "fixed spread broker" right now at the same time you are looking at this. You will NOT get the stated 4 or 5 pip spread they want you to believe.

On the other hand, if you want to short this, use a LIMIT order and place it inside the bid/ask. When you make a stock trade during afterhours, do you place a market order? No way! you would get molested on the execution.

As of writing this @ 12:17 pm EST, the actual spread on USD/CAD is 1 pip. The FOREX market is extremely liquid, but a broker can't make the spread be a fixed amount all the time and still make money. Brokers don't create volatility, wait for a more volatile time to trade if you're worried about the temporary spread. Otherwise just place a limit order and you are good to go.

P.S. The other reason you didn't want to short USDCAD is because it went up about 100 pips and you would be in the hole, so this worked out for the best :)

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Postby 4x=0 » Wed Nov 01, 2006 6:59 pm

jhtumblin wrote:You are still missing the point. Go short the same lot under your "fixed spread broker" right now at the same time you are looking at this. You will NOT get the stated 4 or 5 pip spread they want you to believe.


Your point is that fixed spread brokers are not fixed, but they just want you to believe that. That is very very strange.

When you make a stock trade during afterhours, do you place a market order? No way! you would get molested on the execution.


This is not desirable.


P.S. The other reason you didn't want to short USDCAD is because it went up about 100 pips and you would be in the hole, so this worked out for the best :)


Thank the blessed heavens I was still missing the point!

TRUTH HURTS

PS. I still believe A) everyone must pay the spread, and in the above image I would have paid 10 pips to break even, because of spread. B) Fixed spread brokers are indeed fixed, and that is why they claim such, until I read clear factual evidence indicating otherwise.

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Postby jhtumblin » Wed Nov 01, 2006 9:07 pm

I still believe A) everyone must pay the spread, and in the above image I would have paid 10 pips to break even, because of spread. B) Fixed spread brokers are indeed fixed, and that is why they claim such, until I read clear factual evidence indicating otherwise.


Well we can't explain it any more than we already have. You don't need to read evidence indicating otherwise, just do this: Go open a demo account with a fixed spread brokerage that uses actual market data in the demo. When you place a trade, place the same trade with the same order type in both demo accounts and then exit them whenever you normally would. After a couple of trades you will see how much more it is costing you to trade the "fixed spread" vs a commission brokerage.

If you still think you are getting a better deal with fixed spread after that, open a real account with them and good luck to you.

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Postby 4x=0 » Wed Nov 01, 2006 10:38 pm

I still believe A) everyone must pay the spread, and in the above image I would have paid 10 pips to break even, because of spread. B) Fixed spread brokers are indeed fixed, and that is why they claim such, until I read clear factual evidence indicating otherwise.

jhtumblin wrote:Well we can't explain it any more than we already have.


That is only because of your own inadequacy my friend. All you say is hearsay. "GO TRY THIS" does not explain anything.

However I will modify my statement that with the above image I would have paid 10 pips to break even, because if the spread would have narrowed while in the trade, to 0 for example, the only fee would have been commission. This would not be true with a fixed spread broker, because their spreads are fixed. Hence the name, fixed-spread broker.

jhtumblin wrote:Well we can't explain it


Who is this WE? Are you with someone that I know?

Correct me if I am wrong, but I believe it is everyman for himself and you have proven NOTHING my friend. But don't give up. I will gladly accept an explination based on facts and reason. Not capital letters and do-it-yourself experiements. Until then, I can only know what I have seen from my own experience with fixed and non fixed spread brokers.

:-({|=

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