Forex spread cost calculator.
This calculator below you can use to calculate the spread cost and as a spread betting leverage calculator:
First, let us explain why the bid-ask spread is a transaction cost. Investors always buy at the ask and sell at the bid, but consistently a bit higher and always sell slightly lower than the actual price. Since asking prices consistently exceed bid prices, investors “lose” this difference. The spread is the transaction cost. Spreads are trading costs and brokers’ profits.
Forex Spread Cost Calculator is a tool designed to help traders quantify the cost associated with the bid-ask spread of a currency pair and how it can influence their yearly performance. The spread, the difference between the bid and ask prices, is a crucial factor in determining transaction costs in forex trading. Here’s how to calculate the impact of spreads on a trading account:
- Calculate Yearly Spread Cost:a. How many trades per day?
- Let’s call this number T (for example, if you trade five times a day, then T = 5).
b. Your number of trades per year is:
- To determine the total trades in a year, multiply the number of trades per day (T) by the number of trading days in a year (usually around 252). Don’t forget, for each trade, you have both an entry and an exit, so multiply the result by 2.
- Annual Trading Volume in Dollars:a. What is your leverage?
- Let’s call this number L (for instance, if your leverage is 1:100, then L = 100).
b. Account equity:
- This is how much money you have in your trading account. Let’s call this E.
Using the above values, your trading volume per trade can be found by multiplying your equity (E) by your leverage (L). To get the annual trading volume, multiply this result by the total number of trades a year.
- Spread Costs:a. Current spread (past) in pips:
- Let’s call this Sold.
b. New spread value in pips:
- Let’s call this Snew.
To find the spread cost for each trade, subtract the new spread value from the current spread and then multiply by the trading volume for each trade.
- Yearly Return Impact:a. Yearly past return in percents:
- Let’s say this is R% (for instance, if your return was 10%, then R = 10).
First, calculate your total annual savings due to the reduced spread to find out how the new spread could impact your returns. This is found by multiplying the spread cost per trade by the total number of trades in a year.
b. Your Return on equity with new spreads:
- Add your annual spread cost savings percentage to your past yearly return (R).
Conclusion: By understanding the impact of spread costs on your trading, you can make more informed decisions. A Forex Spread Cost Calculator helps you see these costs numerically, offering insights into how spread changes might affect your profitability.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
