“Trading is not easy; however, becoming a trader is very easy. There are no obstacles whatsoever to anyone opening a trading account. I have long said that if trading were easy, big money would make the entry requirements so steep that it would be impossible for an average person to trade. Big money might do this through an education and exam system that would weed out most people. Even today, brokers have to take a Series 7 exam; however, passing this exam has nothing to do with success in the market.” – Dr. Van K. Tharp
Many brokers’ platforms now use the 5th decimal place. Trading with a 5th decimal point can reduce the difference between the buy and sell price of a currency pair. The fifth decimal trading allows brokers to provide better execution and liquidity for clients. Some brokers are thus able to allow tighter spreads, more accurate pricing execution and better liquidity with less slippage. The tendency towards tighter spreads and better execution has been happening for some years. This has been made possible by improved prices that brokers are now receiving from their liquidity providers and should enable them in the nearest future to reduce their normal spreads further in some pairs to their client base. This kind of improvement to pricing policy enables the concerned brokers to quote all currency pairs to an additional decimal place. It means that all JPY pairs will be quoted to 3 decimals and all other pairs to 5 decimals.
A number of brokers first introduced these changes to demo accounts to familiarize interested people with this feature, and later put the feature for their live clients.
I’ve noted that some beginner traders are often confused by these decimal places, especially if they want to set their stop and take profit, or modify them later. What makes the matter worse for newbies is that some brokers still use 4 decimals. What would a beginner do when she/he is practicing with a broker using 4 decimal places and later changes to a broker using 5 decimal places? Some brokers even retain 4 decimals to certain pairs and crosses while featuring 5 decimals for major pairs and crosses – all in the same platform.
If you’re a beginner facing this kind of challenge, this article, which was prepared with trading examples from Metatrader, is for you. It shows how I personally handle this matter. For the sake of simplicity, spreads aren’t included in the examples below.
4 Decimal Places: For platforms (and pairs and crosses) using 4 decimals, all JPY pairs/crosses are quoted to 2 decimals; other pairs/crosses are quoted to 4 decimals. For example, the USDJPY would be quoted at 80.25, and the AUDUSD would be quoted at 1.0569. If I wanted to buy the USDJPY at that 80.25, having a stop of 50 pip and a target of 80 pips in mind, I’d set my stop at 79.75 and take profit at 81.05. If I wanted to modify the stop and the target after the trade was placed, I’d just type 50 in the stop loss area and 80 in the take profit area. If my profit/loss was shown as points, and the price had moved up by 20 pips, it would simply be shown as 20. If the price moved down by 20 pips, it would simply be shown as -20.
For the AUDUSD example, if I sold the pair short at 1.0569, having a stop of 100 pips and a target of 200 pips in mind, I’d set my stop at 1.0669 and take profit at 1.0369. If I wanted to modify the stop and the target after the trade was placed, I’d just type 100 in the stop loss area and 200 in the take profit area. If my profit/loss was shown as points, and the price fell by 75 pips, it would simply be shown as 75. If the price rose by 60 pips, it would simply be shown as -60.
5 Decimal Places: For platforms (and pairs and crosses) using 5 decimals, all JPY pairs/crosses are quoted to 3 decimal places; other pairs/crosses are quoted to 5 decimals. For example, the EURJPY would be quoted at 115.292, and the USDCHF would be quoted at 0.84226. If I wanted to sell the EURJPY at that 115.292, having a stop of 70 pip and a target of 180 pips in mind, I’d set my stop at 115.992 and take profit at 113.492. If I wanted to modify the stop and the target after the trade was placed, I’d just type 700 in the stop loss area and 1800 in the take profit area. If my profit/loss was shown as points, and the price had moved down by 120 pips, it might simply be shown as 1200. If the price moved up by 55 pips, it might simply be shown as -554.
For the USDCHF example, if I bought the pair at 0.84226, having a stop of 185 pips and a target of 350 pips in mind, I’d set my stop at 0.82376 and take profit at 0.87726. If I wanted to modify the stop and target after the trade was placed, I’d just type 1850 in the stop loss area and 3500 in the take profit area. If my profit/loss was shown as points, and the price rose by 244 pips, it might simply be shown as 2449. If the price fell by 109 pips, it might be shown as -1096. When the profit/loss is being displayed on a platform using 5 decimals, the last digit is almost negligible.
The use of 4 decimal places is obviously easier, but it doesn’t matter much whether or not you’re trading on a platform that uses 4 decimals, provided you know how to set your stops and targets safely (without making costly mistakes). There are many trading platforms out there with different features (essentially leading to the same end), and every platform has dies-hard fans and opposition. The truth is, you should always practice hard to see for yourself and maybe you’d discover something that’ll help you greatly in your journey as a trader. Trading is a profession that’s definitely worth checking out.
I hope this helps a little.
Most newbies underestimate the importance of serious and protracted training by attending one-day seminars or trying to go thru short-cuts. Going back to Dr. Van’s quote above, it’s very important that you embrace trading principles that ensure your long-term survival in the markets. A good knowledge of how a trading platform functions is of little help if you can’t survive the market fluctuations as a trader. When trading, don’t get greedy: you just want to reduce your risk. If you survive long enough, you’ll eventually make money.
NB: Please watch out for my coming articles with these titles: ‘Resist the Lure of High Risk – Part 3,’ ‘Carrying Out Stealth Raids in Weak and Strong Markets,’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Trading for a Livelihood – One of the Best Jobs in the World,’ ‘If I Were a Trading Neophyte…,’ ‘Developing the Right Attitude towards Losses – Part 3,’ ‘The True Holy Grail – The Long Sought for,’ ‘Achieve Success through Sensible Risk-to-reward Ratio (An Interview with a Trading Enthusiast),’ ‘ Clarifying Some Issues – Part 5,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘A CHF Breakout Strategy,’ ‘Overview of My Signals Strategies,’ ‘Is It Realistic to Give Guarantees in Trading?’ ‘The Proper Way of Using the Bollinger Bands – Learn the Truth from the Horse’s Mouth,’ ‘Monthly Trading Report (June 2011),’ etc.
I end this article with one more quote from Dr. Van Tharp:
“Most people spend many years learning their profession, but anyone can start trading today. Can you imagine walking into a hospital and saying, “I think I’ll try some brain surgery today.”? It just won’t work. Yet you can open an online brokerage account, transfer in $100,000 and, suddenly, you are a trader. Trading with no preparation, however, could be as fatal to your account as performing brain surgery would be on that unlucky patient in the hospital.”
Your questions and opinions are highly welcome.
With best regards,
Forex Signals Strategist, Funds Manager &Coach
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