Stocks & Commodities V. 30:11 (30-35): Decimal Places In Forex by Solomon Chuama

Decimal Places In Forex by Solomon Chuama

Understanding how and where to apply the decimal places of currency pairs and crosses can make a significant difference in your trading.

When trading forex, it is important to understand the differences between trading platforms and how to place trades, and how important it is to understand the concept of decimal places in those platforms. Some concepts like the stop-loss and take-profits are explained in your trading platform’s user manual. However, the concept of decimal places is not always clearly defined.

Nowadays, many brokers’ platforms are moving from the fourth decimal place to the fifth decimal place pricing in the forex market. This development has brought conflicting issues among novice traders, especially when they want to modify their stops and targets in trade placement. The situation becomes even more complex when a broker sets certain currency pairs and crosses to four and five decimal places in the same trading platform.

There are some advantages to pricing to the fifth decimal place in the forex market, in that:

1. Trading to the fifth decimal place can reduce the difference between the ask and bid price of a currency pair

2. Trading to the fifth decimal place provides better liquidity and execution for clients

3. Brokers can allow for tighter spreads and more accurate price execution.

The following are examples of computations from trading platforms:

COMPUTATION OF FOURTH DECIMAL PLACE In this trading platform, we have the following:

1. All yen (JPY) pairs and crosses are quoted to two decimal places. For instance, the US dollar (USD)/JPY is bought at 90.25, so: • Stop-loss is 30 pips • Take profit is 100 pips

2. All other pairs and crosses are quoted to four decimal places (Figure 1).