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Tuesday, 10 July 2012

4 Digit Forex Brokers

Until recently, all Forex quotes had 4 digits. It was easy to use and simple to understand because the last digit also signified how much a pip (also known as a point) was worth. But recently, many brokers have turned to 5 digit Forex quotes with the last digit signifying a partial pip. This trend seems to be catching on but there are still brokers that only use 4 digit quotes.

The question is, what are the pros and cons of working with a 5 digit Forex broker? What should you do?

Pros:
  • A 5 digit quote is more accurate. There is more room to play as the prices can be broken down further. You can choose to play with half-pips or any other partial amount and this does allow traders, especially scalpers, more room to play with.
  • Big traders can enjoy more favorable spreads. Now that partial pips have come into play, big traders can get a discount from 2 pips on a major currency pair to a 1.8 pip spread. This may not seem like much, but when you're trading big sums, this can translate to thousands of dollars in savings on spreads. Not such a bad thing at all.
Cons:
  • Traders who are used to 4 digits quotes may find the new quotes a big confusing. It does take some time to get used to and you may make a few mistakes in the first few trades. However, I doubt that it will take you too long to get the hang of things as the general rules of trading have not changed one bit.
  • If you're using an EA (Expert Advisor) program or an automatic trading robot and your broker has decided to switch to 5 digit quotes, you may have trouble working with your software for much longer. Therefore, it is important to check with the developer of your system whether they have an update to use with 5 digit brokers and to test out your EA or robot extensively with the new quotes.
It seems to me that there is no point in resisting the tide as it seems that 5 digit quotes are where the Forex market is going. You can trade in pretty much the same way with the new quotes and still thrive.

See also: Free Forex Report to get a free forex ebook.
Good luck!

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