Forex pairs - a question

[Paul-B]

Hi folks. Just started spreadbetting, short-term trading forex rolling daily with a live account on thursday, and I noticed that there appears to be an anomaly. Basically the spread on EUR/GBP pair is 2 points, but on the reverse pair GBP/EUR it's 5 points. Does anyone know why this would be, surely if I take a view of the direction the GBP is going to move against the EUR it is going to pay me to just use the EUR/GBP pair?

Any comments would be welcome.

 

[Paul-B]

Work it out in % terms - probably a fair bit closer than you think. That's where you're going wrong.

Thanks. Will do.

Interestingly enough I put this question to my broker, and received the following reply:

"Thanks for your email. I try and keep my spreads comparative to our competition and on the basis of your email I have this morning reduced the spread on GBPEUR to 4 points. Historically the spread on GBPEUR has always been slightly wider than EURGBP so you are absolutely correct in your assumption that you are better playing the EURGBP.

It works in the opposite of GBPEUR. i.e. if you wanted to buy GBP and were trading EURGBP then you would SELL EUROS. The daily movement is slightly less percentage wise on EURGBP as opposed to GBPEUR but only because it is a slightly smaller number to begin with.

I am always happy to act on constructive suggestions and thanks to your email this morning I have been able to do that. I would like to bring in my spreads as much as I can and it is always a fine line between what I get quoted in the underlying market and what I can afford to quote my clients. The important thing to remember is most clients want to trade for directional purposes rather than scalping ones and therefore the important thing for them is to get the deal done, some spreadbetting companies highlight very tight headline spreads but the deal rejection and requote is much higher than it need be. I feel it is more important to find the correct balance between quoting a price as tightly as I can whilst allowing the client a fast speed of execution and high success rate of getting deals done. It would be easy for me to quote everything 1 pip wide and put clients on manual acceptance so I could check that the only deals I accept are ones that suit me or my book but that wouldn’t do very much for either our reputation as a company or building a happy client base."

I think, basically, that he's saying the same as you are.

You live and learn!

 

[AcuteAngle]

Which firm is that out of interest? He almost sounds like a one-man band

 

[Paul-B]

Which firm is that out of interest? He almost sounds like a one-man band

ETX - Rob Woolfe

 

[Paul-B]

A spread of 3 pips in gbp/eur would be, at current spot levels, pretty much consistent with 2 pips in eurgbp fyi

Yep, I'm starting to understand it all a bit more now. Thanks for the info.

 

[lucas_king]

Hi folks. Just started spreadbetting, short-term trading forex rolling daily with a live account on thursday, and I noticed that there appears to be an anomaly. Basically the spread on EUR/GBP pair is 2 points, but on the reverse pair GBP/EUR it's 5 points. Does anyone know why this would be, surely if I take a view of the direction the GBP is going to move against the EUR it is going to pay me to just use the EUR/GBP pair?

Any comments would be welcome.

It’s probably because of the exposure/tradable units in the underlying market. For example, if you’re trading asset A with 10 times the tradable units compared to asset B, it stands to reason that the spread on asset A could be 10 times the spread on asset B and still be proportionally the same. Think in terms on percentage moves – although A has 10 times the spread of B, the same % movement would be needed on each to cover the spread.

Think GBP/YPY and conversely JPY/GBP.

Hoping the above makes sense?!