5 Decimal Places Forex

5 decimal places forex

5-Decimal Pricing Forex Brokers

January 1, 2017 by Adam posted in • No Comments

5-Decimal Pricing Forex Brokers

Forex price quotes are usually listed in decimal places. Prior to 2011, many retail forex brokers listed their forex quotes according to the 4 decimal pricing system.

Stocks priced down to the decimal

So a typical forex quote for the EURUSD would be stated as 1.3245/1.3248. However, a 5-decimal pricing system has been put in place, which serves to cut down the amount that traders pay on spreads.

 

Recommended Forex Brokers that offer 5 Decimal Pricing:

How does this work?

We gave an example of a typical price quote for the EURUSD.

5 decimal places forex

This assumes that the 1 Euro is able to purchase 1.32480 USD from the broker.

However, the introduction of a fifth decimal place further fractionates the last 0 digit. So if the last digit were to be displayed as 0.0, the introduction of the 5th decimal place will make this 0.1 all the way up to 0.9.

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However, it is not possible to display two decimal points in a price quote as 1.32480.1 or 1.32480.6. So the display creates the 5th decimal place as a superscript, written like this:

EURUSD = 1.32450/1.32486 where 0 and 6 are fractions of the 4th decimal place.

As a result of this fractionation, brokers can then provide tighter spreads, provide pricing which is more accurate and also give traders a trading environment with better liquidity and execution with reduced slippage.

The change in pricing also affects the JPY currency pairs, which have traditionally been quoted to 2 decimal places.

5 decimal places forex

These are now quoted to 3 decimal places. Trading platforms started to see the changes as from 2011, and right now, there is hardly any broker which does not provide 5 decimal pricing.

Despite the fact that several 5 decimal forex brokers have cropped up in the last three years, many beginner traders still do not understand how to use the platforms provided by these 5 decimal forex brokers.

They get confused by these decimal places, especially as regards the effect of the change to stops, profit targets, entries and exits.

5 digit vs 4 digit broker

Many expert advisor programmers also have the same problem, as the changes have altered the way forex robots interpret parameters. It is for this category of market participants that the explanation of how to utilize pricing by the 5 decimal forex brokers is prepared.

Understanding the 5 Decimal Forex Brokers Pricing

a)    4 Decimal Pricing:

This is how the pricing system for 4 decimal forex brokers works.

These platforms also provide 2 decimal pricing for all JPY pairs/crosses. If for instance, we have the USDJPY quoted at 81.55, and we have the EURUSD quoted at 1.3369, how would the stops and target areas be calculated?

If the trader wants to have a 50 pip stop loss and an 80 pip profit target the stop would be set at 81.55 – 0.50, = 81.05. The take profit would be set at 81.55 + 0.80 = 82.35.

The decimal pricing system also affects how a trader’s profit or loss is displayed.

Instaforex 5 Decimal Places

If the price moves to 81.84, the price has moved into profit territory by 29 pips, and this would be shown on the platform’s terminal window as 29. If the price fell to 81.25, then the price has moved by -30 and this is what would be shown on the platform.

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For illustrative purposes, the spread calculation has been omitted.

Taking the EURUSD as an example, if you sell the pair at 1.3369, with a 70 pip stop loss and a take profit target of 200 pips, the stop  would be set at 1.3369 – 0.0070, which is at 1.3299.

Likewise, the take profit would be set at 1.3369 + 0.0200, which is at 1.3569. The display of profit or loss would be shown as either -50 if the price falls to 1.3319, + 100 if price rises to 1.3469.

 

b)    Pricing by 5 Decimal Forex Brokers

The previous examples were easy as most of you may be familiar with 4 decimal pricing.

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But what happens when the price is further decimalized by 5 decimal forex brokers to create a 5 decimal pricing format? This is how it will play out.

Stops and Targets

Take for instance, the GBPJPY would be quoted at 145.352. A short order on the GBPJPY at that price with a 60 pip stop loss and a 180 pip profit target would mean that prices for each would be listed at 145.352 + 0.600 (145.952), and at 145.352 – 1.800 (143.552).

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This is because in the 5 decimal pricing system, we do not start counting the pips from the last decimal because this is a fraction of the 2nd decimal place (Yen crosses) or of the 4th decimal place in other currencies.

Taking the AUDUSD as an example, a long order at 0.84258, with a 155 pip stop loss and a take profit target of 310 pips, would lead us to set the price in the order box as 0.84258 – 0.0155 (0.82708) and take profit at 0.84258 + 0.0310 (0.87358).

Profit and Loss Display

If profit and loss is shown as points (as opposed to amount of dollars in unrealized profits/loss) and the price had fallen by 149 pips, it will be shown as -1490 (which is 149 and a fraction of 0).

If the price moved up by 185 pips, it will be shown as 1850 points (which is 185 and a fraction of 0 added to it).

5 Decimal FX Brokers

There are several 5 decimal FX brokers in the market, and you will be able to see a comparison table which shows their various features.

5 decimal places forex

But the most important metrics you should be conversant with are:

a)    How to interpret the 5 decimal pricing system

b)    How to set stop losses and take profit targets

c)     How to interpret the unrealized profits and losses as they are displayed on the terminal window of your platform.

 

Also if you are looking for forex brokers then we have a comprehensive list here.

More About Adam

Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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