broker spread question for risk management-did a lot of googling but need confusion cleared by experts

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hi, as i said, this is the most basic question but I am getting different answers from various sources, so just trying to get final confirmation from experts, would appreciate it. 

To avoid getting errors due to spread, and getting stopped out early or lesser profits, this is what I am understanding from risk management perspective. (as applied to US market brokers)

1) When you set stop loss, is this correct-

What shows in MT4 terminal is bid price..example

USD CAD price in terminal window shows 106.685

If broker spread is 25 pips..means

106.685 + 0.025 = 106.71 is ASK price.

So to setup SL/TP

When you buy,  

**For profit target =you look at ASK price + TP*Point

**For SL= you look at Bid price-SL *Point

When you sell, 

**For profit target =you look at Bid price - TP*Point

**For SL= you look at Ask price+ SL *Point


2) If I m setting up Trailing stoploss (to lock max profits) ..and still not getting tripped up by spreads

For buy trades, TrailingSL=Ask-(TrailingStopPips*Point)

For Sell Trades, TrailingSL=Bid+(TrailingStopPips*Point)


Is this correct or am I getting it wrong ? 

 
tomgivens2015:

There is no absolute answer to your questions as it depends on what you are trying to achieve.

If you have your SL and TP at 20pips, then the 20 pips should be distanced from the trade entry price, ie Ask for a Buy, Bid for a Sell.

In your example with a 2 pip spread

When you buy,  

**For profit target =you look at ASK price + TP*Point

**For SL= you look at Bid price-SL *Point

your achieved profit will be 20 pips (excluding any slippage factor), but because a Buy is closed at bid, the price must move 20 pips+spread, so 22 pips.

your achieved loss will be 22 pips (excluding any slippage factor), but because a Buy is closed at bid, the price must only move 20 pips.

If I m setting up Trailing stoploss (to lock max profits) ..and still not getting tripped up by spreads

For buy trades, TrailingSL=Ask-(TrailingStopPips*Point)

For Sell Trades, TrailingSL=Bid+(TrailingStopPips*Point)

This will be the opposite way round, a Buy trade will use Bid price to trail and Sell will use Ask.


You mention MT4 in your post. I don't believe that your questions are specific to MT4 so I will leave your topic here.

However, should you ever have any questions specific to MT4, please post in the correct section.

Link Here

 
tomgivens2015:

1) If broker spread is 25 pips..means

2) If I m setting up Trailing stoploss (to lock max profits) ..and still not getting tripped up by spreads

For buy trades, TrailingSL=Ask-(TrailingStopPips*Point)

For Sell Trades, TrailingSL=Bid+(TrailingStopPips*Point)


Is this correct or am I getting it wrong ? 

For #1, I think it's correct but you may be trying to say the spread is 25points or 2.5pips. This is based on your calculation. Tho, some traders use pips and points interchangeably, but 1pip=10points.

For#2, You may double check it with other traders, but I think the correct formulas are... (I may be wrong)

For buy trades, TrailingSL=Bid-(TrailingStopPips*Point)

For Sell Trades, TrailingSL=Ask+(TrailingStopPips*Point)

 
tomgivens2015: 1) When you set stop loss, is this correct- What shows in MT4 terminal is bid price.. 
For buy trades, TrailingSL=Ask-(TrailingStopPips*Point)

For Sell Trades, TrailingSL=Bid+(TrailingStopPips*Point)
  1. The SL shows the SL price.
  2. The chart show Bid prices.
  3. You buy at the Ask and sell at the Bid.

    1. Your buy order's TP/SL (or Sell Stop's/Sell Limit's entry) are triggered when the Bid / OrderClosePrice reaches it. Using the Ask±n, makes your SL shorter and your TP longer, by the spread. Don't you want the specified amount used in either direction?

    2. Your sell order's TP/SL (or Buy Stop's/Buy Limit's entry) will be triggered when the Ask / OrderClosePrice reaches it. To trigger at a specific Bid price, add the average spread.
                MODE_SPREAD (Paul) - MQL4 programming forum - Page 3 #25

    3. The charts show Bid prices only. Turn on the Ask line to see how big the spread is (Tools → Options (control+O) → charts → Show ask line.)

 

Thanks everyone for responding. It kind of answered but also confused topic a bit. Can we confirm below ?

I understand that we need to distance SL & TP from trade entry price, i.e. Ask for Buy & Bid for Sell

1) If we calculate spread using below formula, let's assume we get 25.

int Spread=MarketInfo(Symbol(),MODE_SPREAD);

When spread is 25, that means spread in pips=2.5, not 2, correct ? 


2)  As per @Keith Watford, "because a Buy is closed at bid, the price must move 20 pips+spread" 

Ask=Bid+spread so this formula is correct -

When you buy,  

**For profit target = ASK price + TP*Point (going in direction of trade)

**For SL=  ASK price-SL *Point (going in opposite direction of trade)

When you sell,  

**For profit target = BID price - TP*Point  (going in direction of trade)

**For SL= BID price + SL *Point (going in opposite direction of trade)

3) Notice that Sell trade does not count spread, does that mean brokers don't charge spread on sell trades (they still make money on other end when someone buys it) ?

4) For Trailing SL, we follow direction of our trade in same way in #2 above

For Buy, Trailing SL = ASK price-SL *Point (going in opposite direction of trade)

For Sell, Trailing SL = BID price + SL *Point (going in opposite direction of trade)

5) As per @William Roader, "Ask / OrderClosePrice reaches it" . But that confused me with what @Keith Watford said in #2 above. so which one is it ?

Can you please confirm each points above ? 

Greatly appreciate it. 


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