I think this is interesting bit for anybody considering day trading in spot forex not futures.
It makes me want to go to 1hr or bigger timeframes where bigger potential is. Just see below that one transaction a day and you need to make more than 4% of average range of the pair to break even… but there are more transactions a day.
Therefore, some realism needs to be added to our calculation, accounting for the fact that picking the exact high and low is extremely unlikely. Assuming that a trader is unlikely to exit/enter in the top 10% of the average daily range, and is unlikely to exit /enter in the bottom 10% of the average daily range, this means that trader has 80% of the available range available to them. Entering and exiting within this area is more realistic than being able to enter right in the area of a daily high or low.
Using 80% of the average daily range in the calculation provides the following values for the currency pairs. These numbers paint a portrait that the spread is very significant.
EUR/USD
Spread as a percentage of possible (80%) pip potential: 3/81.6= 3.68%
USD/JPY
Spread as a percentage of maximum pip potential: 3/61.6= 4.87%
GBP/USD
Spread as a percentage of possible (80%) pip potential: 4/99.2= 4.03%
EUR/JPY
Spread as a percentage of possible (80%) pip potential: 4/93.6= 4.27%
USD/CAD
Spread as a percentage of possible (80%) pip potential: 4/49.6= 8.06%
USD/CHF
Spread as a percentage of possible (80%) pip potential: 4/75.2= 5.32%
GBP/JPY
Spread as a percentage of possible (80%) pip potential: 6/116= 5.17%
With the exception of the EUR/USD, which is just under, 4%+ of the daily range is eaten up by the spread. In some pairs the spread is a significant portion of the daily range when factoring for the likely possibly that the trader will not be able to accurately pick entries/exits within 10% of the high and low which establish the daily range. (To learn more, see Forex Currencies: The EUR/USD.)