Forex spot trading is like living in the wild west of the USA in the 19th century. There are not many standards as we know them in stocks, options, and futures. There is no central exchange, and trades take place largely with banks, who set their own spreads and price data. If you choose to trade forex, you should really make sure you understand what is going on, because forex education is beyond the scope of our technical support. The best place to learn may be from the broker you are planning to use, because every broker seems to have a different deal. They usually hype that there is no commission, but the spreads they use to take profits from you are not usually cheap. Don’t be fooled when brokers say there is no commission.

In the remainder of this tip we will use the notation for a currency pair of xxx/yyy where xxx is the base currency, and yyy is the quote currency. (There seems to be no standard names for these in the industry). We like to think of xxx as the currency you are buying and selling, and yyy as the currency you are paying in.

For example, consider EUR/USD, which means we are buying and selling Euros, and paying in dollars, thus the quotes represent the amount of dollars required to purchase 1 Euro.

Don’t get confused by terms such as the Euro rate, which usually refers to EUR/USD and the Yen rate which usually refers to USD/JPY.

The following will assist you in determining how to enter costs into NeuroShell.

1. If your brokerage takes Forex orders in unit size (e.g., Interactive Brokers):

Under the “Trading” tab select “Buy a fixed number of units”. (Do NOT select not Buy a fixed number of dollars or Buy as many units as possible with the current account balance as the fixed dollars and account size will not actually be dollars if the YYY is not dollars.) Just put in the number of units where we ask for units. So for instance if you are trading the equivalent of 2 standard lots of 100,000 Euros (i.e. EUR/USD), you would enter 200,000 for units. Where we ask for “point value” we’d want the number of dollars per 1 point change in the price. In the case of Euros, you would want $1 for point value. Therefore, just do not check the box “point values for futures, forex, etc.” and the value of 1 will be assumed. (In releases before 5.3, NeuroShell will not accept a point value of 1).

The pip spread could be entered as “slippage” if your broker charges you that spread both ways (entering and exiting a trade), because NeuroShell assumes slippage both ways. However, it should be entered as a fraction of a price point (i.e., if the spread is 5 pips, enter the fraction of a price point that 5 pips represent), so in the case of Euros, you would enter .0005 for a spread of 5 pips. Many brokers only charge the spread one way, so in that case you should make the slippage half the spread (.00025, which may get rounded in releases before 5.3). As an alternative, you could call the .0005 pip spread an entry commission.

Put the margin in as a percentage (for example 50:1 is 2%).

The example above is pretty clear where the quote currency is dollars. When we are not dealing with xxx.USD, the situation gets a little more complicated. There are two ways to use NeuroShell in this case:

a. If you set the point value to 1, all of the profit/loss results displayed in NeuroShell will actually be in the quote currency even though NeuroShell labels the results with $. For example, NeuroShell showing $100,000 when trading JPY/EUR means 100,000 Euros, not dollars.
b. If you prefer to think of everything in dollars, and don’t mind an approximation of results, then set the point value to the approximate number of dollars per 1 point change in the quote currency. Using JPY/EUR, for example, the approximate EUR to USD exchange rate as of this writing is 1.36, so set the point value to 1.36. Therefore, the result of 100,000 Euros would show up as $136,000 and would really represent dollars (this is approximate since the exchange rate is always varying).

2. If your brokerage takes Forex orders in standard lot sizes:

Under the “Trading” tab select “Buy a fixed number of units.” (Do NOT select not Buy a fixed number of dollars or Buy as many units as possible with the current account balance as the fixed dollars and account size will not actually be dollars if the YYY is not dollars.) Just put in the number of lots where we ask for units. So for instance if you are trading 2 standard lots of 100,000 Euros (i.e. EUR/USD), you would enter 2 for units. Where we ask for “point value” put in the number of units per lot size times the number of dollars per 1 point change in the price. In the case of Euros, you would enter $100,000 for point value.

The spread and margin should be entered as in case 1. above.

With regard to the two different ways of setting point values when the quote currency is not USD, the same logic as 1. above applies, except the point value is multiplied by lot size.

There is more information about trading forex with Interactive Brokers in the section “Tips from NeuroShell Trader Users”. It includes some more advanced ideas about how to enter Forex cost factors.

Actually, for getting good signals it isn’t really important that the exact costs be entered. In fact, when optimizing, we often suggest adding more commission (or slippage) if optimization produces too many trades, and decreasing commission (or slippage) amounts if optimization produces too few trades for your tastes. You can actually add some commission amounts to a forex chart if you want to to adjust trading frequency during optimization. The actual profits may thus be slightly off, but what you are really after if the best trading signals you can get. It is more important that market forecasting models produce good trading signals than that they produce highly precise profit calculations.