Understanding the Importance of 5-digit Pricing

Understanding the Importance of “5-digit pricing” may be familiar to seasoned scalpers and traders. However, if you’re new to the forex market and aren’t familiar with the phrase “5-digit pricing,” don’t worry; this article will define the term and explain why it’s preferable to the previous system.

What is a 5-digit broker?

A forex broker with a 5-digit quotation following the comma is said to be “5-digit.” For instance, buying euros with US dollars is done at a specific exchange rate, such as 1.1280, 1.1290, etc. So, that’s what a quotation from a forex broker looks like. In this scenario, the numeral after the comma refers to the year 1280 or 1290, as it comes after the 1. All these digits add up to a mere four when added together.

• Profit or loss is dependent on how much the ticket price changes. For instance, if you were to purchase euros with US dollars at the 1.1280 level and then sell them at the 1.1290 level, you would have made a 10-point profit.
• And so, how about the illustration of dealing with a five-digit broker? Five-digit brokers can give more precise pricing by adding a number after the comma. In the preceding example, if you opened a long position at 1.12800 and closed it at 1.12900, you would have made a total profit of 100 points.
• Is it true that brokers with five-digit spreads help traders earn more money than they should? Things could be more straightforward.
• An important fact to remember is that the variation in nominal quotations between 5-digit and 4-digit brokers is only one of “name,” not actual value. A pipette, or fractional pip, is the fifth and smallest number in a five-digit price quotation. In a 5-digit platform, a profit of 100 points translates to 10.0 pips.

Advantages of 5-digit Pricing

• Upon learning the truth, you may find yourself asking new questions. For example, why is the 5-digit price favored if the only difference is the label? Conversely, is it wiser to use 4-digit pricing to make more transactions?
• And this is the crucial distinction. Five digits allow for a more precise representation of price changes. On a 4-digit trading platform, a gain of 10 pips from 1.1280 to 1.1290 will always be reported. Therefore, in 5-digit exchanges, the spread isn’t necessarily 10.0 pips. The ability to show changes down to the fifth decimal place means that even the tiniest amounts may be shown with great clarity.
• Brokers with five-digit displays may show 1.12801, 1.12802, 1.12803,…, 1.12809, whereas the four-digit broker only shows 1.1280. The long position is initiated at 1.12803 and closed at 1.12908. Your gain, in that case, would amount to 105 points or 10.5 pips.
• Use a four-digit price as a benchmark, please. For example, with a pip value of $10 and trading with a standard lot, your maximum profit would be $100. A total of $105 may be made at 5-digit brokers.
• A $5 increase in profit may not seem like much to traders who are in it for the long haul and want to make a killing. Yet the distinction is crucial for the success of short-term traders who aim for more modest gains. Little shifts in profit here and there might add up over time to make a significant impact.
• That’s why day traders and scalpers pay special attention to any deviations in the quotes provided by their forex broker. But, there are additional benefits that all traders may enjoy while working with a 5-digit broker. I’ll list a few of them below:

1. Spreads Could Be Lower

Spreads at 5-digit brokers are narrower than on 4-digit platforms for the reasons listed above. For example, if you want to purchase some currency, the bid and ask prices on a 4-digit platform are 1.1277 and 1.1280, respectively. Therefore, a 3-pip spread will apply to your position. Yet, in 5-digit brokering, the bid price is 1.12778, and the asking price is 1.12804. In that case, your spread is merely 2.6 pips at that price.

Spreads across Exness, IC Markets, FXTM, and ThinkMarkets

EUR/USD

0.0 0.1 0.1 1.8\sGBP/USD

0.0 0.1 0.2 3.0\sUSD/JPY 0.0 0.0 0.3 2.0

2. Catching Up with the Latest Development

Foreign exchange brokers, like traders, must constantly monitor the market for new information. The reason for the 5-digit quotation is the ever-increasing foreign exchange market size. In the same way that a 4-digit quotation is an improvement over a 3-digit one, the large volume of transactions in the foreign exchange market necessitates that brokers employ 5-digit price quotes.

3. Faster Order Execution

As a result of being able to provide more recent price changes, broker systems with five figures are often quick to respond. The procedure, including order execution, may be quicker than orders placed with 4-digit brokers.

4. More Transparent

The greater precision of 5-digit pricing allows for more cost clarity. A 4-digit broker will not alert you to the possibility of a profit of more than ten pips in the scenario above. The foreign exchange market’s pricing quotes typically use five digits. Where will the extra half pip go if your target profit is 10.5 pips?

5. More Effective Trailing Stop

When trading on a 4-digit platform, a trailing stop set at 15 points will only be activated if the price moves by precisely 15 pips. Hence, the trailing stop will become active if the open buy is at 1.1280 and the price rises to 1.1295. The last two digits after the comma are included in the 15-point trailing stop calculation for 5-digit brokers. It makes no difference if the other performs little more than a petty tittle-tattle. In this case, a purchase order issued at 1.12800 would activate the trailing stop if the price increased to 1.12815. However, keep in mind that this one benefit might be a disadvantage if you trade in unstable markets.

Final Words

• Being the pinnacle of the most recent innovations in the foreign exchange business, 5-digit quotations are inarguable. Brokers that still only support 4-digit platforms need to catch up with the times. However, since the more costly 5-digit platforms are out of reach for many smaller and less seasoned forex brokers, those who cannot supply 5-digit quotations are typically looked down upon. Therefore, the 4-digit platform is preferable since it is cheaper and obsolete.
• Compared to a 4-digit quotation, a 5-digit price has several advantages. First, scalpers may benefit from the increased efficiency and openness of the process. As a bonus, the increased precision offered by 5-digit brokers means that short-term traders may make more money.
• But, they also need modifications, most notably to the take profit and stop loss figures. For example, if you want to protect your investment by placing a stop 20 pips below the purchase price of 1.12800, you will calculate this by taking the open price and deducting 200 points (20.0 pips). Thus, a better place to stop loss would be 1.12600 (1.12800 minus 200 points) rather than 1.12780. (1.12800 minus 20 points).
• Those who utilize forex trading robots should pay attention to whether or not the software supports 5-digit pricing. The robot’s reaction and performance on the 5-digit platform should be optimized without human changes. Preset with 5-digit pricing or universally applicable to both price quotations is your best choice if you want to keep the system’s default settings. No matter how promising an automatic trading system may seem, it would help if you always put it through its paces on a practice account first.