Choosing instruments by the ratio of spread to typical range

[Amanhasnoname]

Picking pairs by popularity or habit ignores what matters for costs. A cleaner measure is the spread divided by the typical short-term range, such as the average five-minute high-low range.

EURUSD might show a spread of 0.3 pips against a range of 5, a ratio of 6 percent. A cross like EURNZD might show a spread of 2.5 pips against a range of 9, a ratio of 28 percent. The first is far cheaper to trade even though the second moves more.

Recalculating the ratio by session shows when each pair makes sense. Many instruments look fine at the London open and terrible at night.

Building a short table of ratios by pair and hour gives a practical guide. Trading only the combinations below a threshold, such as 12 percent, removes the worst cost traps.

The table needs refreshing occasionally, since spreads and volatility drift over time.

What spread-to-range ratios do the favourite pairs show, and do any of them fail the test?