Choice of a reliable business partner
Broker can heavily affect trader’s success. The money is transferred specifically to broker’s account and the trader gets to fx market through broker’s network. The technical aspect of trading is strongly dependent on broker’s servers. It is clear, that using a proven strategy with unreliable broker will not bring the expected result. Many beginners understand the importance of broker choice only after the loss of investment. It makes sense to choose a reliable business partner already for demo-trading and so, to familiarize oneself with trading environment and customer support. Later on, it is convenient to proceed with real money trading on live-account. As stated before, many brokers change their trading conditions for live accounts. Demo-trading with them will actually waste trader’s time. I myself experienced a broker, who slowed the order execution speed when I started to profit “too fast” from their standpoint. Bucket shop brokers usually change their tone, when client reports a problem or requests a larger withdrawal, and they may even freeze/close the account altogether. Important information about brokers’ operation principles and the criteria for choosing one:
Broker with dealing desk (market maker, bucket shop) wins always when trader loses, and, therefore loses when trader wins. This is due to broker’s dealing desk acting as trader’s “Forex market”, always taking a position against trader’s order. When trader buys 0.01 lot, trading desk sells that 0.01. Trader does not get to a real Forex market and the broker is controlling everything, and of course, profiting also from the spread. Those fraudulent brokers can, from my experience, systematically freeze the trading platform, add a delay or massively increase the spread, to make winning trader lose.
NDD broker, per definition, acts just as a hub between trader and Forex market. Broker does not, in any way, interfere with trader’s orders. These brokers earn they money only from spread or/and commissions. Unlike the previous example of fraudulent market makers, NDD brokers benefit from trader’s successful trading career, getting profit from each opened/closed order for years to come. Trader actually gets a business partner with the same interests. Terms used for NDD brokers are STP (Straight Through Processing) and DMA (Direct Market Access). Those brokers have agreements with large liquidity providers (banks, broker networks) and their revenue model is based on spread. NDD brokers with ECN (Electronic Communications Network), on the other hand, get the liquidity from so-called worldwide trading network and their revenue model is based on commission, not spread. Both NDD models are valid and functional, some brokers actually incorporate both DMA and ECN. At this point, the most important is to understand the difference between Dealing Desk and No Dealing Desk!
Many fraudulent bucket shops claim and assure of being NDD and DMA/ECN. The truth is revealed by either trying their live-account or, preferably in advance, by reading users’ reviews and concentrating on objective/diverse ones, instead of made up praises. It is good to keep in mind, that only market makers offer fixed spread accounts. Real NDD brokers have a floating spread, which fluctuates based on the liquidity network or liquidity pool. Usually market makers’ sites contain promises of free money, bonuses and such, designed specifically for excited beginners. There are a lot (vast majority) of these “brokers” and too many beginner traders fall for their promises, learning the hard way.
To even consider a broker, it should have a “clean” website, containing precise company information and a visiting address. One “Swiss” broker assured on their website and chat service, that they are situated near capital’s airport and that they are renting a whole floor in a business building. They, however, would not tell their Swiss company registration number. From that business building I found out, that there are no Forex brokers there. In addition to basic company info, reasonable trading terms should also be stated. Upon asking, customer support should be able to tell, for instance, minimal SL-TS-TP-pending order setting. Broker’s possible Euro-account (or other, depending on your country) would save you money and effort. The options and reliability of money transfers are also essential criteria. Some brokers process withdrawals for weeks, some require written and mailed requests and some do not intend to pay out large withdrawals at all. Broker’s regulation is, to some extent, a guarantee of broker reliability. However, one should consider the difference in credibility between a credibly regulated broker from Europe and one from Malta, Cyprus, Russia etc.
The network (liquidity pool) of NDD broker and the location of its servers determine the quality of order execution. Usually, the execution speed should be between 0 and 2 seconds. Some brokers have it as slow as 10-30 seconds. During that period price may have changed drastically. That being said, while broker can be a true regulated NDD DMA/ECN, its’ technical side may not function as desired. Same goes for the quality of customer support.
The professionalism of customer support is extremely important, being also an indicator for broker’s reliability. In case of less professional brokers it took several days for me to receive an email reply, which eventually contained only a copy-paste link to broker’s general terms. In one broker’s live chat, customer support “specialist” replied to my question “Where are your mt4-servers situated?” exactly like this: “they are somewhere in the internet”. From another broker I once asked “When will your moneybookers transfer system be back online?”, chat support replied: “Don’t know, maybe never”. Although those types of conversations do amuse and entertain the trader, too much valuable time ends up being spent on these “professionals”, and the issues never seem to get resolved. Based on those experiences, for me, the quality of customer support has been an important criterion for choosing a broker. The answer to each and every question should come promptly and informatively. The fastest way to evaluate the difference between brokers is to try their live chat services.
There are numerous websites and forums with broker reviews on the internet. It is good to keep a critical, evaluative approach – not making impulsive decisions based on one exciting “five star” review. Basic assumption should be, that the reviews, for and against, could be falsified and paid for. Even on the well-established forums and websites trader should look for precise and practical trading examples, and always evaluate the neutral and negative feedback. Through my trading career, I have used several brokers’ live accounts and tried dozens of demo accounts. There have been plenty of more and less helpful chat conversations and an excessive amount of studied reviews. Overall, it all took too much time from learning and trading. From my own experience, and the read opinions of other traders, I can not suggest the following brokers, while some of them may, at first, seem professional: Oanda, FXDD, Plus500, eToro, Forex.com, AvaTrade, FxOpen, Alpari, FXCM, MBTrading, FxPro, Admiral Markets. Also those “smaller scale” market makers from Russia, Estonia, Cyprus, Malta and further South, which advertise “free money”, bonuses, loss insurance and similar “exciting” content. Some of those brokers have even translated their sites to various languages to attract and acquire the capital of naive beginners.
The better options
Widely known and respected professional NDD brokers are, for instance, Saxo Bank, LMAX, ATC Brokers and LondonCapitalGroup. Do visit their websites and notice the similarities in clean, informative, high-end page design. Those are brokers of high quality standard (and large liquidity), which concentrate on the level of their service and good relationship with their professional trading clients. The flip side of the professionalism and reliability is the high requirement for initial investment and trading volume, long process of account opening and a complex/expensive money transfer option. I have heard, that some top-tier brokers prioritize and treat their clients according to their capital and trading volume. This is, of course, quite usual in other industries as well: customer, who makes the company large profit becomes entitled to V.I.P. treatment. It is worth mentioning, that also some of the “not suggested” brokers in previous chapter could treat large investors fair and well, if the trading and withdrawal habits suit them. Overall, broker treatment can be a real issue for the beginners, smaller capital traders and, for instance, scalping and news trading strategies.
Back then, when my Cypriot broker Trading Point started, like the ones before, to interfere with my trading platform (slippage and stop hunting), I started to look for an alternative. Based on location (city of Imatra in homeland Finland) and knowledgeable customer support via chat and phone conversations, I ended up choosing FinFx and it had proven to be a great choice. Trading platform, LMAX liquidity pool, money transfers and customer support functioned perfectly for several years. The only negative aspect was a higher spread during evenings, night time and news releases. Considering all the aforementioned positives, I gladly paid higher spread at times and adapted my (news)trading to that. Generally speaking, when equity grows and lot size increases, it becomes extremely important to have trust in trading platform, capital safety, withdrawal process and broker’s contact persons. For quite a while, FinFx was an obvious broker suggestion on this site. In early summer of 2015, FinFx sold their brand and customer base to BestChoiceFX from Cyprus. Unfortunately, to say the least. It is where the downfall of technical aspect and customer support begun. Towards the end of 2016, BCFX got into major regulatory issues with (not so credible) Cyprus Securities and Exchange Commission (CySEC) and broker activity basically ended there.
Website’s broker suggestion
After a long and successful FinFx trading career the requirements for new broker’s functionality were rather high. I once again got to do a wide research of current brokers’ reviews, trading conditions and customer support quality. The field did change quite a bit since I chose FinFx in 2011. After a long research process I ended up with London based (DMA/ECN) Tickmill UK. Tickmill continues the road of the respected ArmadaMarkets broker. In 2015 they opened a UK branch with office in downtown London, acquiring a tight FCA regulation. In addition to broker’s proper, constantly audited conduct of business (i.e. funds being segregated in London’s Barclays bank) this guarantees protection for trader’s capital up to 85000£, no matter country of residence. As for Brexit, many (traders) think, that it will not affect the operation of FCA regulated brokers; and Great Britain will overall benefit from it. Tickmill UK’s liquidity providers are, among others, SaxoBank and LMAX. Speed and quality of execution have been very good. While news trading, fill has been a notch better than of FinFx back in the day. Probably due to wider liquidity pool and advanced system. Broker advertises their low-cost trading, and rightfully so, in my opinion: Classic account with rather low spread and one of the industry’s lowest spreads on Pro account + 4 (base currency) per round turn commission, which drops to 3.8 for traders joining via fx-trading.fi. To a question about restricted trading styles, broker replied that everything is allowed, i.e. hedging, scalping, news trading. Client Area system does not charge fees for deposits nor withdrawals; my € IBAN transfers (Barclays -> Finnish bank) have been processed smoothly. Customer service via chat and email has been functional and professional, yet not quite as personal, as in the case of FinFx’s Finnish office. Here are some milestones from recent years (found in Tickmill’s news section) giving a general overview of a company.
If, based also on own research, you decide to choose Tickmill UK, do check out the Extra section and join the broker via fx-trading.fi link. By doing so, trader, without losing anything, gets extra content (i.e. modified tools, ready mt4 templates, programs, pdf summaries) and also shows appreciation for the work that was/is being done for this website. Tickmill UK, in turn, as a “thank you” for a new customer, pays the website (from their own money) a fraction (few cents in most cases) based on joined customer’s trade volume. The idea is to cover website maintenance and development with these broker’s bonuses, while keeping own trading funds separate. Notice, that Tickmill UK gives an automatic 5% discount from Pro account’s commissions to traders joined via aforementioned link.
Using the trading platform
MetaTrader4 (MT4) is the most used Forex trading software among regular traders. The vast majority of forums’ strategy descriptions are based on MT4. The platform is free and it gets automatically updated every few months. Newer and a little different MT5 has never got even close to MT4 in terms of popularity. Other trading platforms, like paid ones Ninjatrader, TradeStation, MultiCharts and some web-based applications are used by a relatively small group of professional traders. MT4 is, briefly put, a free, functional, user-friendly and easily customizable choice.
Trading software MT4, downloaded from the broker, acts as a platform for demo as well as live trading. Accounts can be easily switched with login, and so, it is easy to demo-test the strategy or a new trading tool, while already having a live trading account. MT4’s own Help section (F1 key) is itself quite comprehensive, with most of the essential things covered. In addition, here is an illustrated guide, with the registration information being, of course, broker-specific. Although the file is old, all the usage aspects have remained unchanged. Practical things can probably be understood even better with the following, highly informative, video guides. As with the most of Forex content on the web, viewer should “grab” only the actual useful info and ignore questionable broker’s marketing agenda behind those videos. Four Youtube videos shown below have a combined runtime of 35 minutes and are quite beneficial for beginners, saving time and money. There is more info on MT4 in the Advanced section of this site.
Trading capital is transferred to a broker. After a varying delay it becomes visible in MT4 (Trade tab->Balance section) and can be traded. The oldest and the most common transfer options are CreditCard and BankWire. The latter tend to have rather high fees. Nowadays, digital wallet options, like Skrill (previously Moneybookers), are widely used among almost all brokers, except large high-end ones mentioned few paragraphs ago. From my own experience, UK-based and regulated Skrill is the most practical low-fee option, if the direct and free IBAN transfer is not available. With Skrill, IBAN transfer via trader’s own netbank can be made for free and the money is instantly visible in Skrill balance. From there, fast/cheap transfers can be made to the broker and back. Skrill’s advantageous option is a Prepaid Debit MasterCard, which is connected to account’s balance. After being ordered, the card came by post in approximately a week, in my case. The PIN-code for the card is acquired via Skrill control panel when activating a received card. This MasterCard costs 10€ a year and it can be used worldwide, wherever the regular MasterCard is accepted; also for online card-payments. With this card, trader can, for example, pay at a local supermarket or restaurant directly with Skrill-balance, without any fees. Card can be used to withdraw cash at ATMs across the globe, for a fixed 1,80€ fee. For instance, the aforementioned Tickmill UK offers a free and reliable IBAN transfer option, in addition to Skrill. However, if trader considers Skrill for its versatile MasterCard and to keep trading funds separated from own regular money flow – latest Skrill terms and fees should be read and evaluated. They change time to time and might get outdated on this site.
From trader’s perspective, Forex should be approached as any regular business activity. It is also viewed as such in terms of taxation. Every country has, of course, own specific rules for Forex taxation. Traders should get familiar with the legislation of their country of residence before starting any trading activity! This will help to plan the investment correctly, to evaluate the possible net profits and to avoid severe issues with the law. Generally speaking, most countries impose a tax on capital gains. Simply put, capital gain is the profit (growth of original investment) made during a specific time span, usually a calendar year. For instance in Finland, capital gain tax is progressive: 30% up to 30k and 34% for above that limit. Expenses directly linked to Forex trading business, like literature, office supplies, PC, internet etc, can be deducted from the taxable amount.
Unlike regular bank deposits, where banks (at least in Finland) take the tax automatically from client’s profits, in Forex, trader has a responsibility to keep track of own trading and to inform tax authorities every year. This, of course, applies also in the case of broker being from abroad and in case of Skrill account’s and MasterCard’s moneyflow, which does not show in trader’s home country. Forex trading software and broker reports make the bookkeeping easier. MT4 keeps track of all trading activities and the broker itself usually sends daily, monthly and yearly email reports. Those show the deposits, withdrawals, trades and current balance. Upon a possible request for proof, the aforementioned report can be printed out and delivered to tax authorities.