Choice of a reliable business partner
Broker is, in addition to trader himself, the other party, that can affect trader’s success. The money is transferred specifically to broker’s account and the trader gets to exchange market through broker’s network. The technical aspect of the trading is strongly dependent on broker’s servers. It is clear, that using a good and proven strategy with unreliable broker will not bring the expected result. Many beginners understand the importance of broker choice only after the investment is lost. 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 would be natural 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 only waste trader’s time. I myself experienced a broker, who slowed the order execution speed as I started to profit “too fast” from broker’s standpoint. Bucket shop brokers usually change their tone, when client reports a problem or request 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 trading desk (market maker, bucket shop) wins always when trader looses, and, therefore looses when trader wins. This is due to broker’s trading desk acting as trader’s “Forex market”, always taking a position against trader’s order. So 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 hugely increase the spread, in order for trader to loose.
STP (Straight Through Processing), also know as DMA (Direct Market Access), broker acts according to the definition – as a portal 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/an commissions. Unlike the previous example of fraudlent market makers, STP/DMA brokers benefit from trader’s successful trading career, getting profit from spread of each opened/closed order for years to come. Trader actually gets a business partner with exactly same interests.
Many fraudulent bucket shops claim and assure being STP. The truth can be revealed by either trying their live-account or, preferably, by reading users’ reviews before joining and concentrating only on objective and diverse reviews, instead of made up praises. It is also good to keep in mind, that only market makers offer a fixed spread accounts. Real STP brokers have a variable 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 fraudulent brokers and too many beginner traders fall for their promises and learn the hard way.
For trader 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 company Swiss 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 trouble. The options and reliability of money transfers are also an essential criteria. Some brokers process withdrawals for weeks, some require written and mailed requests and some do not intend to permit large sums withdrawals. Broker’s regulation is, to some extent, a guarantee of broker reliability. However, one should consider the difference in credibility between an audited and regulated broker from Europe and one from Malta, Cyprus, Seychelles etc.
The network (liquidity pool) of a STP 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 STP/DMA, its’ technical aspect 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 a email reply, which eventually contained only a copy-paste link to broker’s general terms. In one broker’s live chat service, 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, may be 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 fixed. Based on those experiences, the quality of customer support has been an important criteria for choosing a broker. The answers to each and every question should come promptly and informatively. The fastest way to evaluate the difference between brokers is to try their chat services.
Many website and forums with broker reviews could be found on the internet. It is good to have 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 read reviews. Overall, it all took too much from learning and trading time. 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 and 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 translated their sites to various languages to attract and acquire the capital of naive beginners.
The better options
Widely known and respected professional STP-brokers are, for instance, Saxo Bank, LMAX, ATC Brokers and LondonCapitalGroup. Those are brokers of high quality standard (and large liquidity), which concentrate on 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 opening an account and complex/expensive money transfer option. I have heard, that some top end brokers prioritize and treat their clients according to their capital and trading volume. This is, of course, quite usual in other industries as well: the custom, which makes the company large amount of money becomes entitled to V.I.P. treatment. It is worth mentioning, that also some of the “not suggested” STP 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 broker Trading Point started, like the ones before, to interfere with my trading platform (slippage and stop hunting), I found two new alternative to choose from: UpFX and FinFx. Both had good review and both happen to be not regulated. First one had a reasonable website, good trading terms and fast replies to emails. Their chat service did not work too well, and my biggest concern was their location. My trading capital would have been at the Republic of Seychelles. Based on nearby location (in my home country Finland) and very knowledgeable customer support over chat and phone conversations I ended up choosing FinFx. And luckily so, because few months later UpFX started to get negative feedback and stopped their services altogether. FinFx (from city of Imatra in eastern Finland) had proven to be a great choice. Trading platform and liquidity pool worked well, and also the money transfers and customer suppport, for several years. Some of the official indications of FinFx’s reliability were the AAA rating given by Soliditet CRA, Finland’s Strongest Businesses -certificate and an independent audition by PWC. To me personally, the only negative aspect was a higher spread, especially during evenings, night time and news releases. Consdering all reliable location, general functionality and all the positives above I was gladly paying a higher spread at times, and adapted my (news)trading to that fact. Generally speaking, when trading equity grows and lot size increases, it becomes extremely important for the trader to have trust in trading platform, capital safety, withdrawal process and broker’s contact persons. For quite a while, FinFx was a sure broker suggestion on this site. In early summer of 2015, FinFx sold their brand and customers to BestChoiceFX (BCFX) broker from Cyprus. That was unfortunate, 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 Cyprus Securities and Exchange Commission (CySEC) and their broker activity basically ended.
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 to trade with, back in 2011. After a long research process I ended up with London based Tickmill UK. Tickmill continues the road of the respected ArmadaMarkets broker. In addition to Seychelles, 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 upto 85000£, no matter country of residence. As for Brexit, many (traders) think, that it will not affect the operation of FCA regulated brokers; and the 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 this is due to wider liquidity pool and more 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 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 the mentioned Tickmill UK, do check out the Extra section and join that broker via fx-trading.fi link. By doing so, trader, without loosing 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. The broker, 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. Vast majority of forums’ strategy descriptions are based on MT4 usage. 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 them time and money. There is more 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 later 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. Before, the PIN-code for the card was also sent by post in a separate letter, but nowadays the code 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. However, if trader considers Skrill for its versatile MasterCard and in order to keep the 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 the taxation. It is worth to underline the obvious fact, that every country has 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 investments 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% upto 50k and 32% for above that limit. Expenses, that are directly linked to Forex trading business, like literature, office supplies, PC, internet etc, can be deducted from the taxable amount.
Unlike with 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 proof request, aforementioned report can be printed out and delivered to tax authorities.