New comers questions?

Red Herring

Corporal
Forex traders seldom take delivery of currencies of other products on the trading platform such as gold. The majority of brokers are only set up to put your profits back into your account balance and to transfer those profits to you via bankwire, credit card, or e-currnecies.

If you just want to buy gold, there's no need to go through all the time and effort to learn about trading platforms. Find a reputable bullion dealer and buy direct.



Close.

1. A regulated broker should mention their regulator and registration number on their website.
2. You should visit the regulator and check to see if the broker is still registered with them and if there are any penalties.
3. If there are none, check and see if the regulator has ever hit any company with penalties. A lot of regulators are really just in the business of accepting a fee for a business license and the only penalty they can dish out is to revoke the license or warn of unlicensed companies.

For example, love them or hate them, the NFA can hand out serious penalties for companies that break the rules. The CFTC can fine companies and even file criminal charges.

On the other hand, the IFSC in Belize has issued warnings and revoked a few licenses, but I've never seen them fine a company.
Clear boss. I will remember these basic info.
 

Pharaoh

Colonel
CFD - Contract for difference. Usually refers to non-forex products (commodities like gold, etc.) that are available to trade through your forex broker's platform.
 

Triantus Shango

Sergeant Major
FPA community: now, as always, if i am spouting BS, please do correct me. i am trying to figure this out as much of as is humanly possible, but since i do not have privileged access, i might be wrong in some of my claims. nonetheless, life goes on.

bella1967:

i will address question 1 and 5.

as regards question 1, the brokers who seem to have the deepest liquidity would be the ones who are actually directed connected to Tier 1 banks or prime brokers such as Deutsche, JP Morgan, Citi Group, etc, Tier 2 banks, and institutional ECN venues such as Knight Hotspot FX, Integral, Thomson Reuters FXAll, to name a few.

what follows is not an endorsement or a way of saying that you should trade with them--as always, you should look into it and do your own testing. that being said, the only brokers i know of that meet this criterion are: RJO'Brien (UK), LMAX, ADS Securities, Dukascopy Bank, GAIN Capital GTX, Saxo Bank, Sucden Financial, LCG, ED&F Man Capital Markets, and others (long list, do your research). and of course, there are probably more. i do not know everything after all although i wish. ;-)

one thing to remember is that even though these outfits offer institutional level execution, spreads and commission vary greatly. for instance, i always was under the impression that a prime broker, thus offering institutional level execution would have tighter spreads for similar amounts of volume than your typical retail broker. that turns out not to be true. for instance, SAXO Bank spreads are quite wider on average than some retail brokers. so because it is a bank, or because it is institutional doesn't mean you are getting the best deal. basically, some will mark up the spread and still charge you a bloody commission for each leg of your order!

now, as regards the issue of being regulated, i'd say worry first about finding out with which broker the professionals trade. once you know that, go with that broker if cashflow permits, of course. i'm being a little all-or-nothing here on purpose to impress upon anyone who is reading this and is a newbie that in order to make it in this business, you have brokers who will go after the ignorant and become your major roadblock to success, and you have brokers whose interests are aligned with their clients. that's what i meant.

find the latter brokers, or if not possible in the beginning, find those that will still give you a semi-professional experience and enable you to reach the level where you can start playing for real money (i don't mean real money vs demo money. i mean retail money (small) vs real money (large)).

usually, retail brokers will not facilitate your reaching the professional level--there are exceptions, of course. if you must use a retail broker, then go with the more reputable ones, the ones that will not start cheating you after you've grown your account to USD 50K or 100K. example: imagine that finally you trade more than 1 standard lot at a time, and suddenly the platform starts experiencing all sorts of unusual malfunctions, and whatever you lose because of that, is multi-lot losses, which is more profitable than a couple micro- or mini- lots here and there for the party that's on the other side of your trade. not trying to imply that all retail brokers are gonna cheat you. even though it seems as if the retail industry has changed its practices for the better overall, there still seems that there are plenty of crooks out there, so just be en garde, as the french say.

all this talk about professionals has the following corollary: the pros don't use MT4/5, therefore any outfit that does not offer MT4/5, is a good sign. but it does not follow that because a broker-dealer caved in to popular demand and started offering MT4/5 that that broker-dealer is cheating its customers.

short digression, if i may...

before i forget, the UI (User Interface) of all these platforms is terrible (either designed by colour blind people or someone with no clue whatsoever about user experience (UX). i suspect both unfortunately. one would think that the financial industry has enough cash to hire the best, but apparently not. mind-boggling.) that being said, IMHO only Integral is better from a UI standpoint even though it is an eye sore. the reason i say this is because it gives you a higher level of control over your orders, executions strategies, and more fine grained view of the depth of market (DOM) although not all orders will show on a DOM because traders can enter iceberg or totally hidden orders. nonetheless, based on whatever orders are visible, you can see the total amount of liquidity available at a specific price point as an aggregate of the volume at that particular price point and at better price tiers, and in addition to that, the size of price for the particular price you want to deal at.

speaking of feed, if a broker tells you that your internet connection is too slow and that is why the price feed slows down or even freezes and you are using a T1 line, which is about 1.5Mbps, then they are lying to you. a fractional T1 is all you need to be able to get an executable stream to your PC. fractional means a fraction of the full 1.5Mbps bandwidth.

but nowadays everyone who doesn't live in the middle of nowhere should at minimum have a T1 line connection, so the internet connection bandwidth shouldn't be a problem anymore. to put things in perspective, i had a T1 line 12 years ago when i lived in berkeley. so 13 years later, i think it is reasonable to expect people to have even faster access than T1.

also, let me give you another example: sometimes you will hear customer service reps tell you that because you live so far from the servers, you can and should expect delays in order execution or even requotes. that too is a total lie (assuming you don't live in the middle of australia (then again, maybe ozzies have fiber crossing the desert and connecting the west and east coast, no idea ;-)) or somewhere in the himalayas or some small island nation in the middle of the pacific.) for example, my ex-broker's servers are in california and i live in asia, so basically i am across the ocean. pretty far. the fastest the data can travel between my PC and the order servers is around <300ms (milliseconds), about 1/3rd of a second. bad for HFT (High Frequency Trading) but more than adequate for scalping.

in case someone is wondering how to find that out, one way to test this is to open a terminal window (CLI = Command Line Interface). on Windows XP: click the Start button, select Run... then type in the dialog that appears: cmd and hit enter; a window with a black background should appear; at the prompt just type: ping -t <domain name>, where <domain name> signifies the name of your broker's servers; for example: whatever.blah.fxcm.com or 39493.fx.live.gain.com, something like that.

the broker should provide you with those names upon request. if they refuse, time to move on.

on a Unix OS: Mac OSX open a terminal window by navigating to the Launchpad and clicking the Terminal icon, or if you are using an older version of Mac OSX, navigate to the Applications-->Utilities folfer where you will find the Terminal app icon; double click and type at the prompt: ping <domain name>, where <domain name> is the same stuff as explained before. on Linux, start the terminal window, and type in the same command as in Mac OSX. after entering the command, you'll see lines with a bunch of numbers start to scroll across the terminal window. pay attention to the 'time=' column as it indicates the time it took for the data to go from your PC to the destination and back to your PC. this is also called 'latency'. you can stop the scrolling by pressing CTRL-C and the last line will tell you the min, max, and average time it took to connect with your broker's server.

ok, back to your questions...

the quality of service you get is also a question of size or volume generated monthly. traders who do so, usually get access to better execution. retail traders, typically low volume generating, usually are provided a lower execution quality and, depending on volume, the orders are kept and matched internally on the broker-dealer's Electronic Crossing Network, meaning they never hit the real market outside of the broker-dealer's playpen (with all the potential for abuse and conflict of interest this can entail, but not necessarily if one client's orders can be matched against another client's orders. but if internal liquidity is too low, that is to say, an order can't be matched against another client's, and the order is too small to send out into the interbank market, and there are not enough internal orders at that price to aggregate so as to be able to send a big aggregate order out, then the broker either will take the other side of the trade and assume the risk or just delay the order's execution until a match can be found.) this means that even though you might be using the same broker-dealer that institutional level players use, you still might not get the same benefits--case in point: GAIN Capital offers GTX for institutional trading (eligible market participants meaning that in general you need more than USD 100K to be allowed to open an account, but usually it's USD 500K and in some cases USD 1M) and FOREX.com (also GAIN), which is marketed as a market maker model, for retail trading. i mention this because it is a clear cut example that's easy to understand. MBTrading, FXCM, FXDD, FxPro, and many others would be additional examples.

so we see that many broker-dealers can use a hybrid model where after analysis of the clients trading patterns they group them into different risk and performance categories. depending on which group you belong to, you either get to trade against the market maker arm of your broker-dealer (known as B-book trading), other clients on the ECN (here 'C' should read 'Crossing' not 'Communication' as in the other meaning of ECN), or the 'real' market where your order can get matched against other orders coming in from other larger ECNs, Tier 2 and Tier 1 entities (known as A-book trading, which is also what they mean when they say that they are your counterpart in all trades but immediately turn around and offload the trade to another market participant so as to not incur any risk exposure, which they would have if they held the trade and thus traded against you because if you made the right move and are winning, they are losing, and that's the broker-dealers' risk when acting as a market maker (regarding the definition of market maker, it is different whether we are talking about the institutional or retail market).

so, potentially, all so-called ECNs are market makers as long as they act in the capacity of principal on your behalf. they have to in order for you to trade because you do not have access to the credit lines, that is, the relationships with prime brokerages and banks, but they do.

also, you need to be aware that retail broker-dealers do not get direct access to the interbank market as a FX bank such as Deutsche or JP Morgan does. they also have to go through a gatekeeper, usually a prime broker, but mostly a prime of prime (when they can't secure the necessary credit lines from a prime broker; for more details, click here: http://www.forexpeacearmy.com/forex-forum/beginners-bootcamp/23654-basic-intro-info-beginners-refresher-intermediate-level-traders-3.html). what this means is that now you also have to worry about what happens upstream of your broker-dealer. that is to say, since some broker-dealers do not get direct trading relationships with banks and other major FX entities, some of them will just pass your orders through directly to their prime broker or prime of prime broker and have the nerve to call this STP or true ECN or true DMA!

what happens next in some cases is that the broker sitting above your broker-dealer is now quite happy to engage in market making and fleece the small fry IF the IT system used where all the orders rest is under the control of the prime (remember that in that case the retail broker-dealer computer systems just register your order and immediately pass it along to the prime's systems who will manage the stop loss/take profit/limit/market/stop orders coming in from the retail clients. then of course, anything goes at that point.

therefore when choosing a broker-dealer, you should also try to find out who they use as their prime, who they use as a clearing house, and then find out what kind of business model (agency or market maker model) that prime implements to handle retail orders coming in from the retail broker-dealers that have established an account with the prime because otherwise, even though the retail broker-dealer might not engage in marker making and therefore claim to be a true ECN or STP, it still won't matter because if the prime engages in market making against you, then the problem was just displaced one level up. (STP by the way is a meaningless, grossly misused term which originally referred to the backoffice trade management/accounting process and has nothing to do with ECN or DMA, that is to say, a market maker could have an STP process and still not mean your order goes right through to the market without intervention).

now, let's take a look at what to keep in mind when selecting a broker-dealer:


1- learn how to trade well; seems obvious, but if you can't, then it really does not make sense to worry about market maker vs ECN and so on because if you are not good at what you do, then you will lose money no matter what. as an analogy, i can give you the best sports car in the world (the bugatti veyron ;-)) and you may still be unable to race a lamborghini veneno. (ok, maybe not the best analogy, just cut/paste the names of your favorite cars ;-) )

but, should you become really good at your craft, here is what will happen.

if you are using a broker-dealer that doesn't cheat you, then you will only see your profits grow (under the stated assumption that you know what you are doing, of course).

if you are dealing with a market maker who eventually gets tired of you winning and eventually assigns your account to a different group whose orders will be executed on an ECN (internal or otherwise), you will also see your profits grow.

and if the latter does not happen, but instead you start experiencing an increase in stale prices in the feed, or even unexplainable platform freezes, feed freezes/throttling, abnormal price spikes taking out your stops or sudden and unannounced margin re-adjustment to a higher margin requirement, which essentially could force an automatic close of all your open orders, then at that point you know you have the wrong broker-dealer and all you have to do is withdraw all your money, close the account and move on to a better broker.

and finally, let me say it one more time: if you are losing more than you win, no matter what model the broker-dealer is using, the end result for you will be the same, and that is: you will go broke anyway.

PLEASE REMEMBER than none of the above weird platform behavior should happen--if it happens and customer support is giving you some story about how it is normal once in a while to experience such inconveniences because of system maintenance or network/internet traffic congestion, or some unexpected market moving news, then remember these words: IT IS A LOAD OF CRAP because in this day and age the capacity of IT systems is such that it is totally possible to handle more than 100s of thousands of orders all coming in at the same time in less than 1 millisecond. today, there are no technical impossibilities any longer to provide a resilient, robust, reliable IT service with 99.9999% guaranteed continuation of service. if you don't believe me, just look at what the telecom industry is capable of achieving with a computer language such as Erlang. or look at the professional level of the financial industry: i sincerely doubt that traders at CITI or JP Morgan have to sit there and wait for the price stream to unfreeze and become executable again. if that happened, i'm sure there would be hell to pay just like when Blackrock went after their custodian bank, the Bank of NY Mellon if I remember correctly. so it doesn't happen in professional circles because it is possible to offer the best quality of service. and it is possible to offer it to all market participants, small or large. DO NOT SETTLE FOR ANYTHING LESS. if you do, then you have no business trading because psychologically you have already told yourself a story that it is OK to be toyed with as long as it isn't too much. i say BULLSHlT! you are in this to win, not to be taken advantage of!

ok, enough for the pep talk.


2- avoid any broker-dealer offering MT4/5 as the only platform to manage your trades (and obviously do not use MT4/5). one reason often mentioned is the well-documented virtual dealer plug-in, which facilitates broker-dealer thievery (that being said, this is technically feasible with any platform, even Integral gives the broker the choice to operate as market maker or as agency). another reason MT4 is no good is that you do not get a full set of features to manage your orders quickly and in a user-friendly way--the clunkiness of the UI slows you down so much that if you want to scalp it is going to turn more into an hindrance than a help (and i don't care whether you can load a script for quick order close/open--the point is that you shouldn't have to find and load some script to be able to this. it should be built-in, native to the platform just like any other professional platform).

also not all professional type orders are available (as mentioned next), and the script engine is pathetically slow and inefficient, which matters if you want to run CPU intensive scripts for some serious computation such as a neural network, for example.

MT4 is a 32-bit app, so you are limited to using a maximum of 2GB of RAM, which means you cannot run any kind of seriously complex EA and if your scripts eat up too much memory the whole system slows down and even crashes. however, MT has compiled a new version of MT4 that can now use more memory on Windows 32 bit (3GB max) and on Windows 64 bit you get up to 4GB. compare MT4 to Multichart .NET or eSignal and you should see what i mean. the .NET platform comes with a virtual machine (VM) and the C# programming language and it is by far a more robust and perfomant environment for compute intensive scripts than MQL currently is.

3- if the broker-dealer, in addition to MT4/5, also offers a more professional platform to manage your trades, and you think the spreads are great and can live with the commission and other miscellaneous costs, then check that the platform allows you to place AON, IOC, GTC, GTD, OCO, in addition to the standard limit, stop, and market orders. stop limit, market stop, TTO (bracket orders), and time contingent orders may be available through a 3rd party charting package as synthetic orders (Multicharts is one example).

and as regards limit and market orders check that you have at least a choice between limit/market (best price), limit/market (VWAP), market (Sweep) for your execution strategy; if i am not mistaken, the price stream of most retail broker-dealers only gives you a VWAP (Volume Weighted Average Price) stream.

the refresh or update rate of that stream is very important too, that is, if the stream display the same price for 5 seconds (stale prices), in that period of time the price may well have changed dramatically.

4- avoid any fixed spreads offerings; the real market deals in variable spreads; the liquidity available in real-time determines the spreads. (if it is not obvious why one would want variable spreads over fixed spreads, please ask.)

5- when your trade size gets larger, it is nice to have the price ladder info, which is different from DOM (Depth of Market). the ladder shows for each quantity level that you preset for your orders the current best price and therefore spread available at that level; for ex., let's say that you want to be able to quickly select a particular order size as opposed to having to type it in every single time. so you create a bunch of presets, let's say order sizes of 100K, 500K, 1M, 5M, 10M, 20M, 50M, 100M. for each of these levels (or lines) the system will show you what the current bid/offer are according to the execution strategy you set (VWAP or best price at depth, and so on).

6- trading from the chart is not a necessity; actually it is better to have the redundancy of a stand-alone trade management app used in parallel with the charting app. if one or the other crashes, you can still get out before having to phone in.


and that's about it. a couple of last thoughts:

if you are just starting out, don't concern yourself too much with leverage, commission, or how tight the spreads are. granted it is nice to have infinite leverage or no commission or 0-pip spreads ;-), it is not that critical in the beginning in the sense that it is more important to focus on learning how to trade properly, learn from mistakes, and stop repeating the same mistakes, and find the right venue that will allow you to cross the 100K barrier in equity (equity = the total money in your account when you have no open trades). as long as the spreads are reasonable and leverage is at least 50:1, then it is possible to get there.

what matters is execution quality and that the broker does not engage in proprietary trading of its own book, and does not use the client money on deposit to invest in some risky investments and perhaps lose it all, or use the deposit for operational purposes. segregation of funds, although supposed to help alleviate this kind of malfeasance, still is no guarantee of anything as the MF Global and PFG debacles have demonstrated. basically, assume you have no protection and plan accordingly. that will take care of most contingencies. (although i like the fact that with dukascopy bank you can park your money with another swiss bank, that is not affiliated with dukascopy. your account will then be linked to the dukascopy systems. i believe the participating banks are all historically reputable swiss banks, so it's hard to go wrong with that solution. wall street banks on the other hand, i wouldn't trust as much.)

also, do not be impatient and think that is better to get 500:1 leverage, for example, instead of 50:1 because you believe it will allow you to grow your equity faster. more likely than not, it will help you lose it all faster as well. so in the beginning, avoid such thoughts as they usually only lead to disaster. i know because i am guilty of it myself. ;-)

godspeed and let it rain gold! :)
 
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Red Herring

Corporal
Question #1 belongs in Company Comparisons and Competitions in the Commerce Zone section of the forums. Asking it here is an invitation for broker employees and affiliates to start posting as happy clients.

2. I prefer long term trading, preferably carry trading.

3. I trade retail forex, not CFDs.

4. I don't trade commodities. I do invest in physical gold and silver.

5. There is software available to monitor slippage and spread. If your broker seems untrustworthy, you should either change brokers or use this to check them out. As for regulation, check the regulator and see if they've ever leveled a significant fine against any company that they regulate or ordered funds to be sent to a client. If the answer is "no", then they are not a regulator and are only a registration entity.

I agree with you and also would like to say that question 1 and 4 is not suitable to ask here!
 
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