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Market maker or ECN is the single most critical distinction between FOREX broker-dealersSelecting the Right FOREX Broker for You As I wrote in Chapter 4, FOREX is a caveat emptor enterprise. Regulation has increased but is still much less robust than it is in either the securities or commodity futures industries. FOREX has no central clearinghouse making it a substantially different space from commodity futures or listed securities. Prospective traders need to understand the differences and ramifications therein and thereof. At last count I found over 100 FOREX broker-dealers with online retail platforms. Although some of them are Introducing Brokers (IBs) for other companies, there remain many unique trading platforms from which to choose. Broker-Dealer Due Diligence Retail brokers can be divided into market makers (dealers) and ECNsElectronic Communications Networks. ECN is the way the true Interbank market operates; each approach has advantages and disadvantages. Most retailers are market makers, but a few are venturing into the ECN world. Both venues have advantages and disadvantages. The beginner should first determine what tools he or she will need to trade. Of course, the more you study, the more you learn. Your needs may change. Download and do due diligence on at least five of these broker-dealers demo platforms. Use the checklist I have provided to research their services in the categories noted and how they relate to your needs. Keep notes. Ive answered some of the questions for you; more can be found on their web sites, in their documents, and on the FOREX Internet review boards and forums. I like to send an e-mail question or two to sales; to gather information but also to see if and how they respond. Ask to be contacted back by e-mail. Most will ignore your request and call you, a few will e-mail you, many will not contact you at all or simply add you to an automated mailing list. I continue to be amazed by the inability of many broker-dealers to answer an e-mail at all much less in a timely manner! Increasing capital requirements for retail broker-dealers may well shake up the industry soon, forcing the smaller players to close or merge. I also expect mergers between major players as competition increases and profit margins fall. Traders have vastly different experiences with brokers. Listed below are some that I would not fund with five cents but that get overwhelmingly wonderful reviews from others. Demo Accounts Always start with a Demo Account! This will allow you to preview most of the brokers platform features and become familiar with how charting, indicators, order placement, and accounting is handled. Do one survey of Demos to decide which brokers to take to the next level with a micro- or mini-account. Typically a micro-account allows for trades of as little as 100 units; a miniaccount, for 10,000 units. There may be some difference between the Demo account and a real-time account; make an effort to find out what these are for each broker on which you do due diligence. Market Maker, ECN, or IB Market maker or ECN is the single most critical distinction between FOREX broker-dealers. A market maker, or Dealer, is always the counterparty to your trades whereas an ECN requires an actual counter order for execution. Given the liquidity of the FOREX markets a counter order is only a problem in a very fast or very slow market or if you place an enormously large order. An ECN cant play many of the games that market makers doin large part they dont need to since they have no book to balance. But ECN trading requires a more accurate and delicate trading touch, also an additional skill that the trader must acquire. Regarding market makers. Some are good, even very good; many are awful. Keep in mind what counterparty to your trade means. Then remember they hold all the cardsthe data stream, the dealing desk, the trading platform, and all the toolsrequoting, pip spreads, trading rules and dealer intervention, accepting or cancelling tradesall for the supposed purpose of maintaining an orderly market. ECNs have their own issuesthe biggest one is their platforms are more difficult to learn and use effectively. They are often bare bones and require integration of third-party charting and technical services. But they have much less leeway since they are functionally trade matchers. In fast or slow markets liquidity may actually be worse with an ECN since they dont have many of the orderly-market tools at their disposal. But on balance, I feel that once you have gotten your feet wet in FOREXshop for an ECN. I have been happy with HotspotFX, www.hotspotfx.com, for many yearsbut conduct your own due diligence, make your own decisions. The core issueand the reason the author believes market makers are losing ground to ECNsis that market makers manipulate the book to maintain order. This involves a number of activities such as requoting, dealer intervention and setting pip spreadas and when they please. Many traders believe market makers trade against their customers (they do) as a profit-making enterprise for the company. Market makers set or control pip spreads; ECNs generally do not. Some ECNs such as www.hotspotfx.com provide depth of marketthe ability to see standing buy and sell orders, the quantities and prices bid and asked. To complicate matters some firms who are obviously market makers now advertise a no dealing desk. The author is unsure how such a hybrid operates; in some instances it appears to be nothing more than semantics in an effort to shake the market maker moniker. Lack of regulation makes knowing how a broker-dealer processes trades difficult if not impossible. The author queried five such brokers and received no response from any of them. FOREX brokers are distancing themselves from the market maker label. But whether the changes advertised are semantic or in how they execute trades remains a question in many instances. Introducing Brokers An IB (Introducing Broker) is an independent who routes trades and uses the trading platform and clearing services of a larger FCM (Futures Clearing Merchant) broker-dealer. The rationale for using an IB is they may offer value-add services you want and cannot get from the broker-dealer. Examples of value-add IBs are HawaiiFOREX, www.hawaiiFOREX.com, which offers a structured educational program currently based on the work of Joe DiNapoli; www.atcbrokers .com with a variety of platforms; or author Archers www.fxpraxis.com, which offers the Goodman trading methods (GoodmanWorks). No two traders are alike, and the landscape is constantly changing. Broker recommendations per se are risky business. That said, the authors opinion is that the new trader should open an account with one of the Big Three or a top rated Popular Broker. A market maker may be the wise choice at the beginning as ECN platforms are a little more difficult to manage. If your FOREX career blossomsand of course I hope it doesmoving on to one of the larger ECN brokers such as www.hotspotfx.com, www.efxgroup.com or www.Dukascopy.com makes some sense. For those who wish to start with an ECN some of them are now offering mini-accounts, such as www. efxgroup.com. See Appendix A, How the FOREX Game Is Played, discussing the current issues of importance to traders with respect to broker-dealer structure and practices. Platform Capabilities Perhaps the most critical to the trader is a broker-dealers platform capabilities. Due diligence, vis--vis your needs, will take some time and effort on your part. Here is what to look for in several categories. Learn everything possible before making a trade. Demo accounts are ideal for this purpose. Trading Tools Traders are fascinated by charts, numbers, and indicators, and most brokerdealers are happy to accommodate them. Downloading a Demo account will give you a good idea of the toolset available. In a few instances the Demo does not offer the entire palette so you will need a mini-account to see and test dive everything. Not sure? Ask the broker. Most platforms offer integrated charting and technical studies capability. For those that do not you will need to access a third-party vendor. I recommend an integrated platform for the novice. Most of the popular indicators are availablemoving averages, stochastics, relative strength, oscillators, Bollinger bands, and many others. Bar charts with a variety of settings for time scales and units are offered. Be sure the dealer has what you need; integrated charting capability is a must, especially for the new trader. Swing charts, candlesticks, and point and figure charts are also available. Most platforms offer a palette by which you can customize the look and feel of charts. The size, scale, and coloring of charts can make a big difference to your interpretation of them. As an experiment, take a single pair with the same time scale and unit and make a half-dozen or so charts with different parameters. My advice to the beginner is to keep all charts in the same size and color scheme. Trading is an extremely delicate process, and even small differences can tell. It is best if you have some idea of what you want before beginning your due diligence. Some primary considerations: colors, sizing/scaling, time units, vertical and horizontal scrolling, printing. As an old-time trader the author still likes to print charts for analysis, and some of the trading platform print commands are not particularly easy. Order Execution and Accounting How easy is it to place and monitor your orders? View your account information? Most retail dealers do a great job of this but layout and organization vary. Those factors can be important depending on how you trade; especially if you trade frequently. Can that information be easily backed up or saved? Almost all broker-dealers have this process down pat; much of your decision is a matter of personal style. News Most broker-dealers offer news feeds and news and announcement calendars. There are many third-party providers, but for the average trader what is offered integrated on trader platforms is enough. Dont get mesmerized by the news, but do watch and note how the market reacts to it. Chat Some of the larger dealers offer chat rooms or forums. These may or may not be useful. The author believes the many independent forums such as www.global-view.com are a better source of information. Platform Stability and Backbone As I have mentioned above, trading platforms are enormously complex software programs. Real-time delivery of information is also a daunting task. Put those factors together and it is a minor miracle they work as well as they do. But . . . things happen. One of the biggest brokers had their trading platform crash for almost 24 hours in February of 2007. What backbone is a prospective broker-dealer usingWindows, Java, Web-based, or Flash? Windows is the most stable, and Java is cross-platform if you are using a Mac computer. At one time Java platforms had a bad habit of crashing under heavy loads but that seems for the most part to have been remedied. If you use Java dont install the latest Sun update without getting the okay from your broker-dealer. Updates are supposed to be downwardly compatible, but there is a lot going on in a real-time trading platform. Having owned a web conferencing business, I have been leery of Java, but it has improved a great deal recently. Flash platforms are available, but they dont have the years of development behind them that Windows and Java platforms do. They have potential, once developers in FOREX get a handle on the immense Macromedia toolset. Nor is the Internet perfect. You shouldnt trade online unless you have a high-speed Internet connection. A backup connection from a different vendor is a good idea if you are a serious trader. Cable is more reliable than DSL in most locations. Some brokers offer their platforms on multiple backbones and even recommend specific browsers for their Windows-based venues. Traders should also invest in a reliable battery backup power supply for their computer. Once you are trading with substantial amounts of money and taking larger positions, consider opening a small secondary account with a different brokerdealer in a different country on a different backbone. Should your primary broker go incommunicado and you need to execute a trade, you have an out. In your due diligence process, after you have sampled four or five mini-accounts and select a primary broker you may consider leaving a mini-account open as a hedge. Historical Data If you want to look at charts from months and years gone by, you will need historical data. Some brokers offer it in their trading platform, some as a separate service, and some not at all. For comprehensive historical data, you may wish to consider one of the data vendors in Chapter 8. Historical data is available online, for download or on a CD; www.disktrading.com is a good value. Historical data is the inexpensive approach for developing and testing trading methods, systems, and theories. See Market Environments (ME) in Chapter 16 for methods to effectively test methods and systems. Data Feed API (Application Programming Interface) is your broker-dealers price data stream made available for custom programming. What sources it is composed of is usually difficult if not impossible to ascertain. No two are identical. Market makers use a composite of sourcesthat may even include its own micro-ECN. But given the enormous liquidity of the market, they dont usually vary a great deal. The exception is when market makers requote. Most brokers offer their API as a separate service. A trader would use the API to drive third-party software or his or her own software program. On the flipside, third-party vendors offer their services using various dealers API. It can be confusing. If you use a third-party program for trading or even just for your charts, be sure it has a one-to-one or very close correspondence with your broker-dealer data stream. Rolling your own integration is strictly for experienced programmer gurus. New traders should probably avoid third-party integration, also. Third-Party Offerings What third-party services do they support? Are these services integrated with the trading platform or offered as stand-alone? Third-party offerings are detailed in Chapter 8, Opening a FOREX Account. In the past two years the amount of third-party integration has grown a great deal; there are many options, almost too many! I recommend you only use third-party chart and technical analysis services that integrate with your brokers data feed. At the beginning, stick with the capabilities integrated into your brokers trading platform. Orders Traders use a wide variety of different orders for entry, stop protection, and exit (price objectives). Our advice: Keep it simple. Thoroughly understand what an order does and how it works before using it. Many exotic order types add a level of complexity to the trading process beginners normally dont need. Some orders also offer an extra license to the broker-dealer to manage their book; ergo, they generally love them and encourage them. Functionality of orders may differ slightly from market makers to ECNs. I offer more detail on orders in Chapter 9, Pulling the Trigger. Margin Requirements Because a trader can open an account from $1 to $1,000,000 and trade any size lot, margins and leverage are something of a misnomer in FOREX. Broker-dealers allow you to set your own fixed maximum leveragetypically from 10:1 to 100:1. Dealers are mostly concerned that you do not hold open positions in excess of your account balance. If you door even come closeyou will get a margin call, and you will be expected to meet it immediately. The lower the margin requirement, the higher the leverage factor. Profits and loses are magnified as the leverage is increased. In reality today margin calls in FOREX are rare. Brokers are able to electronically monitor all parameters based on your account size, trading activity, and experience. If you attempt to enter an order outside of those parameters it wont execute. Simple money management rulesthat you implementare the key to avoiding margin calls and overtrading. In Chapter 15, Money Management Made Simple, I offer the Campaign Trade Method for novices. I recommend these basic ideas to new traders: (1) never commit more than one-half of your account balance to open positions, (2) never trade more than two market pairs concurrently, (3) never commit more than 25 percent of your capital to a single position, and (4) never trade over 50:1 leverage. Begin your trading career at 20:1 and work up in increments of 10:1 as you are successful. Experienced traders often modulate these parameters according to how confident they are of a trade. But that requires experience to make it an effective tool. New traders should keep the number of money management parameters simple and to a bare minimum. Order Backup Does your broker offer the capability to phone an order if their trader platform goes down or your Internet drops? Be sure telephone order backup is available, although lines will be swamped if it is a system-wide outage and not your own Internet connection. If you open a mini- or micro-account, ask your broker to let you test a telephone order so that you know it exists and have the process down pat for when and if you need it. Keep in mind that brokers do not expect their platforms to go down, and when they do, their backup systems tend to be overwhelmed. Account Minimums Micro-accounts now start at $1! Micro accounts begin at $300, mini accounts (10k lots) at $1,000, and standard accounts (100k lots) at $2,500. ECNs tend to have higher minimums. This is a far cry from the days in the commodity futures markets where $5,000 was considered a mini-account and $25,000 was the standard. In FOREX the ability to set your own lot sizes and leverage make smaller accounts justifiable. Account size, leverage, and lot size should all work in harmony and be consistent; your broker-dealer monitors such parameters carefully in an effort to protect both parties. Pairs, Crosses, and Exotics A pair is a tradable set of currencies including the USD. A cross is a set without the USD. An exotic is a set with the USD but with an exotic currency such as the Hungarian Forint, Indonesian Rupiah, or Thai Baht. There are 25 or so exotics offered currently. Todays exotic may be tomorrows pair; the Polish Zloty is considered an exotic, but its rising popularity may move it to a standard pair sometime in the not too distant future. The big banana remains the EUR/USD major pair. Deposits and Withdrawals Typically accomplished by check or wire. eGoldwww.efundsfinance.com and PayPalwww.paypal.comare also used by some broker-dealers for account deposits. These latter two options may disappear as the NFA implements and enforces a Know Your Client regulation for broker-dealers. An attempt to deposit funds for a small account to Oanda via PayPal was difficult and timeconsuming. Needless to say, keep complete hardcopy, cross-referenced records of all monetary transactions with your broker. A date log of all transactions and communications is also advised. Beware of brokers who make withdrawals difficult or take an inordinate amount of time to make them. Transaction Costs There are no commissions in FOREX in the form they exist for securities or commodity futures traders. Similar to the NASDAQ market, FOREX operates on a bid-ask spread. The minimum fluctuation of a currency pair is a pip and spreads (and just about everything else) are quoted in pips. The more liquid a market, either with respect to time-of-day (TOD) or pair, the lower will be the pip spread to trade. Temporal conditions of a market maker may also affect spreads. Remember, you pay the spread both going in and going out. The EUR/USD is far and away the most liquid pair. Some ECNs offer it at 1 pip, most retail market makers are now at 1.5 to 3 pips with 2 pips the standard. Again, when markets are illiquid for a market maker or generally because of prevailing fast conditions, pip spreads balloonsometimes enormously. By following a pair for a few weeks you can usually get a very good idea of when and under what circumstances this will occur. See Appendix A, How the FOREX Game Is Played for more. Two pips does not sound like much, but for active short-term or highfrequency traders, costs add up quickly. Two pips reduces a 10 pip trade by 20 percent, but a 50 pip trade by only 4 percent. There are now ultra highfrequency traderswe called it churning an account in days gone bybut dont think I could mouse-click that fast. ECNs may also or alternately charge a small lot fee commission. Calculate the lot fee across the lot size to get the full, correct spread. Lot fees on less than 10,000 size can be expensive; one reason ECNs are most likely to have higher account minimums. Trading Hours FOREX is more or less a round-the-clock activity. The day begins with the Asian session, dovetails to the European session, and ends with the North American session. (See Appendix F.) The North American session is the most activeand volatile. I have found relatively quieter opportunities, good for beginners, in the other two sessions. But be aware of potentially larger pip spreads, as markets may be thin. All currencies trade in all sessions although they tend to be most active in the session to which the country belongs. I prefer trading the EUR/USD from 8:00 P.M. to 12:00 P.M. Eastern time. This may be a function of the markets being less volatileor the children being asleep! Executions of market orders at odd hours can take your breath away! Early in a session, late in the week, and so forth. The market may be very thin even though the chart looks fine. I recently made the mistake of entering a market order in the EUR/GBP for a small 25,000 lot with a market maker and was filled 10 pips off in a quietlytoo quietlytrading market. Customer Service As every Boomer knows, the quality of customer service (at least in the United States) has fallen dramatically in the past 30 years. Practices that would have put a company out of business in 1977 are SOP today. Retail FOREX is no different and in my humble opinion is worse than many other industries. If you are old enough to have done business with a retail brokerage firm in the 1960s or 1970s, you are in for a shock. The actual quality of service varies enormously from broker-dealer to broker-dealer, but the general level in the industry is appalling. My pet peeve: brokers with great trading platforms, good pip spreads, and horrific customer service. Nothing can derail a trader from his trading process faster than poor customer service. The reviews are an essential guide to what people have experienced with sales, customer service, and technical support. Most noncritical support is handled via e-mail. Critical issues warrant a telephone call or an IMstyle chat if it is available. Please dont burden your dealers customer service people with telephone calls for noncritical issues. One would think at least sales support would be stellar; if not as a customer after they have signed you up to an account. Not so. I have found sales support at many firms to be perfectly dreadful. Inability to answer e-mail in a timely manner or at all, failure to intelligently address basic questions, and abysmal understanding of what they are selling are typical trader issues. Retail FOREX is relatively new, and it is still growing rapidly. The number of qualified sales and customer support personnel in relationship to inquiries and customers is currently grossly inadequate. I have found a large number of sales and CS representatives who could only be described as clueless. Better training is one solution to the problem; actually reading an e-mail from a prospect or client before responding is another. Answering e-mail in a timely fashion would be a nice touch, also. The industry as a whole needs customer service help and desperately. Technical support is generally stronger but still fraught with difficulties. Many tech support representatives feel the customer is always wrong or are simply unqualified for the job. To do a proper due diligence will require that you open several demo accounts and at least three or four micro- or mini-accounts. The good news is this will give you some idea of a broker-dealers customer service. The bad news is it will unleash their salespeople on you. I attempted to unsubscribe to one brokers mailing lists on four occasionstwice using their automatic unsubscribe, which promises you will not hear from them again. A simple e-mail inquiry took 17 days to be answered. It behooves the trader to learn everything possible about a broker-dealers customer service practices and policies before making a single trade. Ditto for their trading platforms, technical support, and other services such as withdrawing funds. Retail FOREX is not a perfect world; if you cant stand the heat, stay out of the kitchen. Documentation Most brokers have excellent documentation to protect both them and you. Lawyers are expensive, but there are a lot of them! You may wish to have your accountant or lawyer review the firms documentation if you dont understand something. But dont expect to get the broker-dealer to make any changes in it for you. Keep hard copies of all documentation and especially those requiring your signature. Dont spare the ink or paperprint all of your brokers documentation and study it in depth. Similar to securities and futures, you may open an individual account, joint account, partnership account, or corporate account. Beyond the individual account additional paperwork is required. If you have someone manage your money, there is a separate form for that purpose. Requoting This can get ugly. Only market makers requote. It is the soft underbelly and Achilles heel of FOREX. If anything brings in the regulators to control the industry it will be requoting. In requoting, market makers fill your order with prices not seen on their standard online price feed. Fortunately requoting is not nearly the problem it was two or three years ago, but it is out there, and if you are a small trader, you will probably experience it. Broker-dealers are learning that traders run so quickly and complain so loudly about requoting, they are encouraged to refrain from the practice. Requoting is sometimes equated with dealer intervention and is most typical of market makers. Financials The CFTC (Commodity Futures Trading Commission) is beginning to set minimum net worth for broker-dealers, requiring certain thresholds for offering at different levels. An overextended broker with a high net worth is not better than a small net-worth broker with a strong balance sheet as Refco traders learned in 2005. Unfortunately the NFA is not likely to think in that fashion, resulting in the closing or merger of solid small capitalized firms and allowing relatively anemic big fish to continue to swim. Financial disclosure requirements remain minimal in FOREX but the authors believe that will change over the next two or three years. If you dig deep on some of the forums and on the NFA web site, www.nfa.org, you can find financial information that is difficult to pry from the broker-dealers themselves. At least in theory an ECN should require less capital than a moneymaker. Because an ECN matches trades for execution, finding themselves on a potentially dangerous large unbalanced position is less likely for them than for a market maker. The CFTC tallies this information: http://www.cftc.gov/files/tm/fcm/tmfcmdata0705.xls. Rollovers and Interest Rollover charges are determined by the difference between U.S. interest rates and the interest rates of the corresponding pair country. The greater the interest rate differential between the two countries in the currency pair or cross, the greater will be the rollover charge. For example, if the British Pound (GBP) has the greater differential with the U.S. Dollar (USD), then the rollover charge for holding the GBP positions would be the most expensive. Conversely if the Swiss Franc (CHF) were to have the smallest interest rate differential to the U.S. Dollar, then the session carryover (overnight) charges for the USD/CHF would be the least expensive of the currency pairs. Rollovers are a complex issue, fortunately of limited importance to the small trader, and are discussed in Chapter 16, Tactics and Strategy. If you trade intersession a substantial amount of the time, ask for specific broker-dealer policies on rollovers; they do vary, and some are much better than others. Some dealers offer interest on your unused account balance. Again, policies within those companies differ. If you have a large amount of unused account monies, it can make a real difference. Larger traders tend to get better deals to keep them from shuffling money in and out of their accounts to maximize interest. You may download this form at www.fxpraxis.com in the Currency Codex section. The online version is updated from time to time as services expand and evolve. FOREX Broker-Dealers You can please some of the traders some of the time, but you cant please all of the traders all of the time. As you peruse broker-dealer reviews, you will see many that have both one-star and five-star reviews. Some of these are just plain sour grapes, and some are shills. Look for similar issues mentioned over long periods of time and on different review boards. Focus on the reviews in the context of what you as a trader require. As in anything else, a larger sample is a better indicator than a small sample. The inclusion of a broker-dealer herein does not constitute a recommendation; exclusion likewise does not imply disapproval. Your experience may differ from mine. Popular Broker-Dealers I have done substantial due diligence on the companies listed below, including downloading and reviewing their platforms, making e-mail contact, and asking a few questions. Ive sampled micro- and mini-accounts with a dozen or more brokers. I believe those below are among the best retail broker-dealers in the FOREX industry. But, one persons fine wine is anothers poison. None are perfect by any stretch of the imagination. Expectations vary. The more knowledgeable you become, the lower will be your expectations if only because you understand how the game is played. Many of the review board complaints are from traders with limited knowledge and unrealistic expectationsbut not all of them. Pip spreads are going to balloon occasionally, prices will be requoted to you, customer service will frustrate you, platforms and the Internet will go down. Make an attempt to build the occasional minor disaster into your trading and into your expectations. My hot button remains the pitiful sales and customer service in the retail FOREX industry. You will notice references to news trading on the review boards. This refers to the practice of attempting to trade on news or announcements. It is a dangerous practice; prices may jump or fall quickly (spikes), and pip spreads will expand enormously. It can be very profitableor deadlyand is not for the new trader in my humble opinion. Market makers are on the lookout for news traders. I believe many of the negative news trading reviews are sour grapes although market makers do seem to use the occasion to trade against their clients. On the other hand it is ridiculous for market makers to advertise 2 pip spreads when they regularly balloon to 25 or 30 pips on any pending news. If you must trade the news, do it with an ECN, and dont use market orders. For news trading, an execution tool such as www.secretnewsweapon.com is de rigueur. FOREX is the most laissez-faire of all markets, and that cuts both ways. No one wants to be cheated, but if you cant take the knocks, dont play the game. The profit opportunities are enormous, and that attracts all kinds. Opportunists and strongly driven business people are in plentiful supply in the FOREX market. Hotspot FX On Hotspot FXs ECN (www.hotspotfx.com), clients trade directly on prices streamed by large FX banks or can enter their own bids and offers. In contrast to dealer or market maker platforms, Hotspot FX claims to not make prices or take positions against client orders. Further, because traders are anonymous, pricing on the ECN is neutral; that is, prices reflect market conditions only, not a perception of the clients trading direction based on their trading strategies, tactics, or current market positions. This is a very professionally run operation, well respected in the industry, and they know the business. The firm is a subsidiary of Knight Capital Group, Inc. (Nasdaq: NITE). Trading platform is basic but efficient; it caters to larger traders who have their own charting and indicator services. The order palette is limited but adequate. Hotspot FX now offers a $3,500, 10k lot minimum account size. Hotspot FXs web site provides all the basic information you need with no showy buy-me glitz, which I appreciated. Customer service is well above average. It has some negative reviews from news traders who probably used market orders at midnight. Oanda Oanda (www.oanda.com) started with quite a poor reputation in the late 1990s but it now is considered one of the best retail houses. There are lots of educational tools on the web site for beginners. Customer service telephone support is iffy, but e-mail is quick and efficient. The technical tool set is very good and adequate to most traders. Box options are a unique feature. Their API for developers is excellent. Oanda claims to have no dealing desk (NDD), which would make it an ECN, if that is the case. The line of demarcation between market maker and ECN is beginning to blur as brokers attempt to distance themselves from the market maker moniker, and NDD may refer to any of a number of different setups. EFX GroupMB Trading This company (www.efxgroup.com) is an ECN and www.mbtrading.com, EFX also offers mini-accounts; low minimums usually only found with market makers. They offer excellent webinars to teach their ECN platform and how to use it effectively. EFX has come on strong in the last year based on these efforts and excellent reviews. They are one of the few brokers who seem to follow the review boards and respond to negative reviews with their side of the story. EFX is also very strong on following regulations and recommended practices set by the NFA. Customer service is superior. They offer a free API, which can be a big advantage if you intend to develop your own trading software program. Reviews of their Navigator trading platform have been mixed with regard to both stability and usability. Much of this may be because ECN platforms are different from market-maker platforms. EFX is extremely helpful in getting traders familiar with their platform. Avail Trading Corporation ATC (www.atcbrokers.com). Excellent reviews and customer care. Services in both futures and FOREX for retail and professional traders. Ikon GM Royal Division Ikon GM Royal Division (www.ikon-royal.com) is another established marketmaker. It uses the MetaTrader4 platform. Their platform download and set up is very smooth; someone has obviously made an extra effort to get this often frustrating process right. The author found initial communication iffy, but a telephone representative answered all of his questions quickly and efficiently and even followed up several days later to make certain everything I needed had been addressed. Wow! Reviews are generally very good. Let the mergers begin! As of this writing, Royal has announced a merger with Ikon Global Markets and is now www.ikon-royal.com. FOREX Capital Trading This is a newer, apparently relatively small company. But reviews have been good and customer service is above average. New traders seem to be having a positive experience with FOREXct, www.FOREXct.com. Based in Melbourne, Australia. DukasCopy Dukascopy offers a unique centralized-decentralized clearing system. An interesting article on this new approach is on www.e-FOREX.net in the January 2007 edition. It has enormous potential to revolutionize retail FOREX. They provide a wide variety of FOREX services and products under one roof as well as substantial market depth. They offer emergency back-up with other, smaller ECNs. The web site was recently redesigned, vastly improving navigation which had been an issue. Users may select either a Java or a web-based trading platform. The recommended browser for the web-based platform is Firefox. If you like Dukascopys clearing services and trading platform a great deal of customization is possible with either their FIX API or jFOREX. Not for small traders, the minimum account is $50,000. Commission is $40 per onemillion lot and spreads seem generally very tight. Email inquiries regarding services were answered promptly by a real person. MF Global A major player with high account minimums for individual traders but excellent Interbank services in FOREX and members of numerous futures and equity exchanges. www.mfglobal.com. TradeStation If the TradeStation (tradestation.com) software, tool set, and programming script is to your liking, you can trade FOREX with it also. They clear their trades through Gain Capital at the present time. A number of dealers are integrating TradeStation at some level, including Oanda in association with SnapDragon, www.snapdragon.co.uk. Deutsches Bank Now you can trade with the huge Deutsches Bank (www.dbfx.com), a major player in the Interbank market. Initial reviews have not been encouraging but may relate to roll-out pains as retail FOREX is new to themworth watching. Account minimum has just been lowered to $5,000 as of this writing. The Big Three These three companies seem to account for perhaps 50% of the retail FOREX business. When you are big, you get noticed. These folks are all either loved or hated. They all appear to have strong financial positions. All three are primarily market makers at the time of this writing but appear to be migrating at various levels to ECN or at least to No Dealing Desk. Gain Capital Gains trading station (www.gaincapital.com) has an excellent accounting and order tracking interface. Their charts are not as robust as some others, but they do offer third-party integration with other venders such as the excellent NinjaTrader, www.ninjatrader.com. Gain has recently raised their account minimum to $25,000. You can still trade with them on www.FOREX.com a wholly-owned subsidiary for smaller cap traders. FOREX.com shares data feed and most platform features with Gain. As do all the Big Three, they have their share of detractors. Platform seems very stable, and customer service is well above average. GFT GFT (www.gftFOREX.com) has a large palette of products and services for the trader. Their DealBook is a terrific platform although it is complex. GFT allows you to integrate several third-party services. Many IBs use GFT as their backbone. FOREX Capital Markets FOREX Capital Markets (www.fxcm.com) is the classic love/hate brokerdealer. Everyone goes after the 800-pound gorilla on the street in any business. For the Professional These services are currently not available to the retail trader at this time. However you may find their platforms in use by other broker-dealers, such as PropFx, listed previously. www.currenex.com www.fxall.com www.aarontrading.com Fxall and Currenex white label their platforms for other broker-dealers. You need to trade with one of them or be an institutional client to fully access their services. As I write there is a rumor that Currenex may open to the retail trade soon. EBS (www.icap.com) is one of the Interbank network system providers. Fraud, Scams, and Off-Exchange Even though there is no Exchange (central clearinghouse) for currency trading, broker-dealers who operate from telephone boiler rooms are still referred to as off-exchange. Beware of these practitioners and avoid them like the plague. Most of them have no web site or a few shoddy pages built in straight HTML and operate primarily via telephone solicitations. They typically sell FOREX options. (See Chapter 19 for information on legitimate FOREX options trading.) They are almost never registered with the CFTC, NFA, or any recognized regulatory body. You can spread-bet on FOREX through legitimate, licensed bookmakers. We offer some web site links in Chapter 13. The new online gambling laws may affect the ability of U.S. citizens from participating in spread-betting. Broker-Dealer Due Diligence Form You may wish to use the Broker-Dealer Due Diligence Checklist in your research. (See Figure 7.1.) Feel free to customize it to fit your specific needs and wants. For example, adding specific platform features, indicators, currencies or orders you require. An expanded spreadsheet of this may be downloaded at www.fxpraxis.com. Summary It is critical the prospective trader, especially the beginner, perform due diligence on a broker-dealer thoroughly before depositing money and making a trade. The recommended process is: Due Diligence Demo Account Mini-Account Full Account Dont leave questions unanswered and hope for the best. On the other hand, dont e-mail a flurry of questions the answers to which are found on the web site or by spending an evening with their demo account and documentation. If your experience is similar to mine, they wont be answered anyway. Once you begin trading you will want to devote 100 percent of your effort to that activity; not readjusting your processes because you found out something about your broker-dealer you should have known at the outset. No broker is perfect, dont expect to find one. |
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