As 2013 ends it’s the perfect time for traders to evaluate many aspects of their trading. In a recent blog post we covered the subject of New Year trading resolutions; we highlighted some of the key improvements traders could make to their trading habits in order to encourage more proficient and profitable trading in 2014. As the year turns we also get a twelve month window of opportunity to weigh up and measure other aspects of our trading, perhaps we could look at the type of trader we are: swing, intraday, or a day trader and reflect on whether or not our current trading style is the most effective for us given our work commitments and or time pressures.
Another key evaluation we should make is of our current broker and ask ourselves if they’ve lived up to the commitments they advertised when we opened an account with them? If you’re considering changing brokers, or have decided to take time out to evaluate the performance of your current broker, then the metrics by which we measure their performance can prove to be invaluable.
So let’s take time to list a few of the key measurements we’d use to judge our broker by and see if the broker you currently use stands up to the test. In doing so we’ll also establish just how efficient your current broker is versus the intense competition. And having analysed the facts you may come around to the decision that your current broker is in fact providing you with an excellent all round service therefore there’s no need to consider a change.
Is your broker a market maker, operating as an ECN broker, or a straight through processing broker?
Many traders go into great attention to detail regarding their trading plan, they obsess over aspects such as method and money management, and yet they don’t apply that same attention to detail when it comes to analysing the most basic requirement of their broker, how they deliver price ‘quotes’ to their clients. Moreover, many traders still fail to understand how a market maker differs from an STP (straight through processing) broker.
There is one key difference between a market maker and an STP broker and it can be summed up this simply; a market maker makes what we term a “synthetic market” for the securities it offers for its clients to trade, whereas an STP or ECN broker offers up a market delivered by its suppliers of quotes – typically the major institutional banks who provide the liquidity.
Traders need to therefore ask themselves a very obvious yet pertinent question; “do I want to trade with a broker who provides me with the best prices available from up to a dozen institutional providers, or do I want to trade with a broker who makes their own synthetic market?” Stretching that question further and deeper which type of broker is more likely to conduct itself with the highest level of ethics and standards, the market maker, or the STP/ECN broker? There are no advantages in trading through a market maker; all FX traders should only trade through an ECN/STP broker. In that way they can be sure they’re dealing as close to the market rates at any given time.
What are the typical spreads of our broker?
There is little point in traders becoming excited by low spreads on for example dollar yen, such as 0.1 pips, if the quote when traders are filled is 2 pips or over. This practice suggests several issues; the broker is in no position to deliver its advertised rates, it can’t possibly survive on such wafer thin margins and is perhaps looking to ensnare clients with misleading claims that in many others financial industries would be deemed illegal. Traders would be better served by brokers not making wild claims with regards to spreads. If a broker claims to offer 2-3 pips spread on EUR/USD and other currency pairs and that’s what it consistently delivers, with little in the way of slippage or poor fills, then that suggests that you’re dealing with a broker that is being far more honest regarding industry practice.
The quality of your broker’s trading platforms
Your brokers platforms should work seamlessly on any device; PC, tablet or smartphone. Also they should be offering platforms such as MetaTrader and web based platforms with their own proprietary platforms. All platforms should load instantly and you should experience no lag when placing trades.
The quality of your broker’s communication
In a recent previous blog article we mentioned that traders should take some time out to get to know their brokers better in 2014, similarly your broker should be keeping you up to date with information throughout the day. Blogs, articles, recommendations, advice, a regular newsletter, a calendar of high impact news events should be the minimum on offer daily and or weekly. When it comes to withdrawing or depositing funds the process should be straightforward and painless. When you request money transfers you should be told a date the funds will arrive and it should arrive without delay of excuse.
We’ve listed just a few important aspects regarding broker performance and attitude, if our readers have any other measurements that they judge a broker by we’d be delighted to hear from you through the comments section at the footer of this article.
