Free Forex MQL Training

Introduction

If you are a Forex retail trader like me then you know that the doors of Forex trading, opens to you through your broker or rather market maker. The first step that you usually take to trade currency pairs with real money is to open an account with a brokerage firm and then enter, manage, and exit trades through them.

Nowadays most people trade electronically via a trading platform such as MetaTrader, TradeStation, ForeXecutor, or other server-based (http) or client-based platforms. Some, however, may still call their broker's dealing desk by phone to execute a trading request.

No matter which method you use, broker plays an important role in your trading experience. Here are some examples of the broker's effect.

• They define which currency pairs you may trade. Some currency pairs are available through most brokerage firms but many of those pairs that are less traded are not offered by every market maker.
• The exchange rate or rather the Bid price could be different at a time from one firm to the other. Sometimes such differences are significant.
• The spread that you need to pay per round of trade depends on their policy.
• They could widen the spread when the market is less liquid or for any other reason. It is common to call this action slippage which affects the Ask price.
• They may charge you a commission per round of trade. This could especially happen if you have signed up with them through an introducing broker.
• The rollover or swap rate they charge depends on their policies and could be significantly different from other brokerage firms.
• The time that you could trade depends on your broker. For example some firms shut down their dealing desk for several minutes every day for maintenance purposes.
• Their margin call policy could be different from others.
• The charges involved in transferring your profit to your bank account, depend on the contract you hold with your market maker.
• The technical support such as resolving platform malfunction highly depends on how they value your business.
• And more...

How a Broker Affects a Trading Strategy

Many of the aforementioned differences could affect your trading strategy. Let's assume that you have developed a breakout system which enters a short trade when a breakout happens from a resistance level. If the Bid prices offered by two brokers are different from each other then you may see breakout in one platform and no breakout in the other one. Thus the trader who trades with the first broker enters the trade while the trader who trades with the second broker does not enter the trade at all. Similarly other trading parameters could affect your trades. Even if you are a discretionary trader your reasoning is affected by what your broker offers you. This could be significantly different from one market maker to the other which consequently affects your decisions.

Sometimes the market maker does not offer a charting system. In this case you are affected by the chart provider and the broker at the same time. This could be in a good way or a bad way. In my humble opinion, Forex has a funny habit to move in the bad direction most of the time!

If your market maker decides to manipulate your trades then you are dealing with another problem which could negatively affect the results gained by your strategy. Click here for an article about such activities.

How to Eliminate or Reduce Such Effects

It is disappointing when you back-test a trading strategy in one platform which shows profit and then back-test the same strategy in another platform and it shows loss. It is even more disappointing when you go live using the same strategy with two brokers and the results are drastically different.

Since you or your trading systems are not the cause of such effects your chances to eliminate them are slim to none. Nonetheless, you may take a few steps as an attempt to reduce such effects.

• Add proper restrictions to your trading system. For example define a price range to enter a trade (opposed to saying if the price is above this level then enter a long trade).
• Target large TP and SL values. For example instead of targeting 5 or 10 pips target 100 or more pips. Those strategies that target larger values as profit or stop loss are less affected by slippage and spread.
• Use day trading strategies instead of swing trading ones if rollover plays an important role in your profit or loss.

Pick the Right Broker

While you could to some extent reduce the broker's effect you may alternatively pick the right broker. For example you may back-test and forward-test your strategy with some brokers and then go live with the ones that generate profit more than the others.

Back-testing or forward-testing are just part of the game. You also need to know your market maker before opening a live account with them. Click here for some tips about selecting your broker.

Discuss this article!