Articles of Interest

There are a number of different types of forex brokers, market makers, fixed spread providers and those offering electronic communication networks (ECN's). A common question asked which most people new to forex ask is which type is best. To help answer this question below is a brief comparison.

Fixed Spread Providers
There are quite a few fixed spread forex brokers in Australia some have spreads as low as 2 pips on EUR/USD. Trading on a fixed spread can have its advantages as well as disadvantages. One of the main advantages of trading on a fixed spread is that traders are guaranteed consistent spreads during times of market volatility such as interest rate announcements; these are often the periods during which spreads can widen dramatically without warning often catching novice traders off guard.

Despite having the benefit of a fixed spread during market volatility fixed spread providers will often quote wider spreads during quiet periods, often their spreads are much wider than those offered by market markers or ECN forex providers.

Trading on a fixed spread is often good for newbie traders who are not yet accustomed to the wild price fluctuations of the forex market.

Market Makers
There are a few market markers that have given the rest a bad name by trading against their clients and profiting from client losses, however this is not common practice for all market makers only a select few. Generally market makers are able to offer relatively tight spreads across all of the major currency pairs, however it is important to understand that this not always the case if you are looking to trade large parcels or trade around announcements such as interest rates or non-farm payroll.

Some market makers are known to widen their spreads by as much as 50 points during times of market volatility, they often do this to protect themselves from scalpers looking to take advantage of their tight spreads.

When selecting a forex broker who is a market maker you will need to ensure that you do your homework and make sure that they are not one of the few that are actually trading against you and profiting from your losses.

ECN Providers
By far the most transparent forex broker model is an electronic communications network or ECN. An ECN broker simply aggregates the best price feeds from a variety of investment banks and always displays the best bid or offer. Most ECN brokers will charge a commission rather than apply a spread to the natural market price this ensures that you are trading on the real market price as set by the world's largest investment banks.

There are many advantages of trading with an ECN broker the most apparent being the spreads offered; often there is no spread or an inverted spread, prices not achievable by market markers or fixed spread providers. During volatile times an ECN will always show the best price available, as ECN brokers rely on a number of investment banks who are actively trading over these periods you will always get the best price and not by subject to extremely wide spreads which you would otherwise get with a market maker.

Of course it is up to you type of forex broker you choose as each have their own unique advantages. You should always make your decision based on the trading strategy that you employ and your level of experience in the market.

To learn more about selecting the right forex broker you can download and read this free Forex Guide.

ECN is an acronym for Electronic Communications Network. A Forex ECN broker does not have a dealing desk but instead provides a marketplace where multiple market makers, banks and traders can enter in competing bids and offers and have their trades filled by multiple liquidity providers in an anonymous trading environment. The trades are done in the name of the ECN broker, providing you with complete anonymity. A trader might have their buy order filled by liquidity provider "A", and close the same order against liquidity provider "B", or have their trade matched internally by the bid or offer of another trader. The best bid and offer is displayed to the trader along with the market depth which is the combined volume available at each price level. A large number of market participants providing pricing to the ECN broker leads to tighter spreads. ECN brokers typically charge a commission for matching trades between their clients and liquidity providers.

Using an ECN broker to trade forex offers a number of significant advantages, the most apparent being tight spreads and deep liquidity. Tight spreads means that day traders and scalpers can take advantage of small price movements on an intraday basis. Deep liquidity means that large volumes can be traded without having any effect on price this is especially important in volatile market conditions and offers significant advantages for traders using automated forex trading systems. These two factors combined mean that you will be able to take advantage of more trading opportunities, more opportunity equals more profit potential.

There are a number of ECN brokers available in the marketplace today with the most common ECN being Currenex. Currenex is typically used by institutions and investment banks and out of reach for most retail traders, however in recent times as the demand for tight spreads and transparency has improved significantly many commonly know retail trading platforms such as Metatrader have been adapted to suit ECN brokers. Now more than ever the bridge between retail investors and investment banks is narrowing.

Of course using an ECN broker will not be of any advantage if you do not have a trading strategy or plan in place. Formulating a forex trading strategy that takes into consideration your risk profile, lifestyle and capital outlay is essential before you start trading. After formulating your trading strategy you should then try a few forex platform demos to determine which platform best suits your trading strategy. Of course it is important that you choose a forex platform offered by an ECN broker. It can often be difficult to determine and ECN broker, however as a rule of thumb ECN brokers will charge commission on your transaction rather quoting you a widened spread.

To learn more about forex trading using an ECN broker you can download our free FOREX Guide.

These days most forex brokers have been forced to offer metatrader simply as a result of customer demand. The metatrader phenomenon has taken over the world of retail forex with several online company's producing robots and plug-ins to satisfy an increasingly growing client demand for automated trading.

On the surface all metatrader brokers seem the same but have you ever wondered what makes one metatrader broker different from another?

First and foremost one of the most important decisions that you should make is whether you deal with a market maker on tight spreads or a company that hedges all for your orders. Many novice traders base their decision on price and make the wrong selection only to end up regretting it later. It's common knowledge that some metatrader forex brokers promote tight spreads in their marketing material and on their demo accounts but when you open a live trading account and go to execute a trade your spreads are sometimes very different. These providers tend to be market makers and simply quote tight spreads to attract new clients however in most cases are usually not prepared to deal on these spreads for any reasonable volume.  

So what really makes one metatrader broker different form another?
A number of providers genuinely have tighter spreads than others, some are market makers and trade against you whilst others hedge all of your trades in the interbank market, finally some use a high quality bridge between your trading platform and their main server, meaning your orders are going to be executed a great deal faster and you won't get price re-quotes. Needless to say there's not one single factor that makes one broker better than another, it is advisable to consider all of these factors together prior to deciding on the best metatrader broker.
 
It is also important to think about what base currencies you broker can hold your account in and where the broker’s offices are located. The majority of active traders prefer to deal with providers that are located in their country of residence as this has significant advantages relating to regulatory protection, service and speed of cash transfers in and out of their trading account.

Of course these are just a few of the things that you should consider, it is always advisable to download a number of demo accounts as well as call up the broker and ask them about their spreads and whether they are a market maker or hedge all of their trades. Most metatrader brokers will be happy to answer these queries.

To learn more trading forex on metatrader you should download a free Metatrader Demo.

When trading CFDs it is important to choose the right CFD provider. Generally most people look for the best commission rates, reliable trading platform, and widest product range however there are many other aspects of a CFD provider which you should consider.

Firstly, you should create a checklist of the items to investigate prior to choosing your CFD provider:

1. What markets are CFDs offered on?
Some CFD providers only offer CFDs over ASX listed stocks others offer CFDs over stocks listed on many global exchanges. You need to work out what CFDs you intend to trade in your trading strategy and choose a provider that is able to offer the CFDs you plan to trade.

2. Can my CFD provider offer more than just CFDs?
Some Banks, Brokers and even CFD providers can offer CFDs but many simply ‘white label’ the offering of specialist CFD provider to offer CFDs as an additional product next to shares, futures and options. If you trade multiple products you should consider choosing a CFD provided that can service all of your needs at once, however, if you are only likely to trade CFDs, a specialized provider would better suit your needs.

3. What margins and fees do I pay?
All CFD providers have different margin requirements and fees. Generally CFD providers will charge you fees for the following:

• Holding a Position Overnight (financing)
• Exchange Data
• Transaction Fees (commission)
• Trading Platform
• Negative Account Balances

Many people look at commission charges alone without considering the financing cost that CFD providers charge when holding positions overnight. You should look at all charges holistically and take into account that most CFD providers will not pay you as much interest on your free cash as you would get from a bank. 

4. What platform should I use?
Before choosing a provider you should trial a demonstration of the trading platform that they use. There are many types of trading platforms some are very simple and easy to use, whilst others are difficult and complicated. Each any every trader has their own preference and trading style some prefer platforms with advanced charting packages whilst others prefer simple and easy to use platforms. It is important to be aware that some CFD providers charge for their trading platform, in many cases these CFD providers have outsourced their technology and need to pay a third party. It is also very important to ensure that the platform that you use can offer the order types that your trading strategy requires, some platforms do not offer trailing stop-loss orders and others do not offer if-done orders. You should ensure that the platform you chose is suitable for your trading style and can offer you all of the features that you require. 

5. What range of CFDs should my provider offer?
Aside from shares CFDs are offered over a variety of different instruments including foreign exchange contracts, commodities and indices. Some CFD providers do not offer CFDs on all of these instruments. You should determine whether these instruments form part of your overall trading strategy before choosing a CFD provider as this may be a determining factor.

6. What is a spread?
The spread is the difference between the bid and the ask price, typically spreads are only applied to index and foreign exchange CFDs. Crossing the spread is much the same as a paying commission, this is how CFD providers makes money from their clients trading activity. Spreads can vary from provider to provider, much like commission there is not one standard spread all providers charge.

7. What margins should I pay?
Each CFD provider offers CFDs on different margin rates, these can be as low as 1 percent or up to 100 percent. The margin you pay will vary depending on the liquidity of the underlying instrument over which the CFD is based. You should be aware that margin can work in your benefit or against you. Should you choose a CFD provider that offers low margin rates you should carefully evaluate as to whether you wish to use the full amount of leverage offered to you by you by the CFD provider. Low margins should not be the determining factor in choosing a CFD provider but rather you should consider the product range offered by the provider.

8. How long has the provider been operating for?
You should ensure that your provider is well established and can offer you the customer service that as a new trader you will require. You should call up a few providers and experience their service first hand or even visit their office to see their operations.

In Conclusion
As a new CFD trader it is important to shop around and choose a provider that will best suit your trading style, remember not all providers are created equal. Ask the right questions and chose a provider that can allow you to focus on what is really important, that is your trading! 

To learn more about CFDs you can download our free CFD Guide.

There are many diverse CFD trading strategies and styles and it is up to you the CFD trader to decide which style suits your personality and the time you have available in your day for CFD trading.
 
Intra Day
If you are looking to be an active CFD trader you would generally use an intra-day trading style. This is where you look to take advantage of the swings in the market during the opening and closing phases. You need to have a good CFD trading system that can react to quick moves during market swings.
 
One example of a good intra-day trading style could be the following. At the close of the Australian market, the FTSE and other European markets are about to open. You have the advantage of having longer time to study the support/resistance levels and the possible reactions to the previous night’s trading in the US and any moves that have occurred in the Far East markets. You should be looking to trade this market in the first two hours when there is high liquidity and close out your CFD position unless you wish to carry it overnight. But only do so if your system agrees, not because you do not want to close out a losing trade.
 
You can trade the last one to two hours of the US market during early Australian time. The US markets provide good liquidity and the opportunity to take overnight positions.
 
For first time CFD day-traders, this is a good way to gain exposure to new markets. The US and European markets offer good risk/reward returns in highly liquid CFDs over shares and indices.

End of Day
End-of-day trades are executed at or near the close when it becomes clear where the price is going to ‘settle’ or close. This enables you to study the price action relative to previous day’s movements and then decide how the price is going to move in the near future based on the price action and indicators you are using in your CFD trading system. You then create a set of orders: an entry level, a stop level and a potential exit level. You can then either put these orders into the market via your online trading platform or by phoning your broker.
 
This style of CFD trading frees you up to do other things. It should not need your constant checking of the market to see if things are going in your direction. It is tempting to keep checking how your trade is progressing, which could be a drawback as it could ‘spook’ you out of a CFD trade because you are watching it too closely and you get unnerved.

The idea is to do your research and be confident in your trade. You know you might lose, but your stop is there to protect any damage to your capital. Let the market do the work and let it determine if the CFD trade is a correct one.

Trend Trading
Trend trading is when you are attempting to define the trend and only enter into CFD trades in the direction of the trend, the line of least resistance. The “trend is your friend” is one of the truest sayings in the markets. Following the trend is different from being ‘bullish or bearish’ where you have a fixed view of where the market should go and in which direction. Following the trend means you have to have a good system to detect and follow the trend.

You have to be flexible because the trend can obviously change and you have to be aware of a potential reversal in the market.
 
There are a lot of trend following funds in the market that trade many different products including CFDs, equities, treasuries, currencies and commodities. You will need to exercise your patience as ‘riding the trend’ is easier said than done. You need to have confidence in your CFD trading system. You will also have to accept losses and getting ‘chopped’ occasionally in your CFD trading. Remember that no system works all the time, and patience is needed.
 
You need to be alert for signs that the trend is ending or about to change. You will also need to be aware that the last part of the trend can accelerate as traders with the wrong CFD positions look to exit their losses at the point of maximum pain.

You must decide what timeframe you are going to follow the trend on and stick to it. It will be of no use if you keep flicking between charts hunting for the trend or once your CFD trade is on to look for confirmation that the trade is correct by finding a chart that agrees with your position.

It is a good idea to scale in and out of your CFD positions as this gives a greater degree of control and will probably give you more confidence in the trade as you will not be fixed at one price.
 
Swing Trading
The term ‘swing trading’ refers to playing both sides of the markets moves - long and short - by taking advantage of the market’s oscillations during your chosen timeframe as the price ‘swings’ from overbought to oversold on your system.
 
The duration of your CFD trades can and will vary. You must check the price action and support and resistance levels as it is most likely the market will oscillate between these levels as it tries to find the next directional move. Intra-day CFD trades will last from half an hour in fast markets to two or three hours depending on the characteristics of your market.

If you are taking overnight positions then you could find these ‘swings’ can last from two to three days and more.

It is a relatively simple way to trade CFDs and offers good risk/reward as long as you stick to your numbers and follow your strategy through without breaking your rules. It will allow you to play long and short trades, but you must be flexible and realise when it is not working and again exit quickly because it is likely a new move or trend is starting.
 
News Trading
If you intend to trade CFDs on news announcements you must understand that this is a very specialised and tricky game.

Remember that news travels very fast these days via internet and TV. You need to assess the news very quickly to judge how to trade the CFD around it. Is the news already fully factored into the price or only partially or is it fresh news that the market was not expecting? These are some of the decisions you will need to face.

Try not to jump into the action straight away unless you have a pre-determined strategy on a given bit of news.

Try to gauge the market’s reaction to the news as this is far more important than the news itself. Most CFD traders will tell you this is how they like to react to news, but we cannot all act the same way.

News can also give you an exit to a current trade. Take the exit as a good trade and look for your next trade, don’t be greedy and think it is the start of a bigger move.

If you have seen some news hit the screen and you have taken a CFD position in the market on the back of it, watch out for a sudden reversal if the expected move does not arise. It is most likely you are in company with the rest of the market with your view, and when this happens try and be among the first to exit, not the last as these moves can be fast and expensive as you wonder why the market is going against the news.

Be aware of how markets operate, they need energy to move and this energy comes from information flow. The news you are expecting or reading had to originate from somewhere and be aware that frequently the news would already be in the price as the markets and traders try to pre-guess the announcement and the markets reaction to it. “Better to travel, than to arrive” is another market motto, meaning it is better to be on the price action before an announcement than to wait for the announcement.

Zone Trading
Zone trading requires good research to define zones of important support and resistance.  It is in these areas that you are looking to enter your CFD trades. You will also need to know where your exit point is if the CFD trade is incorrect. Once you are confident in your ability and system to find these zones you can trade bigger positions at these levels as you are playing ‘pure’ price action and not relying on indicators.

This style can be used on all time frames and with total money management.  It requires patience and discipline about other systems for the market to reach your chosen levels to trade. It has the advantage over ‘indicator’ trading in that it does not require you to be ‘attached’ to a screen as you have pre-determined levels to trade at.

It is essential that you have stops in place as you are adopting a ‘view’ in your market that the price of the CFD should react away from your level once reached and this can leave you without flexibility.

Expert Tips
You must have a ‘high probability’ system to make profits. You must also have a good idea and grasp of money management as this will save you when you have some losing CFD trades. You can either buy a system that has been designed and is used by professional CFD traders, but check it is real and not one being offered by ‘snake-oil’ salesmen. It is an easy arena to prey on people and do not believe all the ‘$500 into $5000 on one trade’ systems on the internet.

Another important factor to consider when you are choosing a CFD trading system: does it have back up and follow up tuition? It takes time to learn all the nuances of any system and if you can ask questions this will be a very big plus.

An alternative is to try and design one yourself. The advantage of this is it will be fully suitable to your needs and you will understand its workings.

The disadvantage of this is that you may spend far too long developing something. Forget looking for the ‘Holy Grail’. It can be fun to look for it, but again it is distracting and why would anyone be selling something that was in effect a guaranteed money making machine. It can also be costly as you purchase various systems in the hunt for the Grail. It would be much better to understand that is does not and cannot exist.
 
The best option is to buy a CFD trading system that suits you and your chosen strategy for trading, i.e. day trading or end of day positions.

Learn the CFD trading system by constantly putting it to the test and understand its strengths and more importantly its weaknesses. Make sure it does suit you and the time it allows you to study the prices.

To learn more about the many different CFD trading styles you can download our free CFD Guide.

The growing amount of misinformation surrounding forex robots is making it increasingly difficult for the average retail trader to distinguish whether or not they are an effective means of getting exposure in the forex market.  This misinformation is due largely to the fact that the internet is saturated with content from robot developers more interested in lining their pockets, than growing your trading account.
 
I should point out that this article is by no means an attack on the forex robot community, rather it is an unbiased perspective aimed at educating traders so you can make more informed decisions when entering the markets. By the end of this article you will know some of the important pros and cons of robots as well as ways to filter the good from the bad developers.

The developers of robots focus on a few key selling points in order to market their product effectively. These selling points have clear advantages and disadvantages and I will focus on these to help you distinguish whether or not robots remain an effective investment vehicle for yourself.

Access to markets
Forex robots provide traders access to markets 24 hours a day 5.5 days a week. Since most retail traders do not want to spend that much time in front of the computer, this is an effective way to capture more opportunities and potentially increase profits. It also allows trader’s access to a greater variety of currency pairs, more than they would be able to analyse and trade themselves.

Although they can generate more opportunities, robots do have their limitations. Robots limit which broker you use as most robots aimed at the retail community will only run on MT4. The opportunities you are then able to take are limited by the spread your broker offers for that particular currency pair, (some robots will not take opportunities if the spread is too wide). For this reason it is recommended that you chose an MT4 broker that uses and electronic communications network (ECN) feed, as the spreads are typically tighter. Another limitation of robots is the fact that they are typically run off your computer as a virtual private server (VPS), this means that they need exclusive access to your trading account and require you to keep your computer running and platform open to get continued access to the forex market 24/5.5. Usually you will have to run two trading accounts if you wish to do your own discretionary trading as well as the robots.

Built in strategy
One of the biggest challenges facing new traders is developing an understanding of the market, and then building a strategy around that understanding. This can take years and thousands of dollars to develop. Robots remove the need for traders to build a strategy or even understand the market. Assuming the robot is profitable; this may provide traders with a more cost effective way of entering the market, increasing their chances due to the robot having a superior strategy.

It should be noted that in order for the robot to be effective the owner will still have to ‘tweak’ it for optimal results. In this situation it would be beneficial to have some understanding of trading or the forex market so the parameters can be set as optimally as possible. In my opinion, it is up to the vendor of the robot to provide its customers with continued support and instructions on how to optimise the robots settings for best results.

You should also take into account ‘who designed the robot?’ was it designed by a respected company with years of market experience, or an IT guru with internet marketing experience. The long term effectiveness of the strategy of the robot will be dependent on this factor.

Trade execution
Trade order execution is paramount to your trading and ultimately profitability. Robots can be better with regards to order execution due to the speed with which they think and act across multiple currency pairs. This provides a distinct advantage over typical discretionary trading, as more trades can be executed sooner, increasing exposure and potentially profits.

There is some disparity between demo and live trading with robots, due to execution of orders further illustrating the importance of the broker you choose to run your robot with. As was said above an MT4 broker using an ECN as opposed to a deal desk would be optimal for results.

Psychology  
Forex robots remove the need for the owner to think when engaging in a trade. One of the three pillars of an effective trading system; psychology, is what prevents traders from turning a winning strategy into a successful and profitable system. The owner simply turns the robot on, enters parameters specific to their risk and trading profile, and the robot does the rest. This is one of the most attractive features of a robot, leaving the trader to tweak the system based on statistics and profitability rather than emotion.

Money management
Forex robots can come with built in money management profiles that can be customised to meet the traders risk profile. Most new traders enter the forex market with little or no understanding of money management, so having a robot with a built in money management system puts them at immediate advantage than if they were to begin trading on their own. The money management employed by the robot is especially important and consideration should be given to this when choosing a robot.

Market conditions
Although this isn’t a point highlighted by robot developers when typically talking about the advantages and disadvantages of robots, I think it’s important to highlight that this is one of the key reasons robots can fail. There are so many variables in the forex market giving rise to changing conditions it is hard for robots and their developers to keep up. Robots for example a robot cannot detect when there is thinner liquidity giving rise to sudden sharp price movements, or breaking news causing volatility. As humans we can make ourselves aware of these factors and adjust our approach immediately.

When there are so many variables affecting currencies at any one time giving rise to market change and volatility, it seems almost impossible that a piece of software could possibly factor in all these changes to remain profitable and the strategy valid. Because of this robots are inherently designed to fail. This problem can be corrected if the robot is constantly updated and the strategy refined to adapt to changing market condition.

Cost
The last point to consider is cost. With robots, like anything in life, you get what you pay for. More expensive robots are likely to have more research and development behind them. While a support team will help you get setup and customise the robot to your settings, as well as provide you with updates. The less expensive variety has online manuals, placing the onus of tweaking the settings of the robot on the trader.

When considering the price of the robot, remember what it is you are buying and the costs associated with the alternative. The alternative, is spending thousands of dollars and hours educating yourself about the forex market and then, trading by yourself with no guarantee of success.

As you can see above, forex robots are not a sure road to success in the forex market. They have their obvious advantages and disadvantages, but in the end it is the job of the trader to take into consideration these points and question whether it still represents a viable way of getting exposure in the forex market.

It is important to note the reason forex robots have gained so much popularity is because there is a lucrative in selling them. The marketing teams behind robots sell hopes and dreams, which for the most part is what the average retail forex trader desires. They represent an easy solution to tradings biggest problem, making money.

If you take anything from this article, let it be the fact that it is essential to have at the very least a basic understanding of the forex market and trading before engaging in any sort of trading, even through the use of a robot. If a trader is going to use a robot I would suggest doing your homework and finding out the following:  who made the robot, their experience in the markets, years developing robots, support staff if any, do they help you optimise the robot, live trading account results, as much information about the strategy and money management system as possible and how many markets it covers. Once you have this entire information look at the costs. If a company can’t provide you with this information they aren’t worth your time or money!

To find more helpful infomation on Forex trading you can download our free Forex Guide.