Should I avoid Market Makers?

Many are unaware that there are two different types of Contract for difference brokerages. Firstly, there are those who simply take the role of agents executing all orders on the underlying exchange, this type of brokerage gives it’s customers direct market access. In contrast with Direct Market Access brokerages their are Market Makers who make a market and then live off the spread. With Market Makers taking a number of different measures to manage their risk. To learn how Market Makers manage their risk check this post out

When trading with a brokerage that offers Direct Market Access, the bids and offers on display will match those in the underlying market. This means that the spreads on offer are much tighter than brokerages that operate on the Market Maker model. Though when trading with a CFD brokerage that offers direct market access you will have to pay fixed commissions on each position opened. This can really eat into smaller traders profits.  

With a Market Maker, they will determine the spread on the given instrument to manage risk and to increase profits the Market Maker will often offer spreads considerably wider than those found in the underlying market. When hitting buy you may also experience slippage and re-quotes which is particularly annoying, however you are less likely to have to pay a commission on each position opened with the brokerage. Which can be beneficial to those who have limited funds to trade with. 

Choosing whether to use a Market Maker or Direct Market Access brokerage really depends on your needs and what products you intend to trade. The shorter your trading time frame the more beneficial a Direct Market Access brokerage will be. However if you want access to a wider range of global markets a Market Maker may offer you a better range of instruments to trade. This is due to the fact that a Market Maker can theoretically create a market for any tradeable financial instrument, whereas a Direct Market Access brokerage would need access to the particular market. A lot of professional traders will use both for these very reasons. 

Given the advantages of brokerage who offer Direct Market Access (DMA) why do people use Market Makers? Well Market Makers have a number of benefits for one they tend to offer a wider range of markets, including foreign and illiquid markets. They also tend to allow traders to access the markets with less capital and undertake smaller size trades. For example to trade CFD’s with DMA broker you may need to open account with at least $2500, but many Market Makers allow you to trade the markets with as little as $100 (theres even a few regulated brokerages that allow you to trade the markets with as little as $5). 

Liquidity can also be an issue with Direct Market Access brokerages. For example suppose you want to buy 500 Shares of a particular company if there are only 10 Shares available to buy    you won’t be able to execute your order. It is for this very reason that one can’t take advantage of guaranteed stop losses at a DMA brokerage, due to the fact that there is a chance that you won’t be able to close a position at that particular price.  

Both Direct Market Access and Market Makers have their own advantages and deciding which to trade with will largely come down to what your particular needs are. In an ideal world it would beneficial to have access to both a DMA and Market Maker, but many will forced to pick one over the other and they should consider which brokerage model would suit them better.

CFD Review: Oanda Europe

Important Facts 
  • Regulation: Oanda Europe Ltd. is a registered company in the United Kingdom and is fully regulated by the FSA. 
  • Instruments: Forex, Commodities and Indices. 
  • Features: Good range of platforms with plenty of mobile trading support, as well as very tight spreads on the Forex pairings on offer. 
  • Leverage: Maximum Leverage of 50:1 
  • Minimum Deposit: No minimum account size
The Platform 
At the core of OANDA’s offering is their own propitiatory trading platform fxTrade, which I have remark is a very nice and easy to use platform. It has to be one of my preferred non MetaTrader offering being very versatile and should meet most traders needs. However, if your a fan of MetaTrader OANDA also offer MetaTrader 4 for their customers, which works just as one would expect. This a nice feature for those who are fans of the MetaTrader platform allowing you to operate Expert Advisors and do all the other things that the platform is well renowned for.  OANDA Europe also has an impressive range of different mobile trading applications including  support for Blackberry’s, Android devices and of course Ipad’s and Iphones. All of the mobile platforms work perfectly and are quite impressive allowing the trader to do much of what they would normally do on the PC or Laptop. All in all, OANDA has a decent range of platforms all of which should satisfy most traders.  

Special Features 
While their is nothing particularly remarkable or unique about OANDA, their CFD offering is of exquisite quality offering very tight spreads, decent trading platforms as well as providing a high quality of service. OANDA also offers demo accounts to those who want to try out the platform before they deposit real money. There are a couple downsides to OANDA with traders be unable to trade stocks and the maximum leverage available at OANDA only being 50:1. 

Spreads 
The Spreads at OANDA are particularly impressive being some of the tightest around with the majority of major currency pairings having spreads as small as a signal pip. The spreads for the more exotic currency pairings do of course widen, however the spreads for these currencies are still very competitive and you would probably do a lot worse than the spreads on offer at OANDA. I would say that the spreads on offer at OANDA are very competitive and are significantly tighter than at a number of well known industry players. The spreads on commodities also appear to be particularly tight as well providing the trader with value for money across the board. While overall the spreads at OANDA are very tight one should still search around for the best value, especially if you intend to trade a particular instrument. 

Customer Service 
OANDA Europe has a very good reputation when it comes to customer service, with a number of OANDA customers having praised them for the high quality of service. In my personal experience contacting OANDA has been unproblematic. Depositing and withdrawal have gone smoothly with their even being the option to withdraw funds to a verified Paypal account. This high quality of customer service has gone unnoticed with ForexMagnates picking out OANDA as the best broker of 2012. I personally have no reservations recommending OANDA and would be surprised if you could find many people who were completely dissatisfied with the service offered by OANDA.  

Regulation 
OANDA Europe is based in London and is regulated by the FSA this allows OANDA Europe to accept clients from throughout the European Union. The FSA is considered to be one of the best European regulators and OANDA Europe has a clean regulatory record. OANDA also happens to be regulated in the USA and Japan, meaning that the brokerage is a serious international player. I wouldn’t have any worries about depositing cash with OANDA as I know it would be safe with OANDA being a properly regulated firm. 

Overall, I would reccomned OANDA to anyone in Europe who wished to trade Forex and Commodities. It is unfortunate that OANDA doesn’t offer Stocks, but I see that as the only major drawback to the OANDA offering.

eToro WebTrader 2.0 Overview

Unlike most trading platforms eToro only offers their own WebTrader platform and their Social Openbook platform. Today, I’m going to look at eToro’s WebTrader 2.0 platform and discuss it’s pros and cons. While comparing it to the offerings of other well known CFD brokerages. 
 
Firstly, it should be noted that eToro’s WebTrader has clearly been designed to be very user friendly and is very easy to navigate around. All the menus and options are very clear anyone who has an understanding of how trading works should be able to get to grips with it. It has a number of nice features I like how easy it is to download your trade history to an excel spreadsheet which is a pretty nice feature and allows you to keep track of your trades very easily.  
Another nice feature of eToro’s WebTrader is that you can set yourself and audio alarm when an instrument reaches a specific price, which means your not forced to watch the markets the whole time if you have already decided to take position if an instrument reaches a specific price. Opening and closing positions is very easy and should be easy for anyone, allowing you to set take profit and stop loss levels when you open your position. A news feed is also built into the WebTrader meaning that you don’t have to have a news site open, the news featured is both relevant and updated several times a day with breaking news. 
The weak point of the eToro WebTrader platform has to be the charting features. Charting opens up in a new window and allows you to add all the technical indicators you would expect, within a couple of minutes I was able to set up the charting features to my liking. Though I don’t particularly like reading from the eToro charts preferring MetaTrader’s charts. All the indicators are perfectly functional and are very easy to apply even if they are oddly named “Studies”. Even if eToro’s webtraders charting features aren’t the most sophisticated they will probably fulfill most people’s needs.
 
In conclusion then eToro’s WebTrader 2.0 is perfectly functional even if it isn’t as sophisticated as MetaTrader’s trading platform. There is no support for algorithmic trading applications or programs, though it should be noted that many people choose eToro due to its strong social trading features. If your a new trader or interested in eToro primarily for the social trading features, their WebTrader platform should be more than enough to keep you going. More advanced or sophisticated traders are probably going to want to use other trading platforms which give them more flexibility and options to choose from.

Documentary: Quants: The Alchemists of Wall Street

[youtube=http://www.youtube.com/watch?v=ed2FWNWwE3I]


Quants are the math geniuses who have helped Wall Street create algorithms and mathematical models which drive much of the trade and activity on The Street. Some have blamed the Quants for 2008 financial crisis and the 2010 flash crash. This documentary takes a look at the increased role these geniuses play in creating the models that Wall Street and the financial sector increasingly lean on. This documentary gives the viewer a good insight into the huge role algorithmic trading and complicated models now play in the financial services sector. 

CFD Review: AVA FX

Important Facts 
  • Regulation: In Europe, AVA FX are regulated by Central Bank of Ireland. AVA FX is also regulated in Australia by ASIC and in Japan by the Japanese FSA. 
  • Instruments: Forex, Stocks and a range of Commodities. 
  • Features: Wide range of platforms to choose from as well as social trading features.  
  • Leverage: Of up to 200:1 
  • Minimum Deposit: $100 
The Platform 
At the center of AVA FX’s offering is the well known MetaTrader 4 platform, which is a well known platform and a favorite among many a CFD trader. As you would expect AVA’s version of MetaTrader 4 doesn’t differ from the standard MetaTrader offering. Scalping is allowed at AVA FX but limits are placed on the activity of arbitrage Expert Advisors. What these limits are isn’t made entirely clear. If MetaTrader isn’t for your AVA FX also offer their AVA Trader platform which is pretty functional, though I feel it is a bit crowded for my liking as their is simply too much going on. Though I sure some will like the AVA Trader and find it pretty intuitive. Another thing that will attract people to AVA FX is the fact that it offers extensive options for those who want to engage in social trading. For one their is the well known Mirror Trader program which is available at a number of different brokerages.Secondly, AVA FX also provides support for those who wish to use ZuluTrade, as well as offering the similar alternatives Currensee and ayondo. So it appears that AVA FX may be a good option for those who wish to try their hand at social trading. 

Special Features 
AVA FX doesn’t offer anything particularly unique apart from its support of a wide range of social trading platforms. But apart from this I cant see AVA FX offering anything particularly unique in terms of trading. Though I could see AVA FX being a good option if one intended to get into social trading.  

Spreads 
The Spreads on offered at AVA FX aren’t that great but there not the worst either, spreads on the major Forex pairings range from around 2-3 pips. Though the spreads do get significantly wider when it comes the more exotic pairings. However if your only trading the major pairs the spreads should be tight enough to allow you make some decent profits. I have done an in depth  analysis of Forex spreads which didn’t include AVA, but I believe that AVA FX would fit in the middle of the said list. But would still provide significantly less value than the  best CFD providers in the market place. When making a decision about which brokerage to choose one should determine what instruments they intend to primarily trade and determine which brokerage provides them with the best value for money. 

Customer Service 
The customer service gets a pretty heavy slating at AVA FX, with their being lots of reports of individuals having to wait an extended period of time in order to be able to withdraw their money. There have also been complaints that AVA FX appear to make up stories in order to satisfy their customers, as well as giving out inaccurate or misleading information. Unsurprisingly AVA FX dispute this and contend that they provide a very high quality of service to their customers. While I can’t come down on either side of this debate, I think the reports are concerning enough to mean that individuals who are interested in depositing with AVA FX do some serious research before depositing cash with them. 

Regulation 
In Europe AVA FX is regulated in Ireland by the Central Bank of Ireland. Due to the fact that Ireland is a full member of the European Union in accordance with MiFID directives AVA FX is able to accept and take on clients from throughout the European Union. AVA FX has received some criticism regarding being regulated in Ireland due to the fact it is perceived to be one of Europe’s weaker regulatory regimes. As far as I can tell AVA FX has never been on the receiving end of any financial penalties or warnings. AVA FX also holds ASIC regulation which allows them to operate and accept Australian customers and again to the best of my knowledge they haven’t received any fines or penalties. Further on top of this AVA FX is also regulated in Japan allowing them to take on Japanese customers, this means that AVA FX has a global presence operating in a number of different jurisdictions. I believe however that AVA FX is an offshore company as it is also going through the process of obtaining BVI financial regulation, it is also reported to have strong connections to Israel.  

Overall, I wouldn’t say that AVA FX is the worst brokerage out there but I would also not place it among the best brokerages. I personally wouldn’t deposit any serious amount of money with AVA FX.

Instaforex sued by the CTFC

In 2011 Instaforex and one of it’s introducing brokers ZTradeFX LLC was sued by the CTFC for breaking US regulations by accepting US Clients. The Dodd Frank act prevents brokerages who do not have the adequate US regulation from accepting clients in the United States of America. However due to the fact that Instaforex parent company InstaTrade Corporation is a offshore entity based in the British Virgin Islands, InstaTrade Corporation never appeared in court and was never financially sanctioned for their breach of US regulations. 

Of course Instaforex claims complete innocence they state that it was the fault of the introducing broker. Going onto claim that the Introducing broker ZTradeFX LLC. was in fact part of their partnership program but had no active members with Instaforex. Thus meaning the complaints lodged by the CTFC were completely fictitious. However, it appears highly unlikely that the CTFC would launch legal action in a case were no US Clients had actually opened accounts with Instaforex through ZTradeFX LLC. Especially when it explicitly stated in the legal paperwork that InstaTrade Corporation would be fined $140,000 for every breach of regulation after the 23rd of October 2012. So if there had been no breaches after the 23rd Oct 2008, then InstaTrade Corporation would not have to pay any fines whatsoever.  

However as Instaforex i.e InstaTrade Corporation did not respond to the suit the NFA sanctioned Instaforex in the following way: 

TRADING PROHIBITION 09/14/2011

 

STOP SOLICITING 09/14/2011

OTHER (SEE NARRATIVE) 09/14/2011

PERMANENT INJUNCTION 09/14/2011

MAY NOT APPLY TO REGISTER 09/14/2011

FINE $140000 09/14/2011

MAY NOT OPERATE AS PRINCIPAL 09/14/2011

 

This means that Instaforex may not apply for a US licence in the future at least until the other issues in the suit are resolved. This is also makes bans Instaforex from soliciting or trading in any form within the United States of America. However, Instaforex still protests its innocence and claims that it never had any intention to operate in the US markets.  

While Instaforex is still operating and is still profitable for its offshore owners, this ruling by the CTFC and NFA will have certainly further damaged it’s already battered reputation

Forex No Deposit Bonuses

Name Bonus Regulation Review
Plus500 £20.00 FSA,ASIC Here
HiRose UK $20 FSA N/A
Admiral Markets (Croatia Only) 50 Euros ASIC N/A
AGEA $5 Unregulated N/A
FBS $5 Beliz N/A
ForexCent $5 Unregulated N/A
fxturQ $5 Unregulated N/A
Nano4X $12 Panama N/A
NordFX $8 Unregulated N/A
OctaFX $8 Unregulated N/A
PanForex $7 Unregulated N/A
VEForex $5 Unregulated N/A
TuneFX $5 Unregulated N/A
No Deposit bonuses have become something that has become common in the poker and gambling world. Now a number of different brokerages have started to offer no deposit bonuses. However from the above table you can see that the majority of the brokerages that offer these no deposit bonuses are unregulated offshore entities. Of the brokerages that offer no deposit bonuses only three are properly regulated entities. Both HiRose and Plus500 offer no deposit bonuses as well as being regulated by the FSA. 
 
The Plus500 bonus involves giving and verifying your phone number with Plus500. They then deposit the bonus in your account, but you are only able to withdraw the bonus if you undertake enough trading activity in the allotted time frame. After three months the bonus is then removed from your account. While it is possible to earn the amount of trader points required to withdraw the bonus it is somewhat of a challenge. Your only allowed to create one account per household as well meaning if you fail at your first attempt you can’t set up a new account to take advantage of the bonus. 
 
At HiRose financial it is similar except that the bonus and the profits made from the bonus can only be withdrawn after you have made a real money deposit. This means that a trader is going to have to make a deposit of some sort if there ever going to free up their bonus earnings. Apart from HiRose and Plus500, all the other no deposit bonuses listed are with unregulated and mainly offshore brokerages.  
 
If you want to try your hand at trading real money without depositing yourself, the Plus500 no deposit bonus is probably your best shot. I will aim to keep this page up to date if any other brokerages begin to offer no deposit bonuses. 

An Introduction to Trading Gold

Gold has been greatly valued by humans due to it’s aesthetic qualities and it’s general malleability. Gold has been at the center of human commerce since the beginning of recorded history and their is bountiful evidence to suggest that Gold was used as currency in ancient Middle Eastern Societies over 2,500 years ago. This makes Gold the oldest form of currency that is still in use today. Thus Gold has a long historical track record of being a store of value, with its value having endured through periods of war, famine and other great historical events. This is why Gold is often seen as the ultimate safe haven asset. In addition, Gold also has a number of important industrial applications.

Since the financial crisis of 2008, the interest in trading Gold has risen significantly with Gold prices skyrocketing as investors and individuals look for a safe haven. With Gold prices hitting an all time high of above $1900 in late 2011. This short introductory post will discuss some of the basics of Gold trading and the factors that affect Gold prices. 

Physical gold is generally held to be valuable due to the fact that it has many of the key qualities one would want from a currency. Gold is scarce, durable, portable, uniform and widely accepted. This wide acceptance is part due to the fact that Gold has a long history of being widely accepted. The majority of people who trade Gold never take delivery of their Gold bullion but rather focus on the current spot gold price, which is based on the price of the nearest futures contract on the New York COMEX (Commodity Exchange). This means the most common way to trade Gold is either through futures contracts themselves or through derivatives based on the price of future contracts.  

In Europe, the most popular way to trade Gold is through a type of derivative known as CFD or Contract for difference. CFD’s are a leveraged instrument meaning that it is possible to trade several thousand euros worth of Gold with a much smaller initial margin deposit. This leverage works in your favor when things go your way multiplying your profits, while working against you when things don’t go your way multiplying your loses. This makes risk management and stop losses very important.  

Gold is one of the most difficult assets to value, this is due to the fact that in someways Gold is similar to a currency and in other regards it much closer to commodities such as Oil or Corn. Unlike normal currencies and stores of value, Gold is not supported by the strength of an underlying economy. Gold is also unlike Oil or Natural Gas, as it fluctuates independently of industrial supply and demand.   

A very reliable determinant of what will happen with Gold prices is the level of real interest rates. The real interest rate is the rate of interest minus inflation. When real interest rates are low or negative investments such as Cash savings or Bonds tend to have a low or negative real rate of return. This in turns pushes investors to seek alternative ways protect their wealth with Gold being seen as a good store of value. On the other hand when real interest rates are strong investors tend to move their money out of Gold into other assets in order to take advantage of the strong real interest rate.  

Short term traders have often found that technical trading strategies can be very effective when it comes trading Gold. A number of different strategies can be easily adapted to the Gold market and many have found the durable trends which Gold tends to form to be very profitable. Those looking to trade Gold with a longer term perspective may want to monitor Gold prices against the rate of real interest rates.

How to pick a Brokerage: 5 Easy Steps

The World is a flood with different Forex brokerages and trying to decide which Brokerage to deposit with can This article isn’t going to mention or name any brokerages it’s merely meant to provide a guide on how to find the best brokerage for you with a series of helpful hints. 

1. Determine What Instrument You Intend to Trade  
Not all brokers offer all instruments. Many Contract for difference providers are limited to Forex, Commodities and Indices, while others offer more exotic instruments such as Bonds and ETF’s to trade. If there is one particular instrument you want to trade whether that be a Forex pairing or a particular ETF you have developed an arbitrage strategy for, your going to want to do a lot of your research around which brokerage is going to give you the best trading conditions for a particular instrument. If your interested in a more general range of instruments then work out which broker provides the best overall level of service for that instrument.

2. What your trading style will be and how that fits with the Brokerage  
Many brokerages have different rules and terms when it comes to CFD trading. For example a number of brokerages completely ban scalping or partly ban scalping activity. Rules surrounding MetaTrader Expert Advisors also vary from broker to broker, some brokers allow unlimited scalping while others don’t let scalping expert advisors on their sites. News traders for example may favor a brokerage that has fixed spreads so the spreads don’t widen just around the times they need them to be tight. Your trading style should help you narrow down which brokerage to deposit with. Frequent re-quotes and slow servers may also be problematic for some depending on what their particular trading style is. 

3. Find out about regulation and reputation  
This is probably the most important point when picking a brokerage. In this day and age there is no reason to deposit with an unregulated brokerage considering the huge number of reputable regulated brokerages. This means when considering a brokerage you should first determine if their regulated by a proper regulator researching and discovering whether a regulator is genuine shouldn’t take more than a couple of minutes. Then you can search the relevant regulators site for any disciplinary action taken against the company, if you find such action this may be a good reason not to deposit with the said brokerage. After you have checked that the company is properly regulated and has a clean disciplinary record you should check and read about the reputation of the company. This should further narrow down your choice of brokerages. 

4. Check if they provide value for money in terms of spreads and commission  
Hopefully you have some idea of what instrument(s) you will trade the most. This will allow you to shop around for the best spreads. Getting the best value for money that you can is vitally important and can make a significant difference over the long run, a single pip greater spread may be a huge difference especially for those who scalp for a only a few pips profit from each trade. Some brokerages may offer very tight spreads but charge you commission at either a fixed quantity or typical a very small value of the trade say 0.1%. Brokerages that don’t charge commission tend to have wider spreads, however fixed commission can really eat into your profits if your positions are relatively small. So you should spend some time calculating which brokerage would offer the best value for money on the instrument(s) you trade and at the size which you intend to trade them at.  

5. Talk to the Brokerage and see what they say 
Talk to the brokerage through live chat, sign up for a demo account and wait for the marketing phone call. If a brokerage is too aggressive in their selling technique I generally see that as a bad sign. Again if a brokerage offers free learning, or tutoring, why not take them up on their offer and see if the information they provide is of any value or if it is merely a sales pitch. Getting a sense of how a brokerage regards and treats it’s clients can give you a good insight to what they will be like when you trade with them, I would personally say that things such as long winded sales pitches and hard selling are things which should put you off. 

These five broad categories are the main things you should take into consideration when picking a CFD brokerage to open up an account with.