What to do…

That was a rather stupid title to this post. Duh, it is hard to find the optimal broker, of course it is. Well, I find it increasingly hard to even find good ones when you put your demands on paper. I have recently written a EA that uses a long term grid trading strategy. It will leave positions open for months or even years, they will be heavily in loss during this time, but it will never close them. There is no stop loss. But what happens if you are forced to close them by your broker? This have recently happened with at least one broker I know of because of a switch of liquidity provider. Also, because of the long time in the market, swaps play a huge part in the performance of the system. It can deal okay with low negative swaps, but neutral or positive is of course much better. As for leverage the higher the better, but at least 1:100 but more preferable 1:200.

Spreads is not as important actually, but the tighter the better of course since price doesn’t have to move as far to take out profit. But this is not as important as swaps. Microlots is quite important for the system when account balance is below $10K, after that it isn’t as important as the EA would be close to using 0.1 lots anyhow. It is still preferable to be able to open 0.11, 0.12 and so on (LOTSTEP of 0.01 even thou MINLOT is 0.1). Of course it is impossible to run a grid system on a FIFO broker, so no NFA registered entities are good enough.

Regulation, dealing desk and deposits/withdraw handling are other factors, but they are not directly tied to the trading per se. It is however very important not to get scammed of your money of course. FSA regulation is prefered I think, and no dealing desk hopefully makes the broker less probable to be tempted to try to scam you (on slippage and such).

So this gives a checklist I’ve been trying on a few brokers (for long term strategies like my own EA or Robominer):

1. No FIFO requirement.
2. Positive swaps on pairs to be traded.
3. No future forced closing of positions.
4. Regulation by preferably FSA. Good stable company in general (the bigger the better I think).
5. At least 1:100 leverage (check that margin requirements are unchanged over the weekend).
6. Microlots.
7. Competitive spreads.
8. Low slippage (it is annoying to be slipped a few pips on entry and exit if they’re very rarely to your advantage).

I can say straight off that I haven’t found any broker that fulfills all of the above. The ones with the best trading environment (positive swaps, low spreads and low slippage) is rarely regulated and aren’t trading microlots. Also they could be forced to change liquidity providers now and then to get the best spreads (important for their scalper customers) which would force us to close positions that are negative. On the other hand are the bigger players with quite costly swaps and spreads, but at least I think you can be sure you are going to get payed by brokers like Forex.com or FXCM.

So, what to do? Since I can’t find one perfect broker I will diversify and use several. I will also trade different pairs on the selected ones. It is quite interesting that there are brokers where you have to pay 4.5 pips a day for 1 lot AUDNZD short when there’s others where you get payed 0.3 pips a day for the same position. It doesn’t quite add up for me, but that is the reality. Also the best ECN brokers give spreads in average of 5-6 pips during a day when some of the fixed spread brokers offer fixed 12 pips, a spread that the ECN offered just for a few ticks a day during news.

I have live accounts with Alpari UK, Forex.com/UK, Jade FX and The Collective FX right now. I’ve deployed my EA at Alpari UK, Forex.com/UK and The Collective FX. At Alpari UK the swaps in AUDNZD was just way to high, so I stopped that pair after just a few days realising how expensive it would be with lingering positions. I still trade EURCHF there thou. I just yesterday replaced RoboMiner on the Forex.com/UK account with my own EA and it will continue trading AUDNZD and EURCHF there. Swaps in AUDNZD is negative, but manageable. The Collective FX is by far the best broker of the bunch for AUDNZD since the swap for short positions is 0 (zero). IE you can have lingering positions without penalty. JadeFX offers the best spreads in AUDNZD, but the swap is too high there so I won’t deploy any long term strategies. Also there is talk in the forum about switching liquidity provider.

I’ve also checked out a great number of other brokers to open additional accounts with. I’ve opened but not funded an account at PrimeBankForex. They have great spreads, excellent swaps and trades microlots, but aren’t regulated. I’ll wait a few weeks before funding because I found out that they’re considering changing locality of their trading server and possibly this would force a close of open positions (I’m guessing they’re trying to get to the UK from their current NYC location because of fear for the NFA and CTFC over-regulation of the market with 1:10 leverage and FIFO).

I would like to have funds at a respectable broker like FXCM/UK, but their swaps is just to huge (in the pairs I’m considering at least) and they don’t offer microlots. The same for MIG Bank that have been getting good reviews by people I generally trust. DukasCopy have many things talking for them, but their 1:33 leverage over weekends pretty much destroys the number of open positions to a level that isn’t good for a grid system.

So this leaves me with mainly two brokers I am live with, Forex.com/UK and The Collective FX. It is good becuase they’re pretty much each others counterparts. The performance of the system is really much better at CFX, but Forex.com/UK (with Gain Capital) is a huge respectable entity. It is a very slim chance I will get scammed or forced to close positions there I think. But two brokers, when neither is perfect, is not good enough… I will desperately try to find at least two more. Suggestions are very welcome.

But act fast, they’re likely to fill the available slots today at least. I’ve signed and this time I will fund the account. In September when they last was open for new members I had no time to start the account before going away backpacking for three months.

The real benefit with CFX (as I will call them at least) is ECN spreads with low commission. I will pay $147 each month to trade 45 lots. That is a lot (pun intended) for me,  I probably won’t trade that much to start with. So the first months I will pay a little more for each trade, but still hopefully this will be better long term. I haven’t decided exactly on how much to deposit and what EAs to run, but somewhere in the range of $2-3000 and it is very likely that I will use MegaDroid (my favorite) on the account. Possibly I will deploy Forex Bling in there instead of at Forex.com/UK as planned, that way I give the ThunderBolt and ThunderStorm scalpers a nice environment to trade in. But I haven’t run the Bling package on demo at CFX, so I will have to start with that.

If you want one of the cheapest ECN brokers, check out http://www.thecollectivefx.com/html/waiting_list.html

I expect the free slots to fill up quite quickly. I’ve signed for a Tier 9 account myself as I’ve been demo trading with the Collective for two months now with very good results. Signing with one or two more good brokers is part of my business plan. Spread wise they are very competitive, comparable to JadeFX, but clearly with another liquidity provider since it isn’t exactly the same prices.

As a Tier 9 I will pay $147 per month to trade up to 45 round lots, that is about 3.2 USD / lot which is very good. (JadeFX charges 5 USD / lot).

Update: They filled the available slots in 1.5 hours. So now it is closed I guess. I’ll fund my account and hopefully get it started before I leave for Moscow on Monday afternoon.