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Interesting article in the April issue of Currency Trader magazine (free download each month), comparing the forex data feeds of two regulated forex brokers.
We all know the forex market is an uncentralized exchange, and therefore, each broker will have different liquidity providers and slightly different prices at times. Most of us have done our research to try to find the best broker for our particular strategies.
The basic findings of the article were that traders may find an approximate 1.09% difference in the price on daily price bar, between two large regulated brokers. This is noteworthy but amounts to about a pip difference in a pair that moves on average 100 pips per day.
But impact becomes larger as we drop down to lower time frames. A 1 pip difference on a hourly chart is akin to about 4.85% of the hourly bar data, on a 5-minute bar it equates to about 7.2% of the bar, and on a 1-minute bar the price difference could be 21%.
I found this interesting for two reasons.
The broker you choose can greatly affect your profitability. Especially when short-term trading (using 1 or 5-minute bars), a pip difference every once in a while means the difference between getting stopped out and remaining in the trade, or hitting your target or narrowly missing it. Over a great many trades those near misses or pre-mature stop-outs can turn a slight edge into a losing strategy.
The next thing I considered is the proliferation of bots and expert advisors which are sold today. While many of these fail to work in the first place, and are a waste of money, most traders don’t consider that a strategy (especially a short-term one) that works with one broker, may not work on another. Difference in price is not the only thing to consider here. I have noticed “latency” issues with several brokers, meaning your order fills at a slightly different price than it would with another broker. Again, slight difference over a great many traders, can greatly affect trading performance.
Bottom Line
The bottom line, is that you should always calibrate your strategies and decision making based on the broker you use. If you buy or develop a short-term strategy based on someone else’s work, you may need to alter it slightly to accommodate your broker. Keep in mind, the brokers used in this study where large and regulated. If you trade with a small unregulated broker, it is likely to have a fewer liquidity sources, which means latency issues and price difference could increase dramatically compared to other brokers.
If you are concerned about your broker providing uncompetitive, test it out. Simply open an demo account with a couple other brokers and compare the quotes. If you notice significantly different highs and lows on bars, you may have a problem you need to address….but only if you feel it has negatively affected performance. Of course there is a also the spread, which can greatly impact performance. The larger the spread, the harder it is so make a profit.
Also, be sure to test strategies and trade them on the same broker. If someone else tested a short-term strategy for you, using a different broker, the live results with your broker are likely to vary.
All forex trades I make are made with my favorite forex broker. After a decade of trading, these guys are one of the best I have dealt with. The spread is nearly non-existent (ECN and STP accounts), great service and great trading conditions. Check them out here: My Favorite Forex Broker
By Cory Mitchell, CMT
We all know the forex market is an uncentralized exchange, and therefore, each broker will have different liquidity providers and slightly different prices at times. Most of us have done our research to try to find the best broker for our particular strategies.
The basic findings of the article were that traders may find an approximate 1.09% difference in the price on daily price bar, between two large regulated brokers. This is noteworthy but amounts to about a pip difference in a pair that moves on average 100 pips per day.
But impact becomes larger as we drop down to lower time frames. A 1 pip difference on a hourly chart is akin to about 4.85% of the hourly bar data, on a 5-minute bar it equates to about 7.2% of the bar, and on a 1-minute bar the price difference could be 21%.
I found this interesting for two reasons.
The broker you choose can greatly affect your profitability. Especially when short-term trading (using 1 or 5-minute bars), a pip difference every once in a while means the difference between getting stopped out and remaining in the trade, or hitting your target or narrowly missing it. Over a great many trades those near misses or pre-mature stop-outs can turn a slight edge into a losing strategy.
The next thing I considered is the proliferation of bots and expert advisors which are sold today. While many of these fail to work in the first place, and are a waste of money, most traders don’t consider that a strategy (especially a short-term one) that works with one broker, may not work on another. Difference in price is not the only thing to consider here. I have noticed “latency” issues with several brokers, meaning your order fills at a slightly different price than it would with another broker. Again, slight difference over a great many traders, can greatly affect trading performance.
Bottom Line
The bottom line, is that you should always calibrate your strategies and decision making based on the broker you use. If you buy or develop a short-term strategy based on someone else’s work, you may need to alter it slightly to accommodate your broker. Keep in mind, the brokers used in this study where large and regulated. If you trade with a small unregulated broker, it is likely to have a fewer liquidity sources, which means latency issues and price difference could increase dramatically compared to other brokers.
If you are concerned about your broker providing uncompetitive, test it out. Simply open an demo account with a couple other brokers and compare the quotes. If you notice significantly different highs and lows on bars, you may have a problem you need to address….but only if you feel it has negatively affected performance. Of course there is a also the spread, which can greatly impact performance. The larger the spread, the harder it is so make a profit.
Also, be sure to test strategies and trade them on the same broker. If someone else tested a short-term strategy for you, using a different broker, the live results with your broker are likely to vary.
All forex trades I make are made with my favorite forex broker. After a decade of trading, these guys are one of the best I have dealt with. The spread is nearly non-existent (ECN and STP accounts), great service and great trading conditions. Check them out here: My Favorite Forex Broker
By Cory Mitchell, CMT
