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The Chimp’s Guide to Forex (3) 8th May 07
Trading Platforms
Some time ago I mentioned that I was going to review dealing platforms, comparing the spread-betting firms to forex broker alternatives. As a short term project this was probably a touch naïve; It wouldn’t take too long to just cut and paste details from the web-sites, but I wanted to get a feel for each platform and assess whether I would really sign up for it as my first choice default screen platform or whether it was OK in parts, but no more than that. Progress has been slow, hampered in part by a fairly lively couple of months in equity markets when my options positions required a lot of tender loving care. The need for a regular equity platform and the fact that I’m a luddite, often resistant to change, meant that for this article I decided to downsize from the original 6 platforms to just one of each. I refined this initial review to two reasonably well-known platforms, certainly suitable for starting out, and will review the others in more depth over the coming months. So, in the red corner representing spread betters, and which I must disclose as my preferred choice over the past 18 months, is CMC Markets, and in the blue corner the challenger representing forex brokers is FXCM. Future bouts are likely to feature IG Index and E-Trade Spreadbetting verses Saxobank and GFT.
Generally, the spread betting platforms are multi-instrument, useful not only for fingers in many pies, but also to gain an appreciation of the bigger picture. The forex brokers’ platforms tend to concentrate more on the currencies though Saxobank offers a wider range of instruments
Below, I’ve compared the types of account available, the use and appeal of the platform itself, quality of dealing and finally a section on ‘the other bits’.
But first the small print:
I’m not qualified or allowed to recommend any of these platforms, though a healthy advertising payment might suddenly qualify me. The comments below may be wrong or just downright unfair; they’re just comments on how I found the brokers and their trading platforms. These reviews won’t include comment on the creditworthiness of the various brokers; it’s up to the individual to check that out. That’s the part that always seems a bit dull, but the risks were highlighted recently when a Virginia based trader, CFG Trading, got into trouble and froze all its clients’ accounts.
There may appear to be a bias towards CMC, that’s because I’m a dinosaur. I’ve had a customised CMC platform across two 15” screens for the past eighteen months and just like a favourite pair of boxer shorts it tends to feel comfortable. In the spirit of fairness I’ve tried periods of relying solely on other platforms but trying to follow so many markets without such a comprehensive screen has been a bit like taking on Darth Vader with a Rampant Rabbit.
Account Options
This is the easy bit. Both firms offer easy online applications for demo and live accounts, on web pages that explain the various accounts and products pretty well.
CMC does offer a forex broker account as well, but for the purposes of this article I focussed on their spread betting service. The demo account offered is only for 14 days, though this can be renewed, and whilst the platform and prices are similar to the live account there are limitations, perhaps the biggest of which is that all positions are closed off overnight. The salesman’s advice was to sign up for a live account with the minimum deposit of £200 after the 14 days. I’ve mentioned before that whilst appreciating that there is quite a difference between live and demo platforms, clients should be allowed a longer time frame before having to put their money at risk.
To those unfamiliar with spread betting accounts the leverage differs but the exposure to unlimited losses remain. A trade is entered by placing a bet to buy or sell the instrument, except that unlike traditional betting the risk isn’t limited to the size of the bet. To protect themselves against losses the firm will apply a Notional Trade Requirement (NTR), which is essentially the capital required to cover the bet. The NTR varies with different instruments.
FXCM offer a choice of accounts, the 100k Account and the Mini Account. At the time of writing only the Mini Account offers a choice of base currencies, £, $ or Euro, to save on the costs of converting deposits and proceeds.
Both accounts offer a choice of 24 Currency Pairs, the availability of news, charts and trade ideas, but not other instruments like bonds, equities or commodities. The difference, unsurprisingly, is in the size you want to play in; The Mini Account can be opened with $300, £300 or Euro 300, though the recommended account size is $2,000. The maximum available margin is 200:1 and pip value is pretty much $1 per pip. The big boys account starts at $2,000 with a recommended size of $10,000 and whilst the available margin maxs out at 100:1 the approximate pip value is $10 per pip (that’s when your sphincter provides the first warning of a trade going wrong).
To their credit FXCM advise newbies to open a Mini Account to cut their teeth on, illustrating the impact that a few losing trades can have on your starting capital. Sound advice; I remember trading gilts on £5 a tic, because that was the minimum size on City Index. I’m very thankful that it was gilts, where I had a bit more of a clue and there was a lot less daily movement, rather than starting forex on that size. FXCM offer a variety of demo accounts to replicate their live ones, available for 30 days. I preferred setting up a sterling account (I’m a simple bloke and like to know my P&L figure in Sterling) although my first attempt at setting up a demo account resulted in me opening the big boys version in dollars, which became a bit confusing when I opened up the platform, bleary-eyed some mornings. This was my own fault; I was too lazy to read all the instructions, which offered a Mini Account in Sterling. Luckily this was soon put right by the predictable, but pleasant follow up courtesy call.
Trading Platforms
Although both services offered customised platforms, I felt most comfortable with CMC, spread over 2 screens. I’m a very simple person, preferring charts to figures so this flexible format suited me, allowing lots of instrument charts, a block of 2-way prices, a news panel and trading pop-ups. Clicking on the instrument code provides a drop down menu of options including charts, price alerts, dealing tickets and related news. All charts and price windows could be dragged and sized to suit the individual’s requirements; some prefer to amass as much data as possible and are willing to compromise on the size, I prefer larger price windows on FTSE and a couple of currencies so I can read them clearly from the comfort of my settee. Nit picking, I’d like to see a ‘change on the day’ column, though I guess they struggle in determining when the day starts and ends. Surely with the technology available they could take prices at 4.30 or 5 o’clock for the sake of a daily change.
I found the CMC graphics to be quick, flexible and easy to use. Again, perhaps if I had started out with FXCM I would have made it work better, but to me the FXCM screen seemed less flexible, even over two screens. FXCM’s invaluable News Squawk Box stretches across both screens and I was unable to impose a chart over the top. I also felt pretty vulnerable in not having a wider picture of the investment market: gold, oil, copper, bonds and equities-I like to know how different markets are moving. Admittedly, if some one wants to trade currencies solely on the technicals then this wouldn’t be a problem. Neither would it be a problem for those used to drawing items down from the menu for a quick glance. Me, I’m happy with a box of prices for various instruments and as many charts as I can fit on a page. My CMC platform allows me charts on £$ for 10 and 30 minute time periods, as well as a daily chart, all 3 defaulting to MACD, stochastic and RSI indicators as well as various moving averages. It also allows 1 minute and 1hour charts on FTSE as well as a daily chart. CMC allows you to build and store multiple pages, accessible via a drop down menu. Originally, I built up pages for £$, Euro$, gilts, global equities and Lloyds TSB. However, in practice, I found that I wanted to follow a range of investments via the one page. The range of instruments available to deal in is monster massive; currencies, shares, bonds, commodities- if you scroll down far enough you can short the Afghanistan poppy harvest whilst going long of PS3s (or is it 4s now?).
I felt that the best feature of the FXCM platform was the News Squawk Box. That alone might be reason enough to stick $300 in an account. The Squawk provides a flavour of what’s going on, rather than just official news. It provides comment on daily option expiry levels, levels where bids or offers are in significant size and other rumours hitting the market. Of course my mate Cyril the Cynic said that they may not be genuine (shame on him), but I felt they usefully kept me in touch on several occasions and comments did seem to tie in with market moves.
Having said that I’ve yet to find a news service that delivers economic data at the time of announcement. Perhaps I’m being naïve in hoping for such a service for free, but neither news service was any better than the bumbling buffoons on Bloomberg TV, who I suspect deliberately mess up the announcements to make you buy the superior subscription service.
FXCM offers a whole range of charting packages, ranging from the Ford Focus equivalent for free to the Aston Martin equivalent where you want to be pretty confident of making regular money so as to pay the monthly fee. As I’m already 47 I won’t live long enough to review all the chart packages, just be aware that there are lots to choose from and most offer a free trial (and there’s probably an element of getting what you pay for).
In this service-intensive world there is even a free Charting Specialist who will talk you through your charting requirements. I didn’t try this out, but I bet he doesn’t recommend one of the free packages.
FXCM’s basic graphics took a bit of getting used to. Their charts offered a tabular alternative, useful for actuaries that focus on numbers rather than lines. Amazingly, FXCM didn’t offer a price alert facility. I struggled with this as I tend to set daily alerts on major currency and equity levels to keep me in touch. CMC offer visual or audible alerts, which can be set for a period of days or months.
Dealing
CMC excel with their dealing spreads: FTSE 2 points, £$ and $Yen 3 pips, Euro$ and Euro£ 2 pips.
Under their transition to a No Dealing Desk account, spreads on FXCM tended to vary with market conditions. On occasions I witnessed £$ at 2 pips apart, but 4 was more common and spreads were certainly wider than that at times.
Though generally good CMC have had their moments, and those moments were bloody frustrating! They recently updated their software and I’ve yet to test it, but previously the dealing ticket had the notation flashing up “Waiting for dealer to respond”. Unfortunately, I’ve experienced a couple of occasions when the dealer seems to have responded to volatile markets by taking a copy of the Sun down to trap 3 until the pesky clients have dealt elsewhere. Cyril the Cynic has reminded me of another occasion when the after-hours FTSE quote looked way out of line. The dealing ticket was live so I thought I’d try a cheeky trade. This was predictably declined and the price subsequently brought back in to line. Now, I’ve no problem with that at all, but I wonder if that wrong price would have triggered a stop-loss at that level- I’ve certainly heard of such things. I’m sure that just like broadband, women and cars everyone has their own personal tales of woe and hardship. Slippage, re-quotes and unanswered lines are part of the business, not a pleasant part but I suspect, fairly widespread. It just so happens that I have tended to use CMC more so can only really comment on them.
Using ‘stops’ and ‘limits’ on CMC needs a discipline and the memory capacity of a woman scorned; they aren’t cancelled by a closing trade, remaining open to haunt you on some future occasion. I confess to having both suffered and benefited from such forgetfulness, only finding out by checking my Open Positions Blotter. I don’t like this system; it smacks of entrapment and would be improved by an ‘Alert’ pop-up highlighting the fact that a position had been opened.
FXCM have nearly completed the transition to a No Dealing Desk set-up (they did have a dealing desk option, which from reading a few blogs, seemed to come in for some stick).
The No Dealing Desk accountdoes what it says on the tin; the prices don’t come from FXCM, but from the whole shark pool of forex banks outside the safety of the harbour wall. This account used to be advertised as ‘ for scalpers and active traders’ and prices reflect whatever goes across the screen so the dealing spread varies. This can be good or bad, depending on market conditions and probably how quick you are. There are no re-quotes or confirmations, but you can deal up to, and across, announcements; in short, take your baseball bat, you’re out there with the big boys.
FXCM offers the equivalent of broker’s discretion, as used in equity markets. The trade ticket allows you to enter the range around the market price you’re happy to trade at, useful if you’re trading on a news announcement and don’t want to miss getting on.
When I first tested FXCM I found, to my cost, that you close a trade using the ‘close’ facility; closing in the normal way opens up two opposing positions, requiring two sets of dealing spreads to close them. I can’t really describe this as a niggle, firstly because it was only through my own laziness that I dealt incorrectly (the beginner’s guide is there for a reason) and secondly it isn’t really a niggle at all; the platform actually has quite a neat way of following open positions, with easy clicks to close or alter trading limits and stops.
I found the FXCM dealing box easy to use; Advanced Options included the facility to set stops and limits at the time of execution. This is a useful feature as it enforces the discipline rather than the ‘I’ll just see what the market does first’ attitude. Yes, been there, done that. There is also a trailing stop loss facility, which is an improvement on constantly manually re-setting.
Extras
FXCM offers two additional web sites, www.dailyfx.com their in-house research web site, which offers daily commentaries, an economic calendar and plenty of currency-related articles, and www.fxcmtr.com, only available to live accounts and offering research from various banks and a currencies heat map, based on fundamentals. I liked this as it included links to some of Barclays’ economic research, a throwback to my days in fund management. There are plenty of trading reports and alerts to tempt you: range trades, news trades, hedging range trades and a ‘dynamic carry trade basket!
CMC provide CMC+, accessible from the trading platform, which offers an economic calendar, a notice board and message system and economic and market commentaries, including a mid-morning video commentary.
They also offer regular training seminars. I haven’t been to any as I view the free ones as probably introductory and the paying ones as pretty expensive, but they’re there if you want them.
Bonus Tip (not advice)
From my experience the words ‘Bonus’ usually involve scrolling down several pages of e-mail then parting with some money. Well this involves neither; it’s simply this. The above reviews were how I found these accounts, based on eighteen months with CMC and about 6 weeks with FXCM. To get a broader range of views there is a web site called www.forexbastards.com , which includes a long list of comments and reviews on a vast list of brokers, including these two. I found the reviews at times to be interesting reading, and there seemed to be a few common themes across a lot of brokers, but a couple of things I took into account were:
1) A lot of the reviews I read referred to overseas experiences. Just because CMC Australia ditched a client doesn’t mean the UK office are a bunch of crooks.
2) I don’t doubt that a lot of the grievances are genuine, but I think the ‘Scam’ rating is a bit overused. In every aspect of life there are people finding fault with everything (there’s probably a woman with short hair and sensible shoes somewhere who’s not a big fan of Kylie) and often they’re more likely to write in. Even in fund management with ‘proper’ brokers it was easy to blame the price, time, market for a trade that went wrong. However, there also looked to be some more balanced reviews by professional traders commenting from years of experience. Read the reviews with an open mind!
A conclusion isn’t really necessary, but to continue the boxing analogy I would say that CMC win by a unanimous points verdict. I’m tempted to stick a small amount with FXCM for use of the News Squawk, but to me CMC provides a better platform with tighter spreads and the benefit of spread betting tax-free.
forextrader@proactiveinvestors.com
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