Three Brokers Compared

Introduction

I am new to trading on forex. This blog is about some of my early trading experiences and my attempt to apply some logic to the process of electing a broker. The three brokers that I have considered are Fortuneway, IG and AvaTrade.

How well can you predict the market?

The market is like the weather. The further ahead you try to predict the less likely you are to be accurate. This is particularly true of the bitcoin market. The primary decisions a trader can take is when to enter the market and when to exit. Timing is key. The other, lesser factor is unit price. We can think of this as an attribute of the forecast. It represents confidence. These are the factors that the trader can control.

Here is a summary of 62 trades that I made over August and September, 2018. The percentage of successful trades was 63%. In this case, success simply means that the profit was greater than zero.

  • The biggest loss was $14,962.95
  • The biggest win was $10,578.00 with a total profit of $16,797.00
  • The average profit was $270.92
  • The proportion of buying to selling was fifty percent
  • The unit price averaged at 0.4

The results are based on demo accounts, sadly all fake money ūüôĄ

History screen using FortuneWay demo account

What factors influence success?

As an individual trader you cannot access the market directly. Only a broker can do that. There are many brokers, each wraps trading activity with policies that are designed to earn them money, and hopefully you too. How does the choice of broker impact the trading outcome?

As we are interested in the success of predicting the market across all the brokers, we first try to normalise the data. The analysis uses the points moved between open and close. This a better metric than profit because USD is skewed due to the different ways that brokers calculate profit.

Boxplot comparing trading history with three brokers
Boxplot comparing trading history with three brokers

The diagram shows how the points were distributed across data set.

  • The red line is the median (second quartile)
  • Upper and lower lines are the first and third quartiles
  • Plus signs (+) are the outliers

Trades with FortuneWay were the most successful as all the points are above zero. Conversely the trades with IG resulted mostly in loss.

Profit calculation

Brokers affect profit as follows:

  1. Using Contract Size when converting BTC to USD
  2. Applying spread when a trade is opened

The profits were calculated from the open and close prices using this forumula.

pointsMoved = openPrice - closePrice  # assume buying
     profit = pointsMoved * (contractSize * unitPrice)

# Examples from the data set

(6379.23 - 6390.05 = 10.82) * (100 * .1) = $108.20 # Fway
(6682.07 - 6450 23 =  2.07) * (  1 * .1) =  $23.20 # IG

The brokers offer these contract sizes: FortuneWay: 100, AvaTrade: 10, IG: 1

AvaTrade claim their contract size is 10 but on my data it worked out as 7.7 

This explains why the broker with the largest contract size (FortuneWay) generated the greatest profit. This is despite the fact that they won the smallest number of points (see the boxplot diagram above).

The following table shows the contract sizes, as well as all the attributes of the policy provided by each broker.

 FortuneWayIGAvaTrade
Leverage1:1001:200
Contract Size100110 (7.7)
Stops level6005003100
Profit calcFuturesCFDCFD
Spreadfloatingfloatingfloating
Digits222
Pendings GTCYesYes
Tick value1.00
Tick size0.01
Swap typeUSD
Swap long-10.00-28.8
Swap short-10.00-28.8
Margin calcFuturesCFD
Margin initial3000.00
Margin maintenance3000.00
Margin hedge1500.005.00
Margin percentage4.00
3-days swapFriday
ExecutionMarket
Min vol.01
Max vol10000.00
Vol step.01

Attributes from MT4 Quotes > BTCUSD > Details

Understanding Spread

Spread is the difference between the ask and bid price. Spread is applied when the trade is struck. For example, IG will always add 50 points, in either direction.

In MT4 See Quotes > Advanced for the current spread.

In the screenshot below were are using the AvaTrade account and when the trade was struck the the price was 6391.86
Chart showing price when struck

Chart showing price when struck

Unlike the other brokers, the spread that AvaTrade applies will vary according to the price. From the Trade screen we can see the price that was paid at that time was 6440.57. In this example, the spread was therefore 6440.57 Р6391.86 = 48.71

Screenshot of opening price
Screenshot of opening price

Effectively this means the trade has to anticipate 48.71 points before getting into profit.

Summary

The discussion has concentrated on the opportunities and risk of profit and loss, associated with the various brokers. Let’s round-off with a higher-level summary of the differences.

 AvaTradeFortuneWayIG
Profit opportunity******
Risk management******
Regulation******
Website and support******

IG scored highest on regulation because they are backed by the FSA and I am a UK citizen. Although the FortuneWay website is under-developed, the real-time support has been excellent and they were the most profitable due to their thin spread. Avatrade have the best website, but a lack of transparency on their pricing structure lowered their overall score.

Will I ever open a Real Account and which broker will I chose? You have to wait for the next blog to find out ūüėõ

You may wish to download the data used for the analysis.

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