Introduction
If you are an experienced investor or a professional trader you know very well the importance of having the right brokerage services. Finding the right partners is a tough and complicated task. There are so many aspects to evaluate before you make a final choice. Safety of funds certainly is the most crucial matter each time a deposit of money is made to an online company. Many other factors also matter. The spread and the commission charged determine to a high extent the trader’s ability to make a profit in the long run. Furthermore, the lack of technological efficiency may lead to delays in execution and highly disturb short-term traders.
To find a way to evaluate effectively the world’s online brokerage services, a rating formula was designed, and how it is presented. The first version of this formula is applied to Online Forex Brokers. The maximum rating that a broker can perform is 100% and the minimum rating is 2%.
*The formula described below, is version 2.0 of the Trading Center Rating Brokers Formula.
World Brokers Rating Formula 2.0
-Implemented on Forex Brokers
Rating Formula is Revealed and Applied firstly on Forex Brokerage Services. The rating formula is built by linking four major trading factors:
1) Maximum Safety of Funds
2) Minimum Commissions and other Charges paid
3) Maximum Number of Trading Options
4) Maximum Technological Efficiency and Innovation
FACTOR 1) Safety of Funds, Weight 26%
All Financial companies (investment companies, brokerage companies, etc) tend to accept more risk than they can afford. This is happening when the Potential Profit of a decision is larger than the incorporated risk. So these companies are accepting high levels of risk and are exposed to the possibility of collapse. Exactly what happened in the crisis of 2008 in the US. But if you are a trader you don’t care about your broker’s potential profit, you only care about the level of accepting risk, because that affects directly the safety of your funds.
Table: Safety of Funds Analysis
1. SAFETY OF FUNDS |
WEIGHING ANALYSIS |
MAXIMUM WEIGHT |
1.1 Regulatory Body |
FSC (BVI)=1.0%, CYSEC=3.0%, FFMS=3.0%, RAFMM=3.0%, CBI=4.0%, ASIC=4.0%, BaFIN=5.0%, FSA (UK)=6.0%, NFA=6.0, CFTC=6.0, FINMA=8.0% and MiFID=+4.0% |
12.0% |
1.2 Headquarters Base |
Offshore=0%, Cyprus=2.0%, Ireland, Australia=4.0%, USA, UK, Germany, France, Switzerland=5.0% |
5.0% |
1.3 Foundation (Years in the market) |
0-2 Years=0%, 2-4 Years =1.0%, 5-7 Years=2.0%, 7-10 Years=3.0%, 10+ Years =4.0% |
4.0% |
1.4 US Residents |
Yes=2.0 / No=0 |
2.0% |
1.5 Web Ratings (Usage for differentiating results) |
ForexPeaceArmy Rating=2.5%, EarnForex Rating=2.5% |
5.0% |
TOTAL= |
28.0% |
FACTOR-1 EXPLANATION:
1.1 Brokerage Regulation, 12%
High regulation by a trusty authority can reduce the risk of your brokerage partner misbehaving. Furthermore, in developing countries market supervisors control Forex Brokerage Companies and impose high penalties if they are proven to operate in a risky or unfavorable way. Regulation by authorities in offshore countries, on the other hand, can not be fully trusted.
1.2 Headquarters Base, 5%
The country where a brokerage company is based determines to a high extent the reliability of its balance sheet. Fees and penalties by supervising authorities provide a strong incentive for Forex brokers to operate legitimately without risking clients' funds.
1.3 Years in the Market, 4%
The long existence of a Forex company in the market means that this company operates under a successful business model and that it is proven capable of managing enterprising risk over time.
1.4 US Residents Allowance, 2%
The allowance of US residents means compatibility with US regulations, which after 2008 became strict for financial companies. US regulation adds credibility to a Forex Company operation.
1.5 Web Ratings, 5%
This parameter is used to differentiate the results. Two popular ratings are used: Forex Peace Army ratings and Earn Forex ratings. This kind of rating is made by users. Sometimes user ratings are fake and that is why this particular factor receives a weight of just 5% and not more.
FACTOR-1 ANALYSIS EXAMPLES
i) A Forex Broker based in the UK that was founded in 2000 and that is regulated by FSA, receives 15.0%. Now, if this broker forbids US traders and has a web rating of 3.5%, gets an additional 3.5%, a Grand Total of 18.5%.
ii) A Forex Broker based in British Virginia Islands that was founded in 2010 and that is regulated by BVB receives 1.0%. Now, if this broker forbids US traders and has a web rating of 2%, it gets a Grand Total of 3%.
The difference between these two brokerage ratings is huge (15.5%), as huge is the risk that you will take if you will choose a broker (ii).
FACTOR 2) Competition, Weight 30%
Table: Competition Analysis
2. COMPETITION |
WEIGHING ANALYSIS |
MAXIMUM WEIGHT |
2.1 Spread on EUR/USD
|
EUR/USD Spread <0.5=12.0%, <0.6=11.0%, <0.70=10.0%, <0.8=9.0%, <0.9=8.0%, <1.0=7.0%, <1.25=6.0%, <1.50=5.0%, <2.0=4.0%, <2.5=3.0%, <3.0=2.0%, <3.5=1.5%, <4.0=1.0%, >4%=0 Filter: If trading spread is more than 5 pips then 2.1 & 2.2 ratings are forced to zero {0} value |
12.0% |
2.2 Trading Commissions Charged
|
No Commissions=7%, Low Commissions=4%, Low to Medium Commissions=3%, Medium Commissions=2%, Medium to High Commissions=1%, High Commissions=0 Filter: Very high commissions charged will force 2.1 & 2.2 ratings to zero (0) value |
7.0% |
2.3 Deposit / Withdrawal Commissions |
Yes=0%, No=2.0% |
2.0% |
2.4 Maintenance & No Active Account Fees |
Yes=0%, No=2.0% |
2.0% |
2.5 Leverage
|
400%+=4.0%, 350%=3.5%, 300%=3.0%, 250%=2.5%, 200%=2.0%, 150%=1.5%, 100%=1.0%, <100%=0% |
4.0% |
2.6 Customer Service
|
24/7=1.0%, 24/6=0.5%, 24/5=0%, Phone=1.0%. Live Chat=1.0%, Skype=1.0% |
3.0% |
TOTAL= |
30.0% |
FACTOR-2 EXPLANATION:
2.1 Spread on EUR/USD, 12%
The minimum typical spread on EUR/USD is used, as EUR/USD is the most important and the most liquid Forex pair in the world.
Filter: A filter was added on 2.1
If the trading spread exceeds 5.0 pips then automatically the 2.2 rating has also a zero (0) value. This is happening because a very high spread eliminates the advantage of not charging trading commissions.
2.2 Commissions Charged, 7%
Some Brokers charge trading commissions, some don’t. We prefer those that charge no commissions and we rate them beneficially.
Filter: A filter was added on 2.2
If trading commissions on the 2.2 rating are very high then the 2.1 rating has also a zero (0) value. This is happening because very high commissions are eliminating the advantage of low or even zero spread.
2.3 Deposit / Withdrawal Commissions, 1.5%
Withdrawal and Deposit commissions are reducing trading funds and that is why they are considered an important issue.
2.4 Maintenance / Inactive Account Fees, 1.5%
Some brokers are charging fees for maintenance and commissions for inactive accounts. This means extra costs for traders.
2.5 Leverage, 4%
The magnitude of the capital leverage adds extra capabilities to Forex trading and that is why it is considered an important parameter of quality Forex brokerage. In version 2.0 of the rating formula, the maximum rate of leverage is used as the input number.
2.6 Customer Service, 4%
Online services of every type require the existence of quality customer service. We rate 24/6 and 24/7 customer service and add points to the existence of Phone, Skype, and Live Chat.
FACTOR-2 ANALYSIS EXAMPLES
i) A Forex Company which provides 2 pips spread on EUR/USD by not charging commissions of any kind receives 11.0%. Now, if it provides leverage of 1/200 and offers also Live Chat and Phone support on a 24/6 base receives an additional 4.5%. The Grand Total rating is 15.5%.
ii) A Forex Company which provides 2 pip spread on EUR/USD by charging high trading commissions plus withdrawal and maintenance commissions, receives 4%. Additionally, if it provides leverage of 1/100 and offers just Phone support on a 24/5 base receives an additional 2%. Grand Total rating is 6.0%.
FACTOR 3) Trading Options, Weight 26%
Table: Trading Options
3. TRADING OPTIONS |
WEIGHING ANALYSIS |
MAXIMUM WEIGHT |
3.1 Available Forex Currencies
|
45+ Currency Pairs=8.0%, 40+ Currency Pairs=7.0%, 35+ Currency Pairs=6.0%, 30+ Currency Pairs=5.0%, 25+ Currency Pairs=4.0%, 20+ Currency Pairs=3.0%, 15+ Currency Pairs=2.0%, 10+ Currency Pairs=1.0%, Less than 10 pairs=0 |
8.0% |
3.2 Other Financials Available |
Commodities / Energy=1.0%, CFD Trading=1.0% |
2.0% |
3.3 Bonus / Rebate
|
Bonus / Rebate >40%=8.0%, >35%=7.0%, >30%=6.0%, >25%=5.0% >20%=4.0%, >15%=3.0%, >10%=2.0%, >5%=1.0 |
8.0% |
3.4 Scalping |
Yes=1.5% / No=0% |
1.5% |
3.5 Hedging |
Yes=1.5% / No=0% |
1.5% |
3.6 Deposit Methods |
For each deposit method available=0,5%, max=5 methods |
2.5% |
3.7 Withdrawal Methods |
For each withdrawal method available=0,5%, max=5 methods |
2.5% |
TOTAL= |
26.0% |
FACTOR-3 EXPLANATION:
3.1 Available Number of Currency Pairs, 8%
The higher the number of currency pairs available, the higher the potential for traders to exploit trading opportunities in the Forex Market.
3.2 Other Available Trading Assets, 2%
Furthermore, the wide variety of trading assets (CFD trading, etc) indicates a Forex Broker company that tries today to expand its offering services and adapt to more customer needs.
3.3 Bonus / Rebate, 8%
The higher the bonus or rebate offered, the larger the available funds. In version 2.0 of the formula, ratings are based on the maximum bonus/rebate plan available.
3.4 Scalping, 1.5%
Forex scalping is an important option for some traders. For us means 'freedom of the will', and that is why scalping is considered a rating factor.
3.5 Hedging, 1.5%
Hedging provides traders the ability to protect their positions and funds, and that is why it is considered an important trading option.
3.6 Deposit Methods, 2.5%
The wide variety of Deposit Methods makes a broker more suitable to his customer's needs.
3.7 Withdrawal Methods, 2.5%
A variety of withdrawing methods is of equal importance.
FACTOR-3 ANALYSIS EXAMPLES
i) A Forex Brokerage Company which provides many Forex pairs, plus gold and silver trading, receives 9%. Now, if it provides a deposit bonus of 30% receives 6%. If this broker allows hedging and scalping and provides 4 deposit/withdrawal methods, receives an additional 7%. The Grand Total rating is 22.0%.
ii) A Forex Brokerage Company which provides only a few Forex pairs, and nothing more receives 4%. Now, if it provides a deposit bonus of 40% receives 8%. If this broker forbids hedging and scalping and provides 2 deposit/withdrawal methods, receives an additional 2%. The Grand Total rating is 14.0%.
FACTOR 4) Technology & Innovation, Weight 16%
Table: Technology and Innovation
4. TECHNOLOGY |
WEIGHING ANALYSIS |
MAXIMUM WEIGHT |
4.1 Available Platforms |
Each Supported Platform=1.0%, max=5 |
5.0% |
4.2 API Trading |
Yes=1.0 / No=0 |
1.0% |
4.3 Accepts Expert Advisors (trading signals) |
Yes=2.0 / No=0 |
2.0% |
4.4 Mobile Trading |
Each Supported Device=0.5% (iPhone, iPad, Android, Windows Mobile, Blackberry), max=4 |
2.0% |
4.5 MT4 / MT5 Availability |
Yes=1.0 / No=0 |
1.0% |
4.6 General Innovation |
High Innovation=5.0%, Medium Innovation=2.5%, Low Innovation=0% |
5.0% |
TOTAL= |
16.0% |
FACTOR-4 EXPLANATION:
4.1 Available Platforms, 5%
A wide variety of trading platforms provides traders with more options.
4.2 API Trading, 1%
API trading indicates that a Forex Broker uses state-of-the-art technology.
4.3 Expert Advisors, 2%
The ability to receive signals from Expert Advisors (for example Zulu Trade and Tradency's Mirror Trader) is a very important issue for some traders.
4.4 Mobile Trading, 2%
Mobile trading is not just a trend, it is the future of trading.
4.5 MT4 / MT5 Availability, 1%
MetaTrader platform is a trading standard when trading Forex nowadays
4.6 General Level of Innovation, 5%
A Forex Broker that invests today to make his services more innovative means a broker with long-term thinking and customer-based business philosophy.
FACTOR-4 ANALYSIS EXAMPLES
i) A Forex Brokerage Company which provides two trading platforms, plus MT4, which enables traders to receive signals from E.A. and that provides API trading receives 7%. In addition, if it offers two mobile platforms and can be justified as an innovative broker, receives an extra 6%. Grand Total rating is 13.0%.
ii) A Forex Brokerage Company which provides 3 trading platforms, but no MT4, which doesn’t enable Expert Advisors and API trading, receives just 3%. Furthermore, if this broker provides an application only for iPhone and he isn’t innovative at all, he receives just an additional 0.5%. Grand Total rating is 3.5%%.
Total Rating: If the 4 parts of the formula are linked we get a total rating.
RATING FORMULA= |
Safety of Funds (28.0%) + |
Trading Cost (30.0%) + |
Trading Options Offered (26.0%) + |
Technology & Innovation (16.0%) |
= (100.0%) |
Trading Center Rating Brokers Formula v2.0 (2012)
■ Giorgos ProtonotariosInvestment Consultant / Financial AnalystMsc in “International Banking & Finance”L MORE REVIEWS
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