How to choose a forex brokers that allow HFT Trading

1. Introduction
2. An introducing broker (IB) and review sites
3. Types of Forex Brokers
4. Types of regulators forex brokers
5. How to choose the right broker that allow hft
6. Conclusion

Introduction

The article is designed for beginners in Forex trading as well as for experienced traders who are not familiar with the backstage of Forex brokerage companies.

In this article, we will tell about websites reviewing different Forex brokers. Also, we will consider the types of Forex brokers that brokers list on their websites and also distinguish three real types of Forex brokers which can be divided into. We estimate the regulators and suggest which regulator is better. This is a very important step in the selection of the broker, based on all the information.

An introducing broker (IB) and review sites

There are many review sites where you can read various reviews and see forex broker ratings. To what extent do these reviews and ratings reflect reality? Forex brokers pay a huge commission to the intermediary who brings in the client. It is called An introducing broker (IB) which is an intermediary who has a relation with a trader but the trader trades with a broker who shares part of the commission or part of the spread (markup) with the IB. There are IB programs under which a broker pays a fixed payment for each referred client in most cases depending on the trader’s country of residence. Say for a trader from a wealthy country like Norway or Denmark the IB will receive a larger amount than for a trader from, for example, Bulgaria where the average salary in the country is lower. The third type of IB is when the broker and the IB share the trader’s losses.  All this explanation I cited only to show the reader how profitable business is to be an IB. And how to attract the client? Some IBs offer their clients rebates, i.e. they return a part of the commission that the trader has traded, some offer free forex robots and signals, some make review sites and some do the first, the second, the third, and so on. What I mean is that you have to be very careful when you trust a review site and only if you are sure that this site is not just an IB’s website. By the way, you get what you pay for. So open an account directly with a broker bypassing all middlemen as you will be cheated anyway 😊 I can advise reading broker reviews on forexfactory.com forums and sites where traders write complaints like forexpeacearmy.com, although often bad reviews are closed by file reviews “friends” of the broker, at least these sites themselves do not write reviews to get commissions.

Types of Forex Brokers

You can review 10 -20 forex broker sites and you will see that they are all divided into STP, ECN, MM, DMA, NDD, DD…

Let’s try to decipher

The STP = Straight Through Processing Technology (NDD = no dealing desk model with DMA = Direct Market Access). All orders are routed to the broker’s liquidity providers, and prices are executed at the bid/ask rate provided by liquidity providers. These brokers can be brokers that allow HFT trading.

ECN Forex Broker (NDD = no dealing desk model with DMA = Direct Market Access) – the ECN acts as a hub. The hub acts effectively as the major liquidity source, represented by banks, hedge funds, and all the major market players.

DD = Dealing Desk forex brokers and MM = Market Makers – The infamous term “market makers” is used because these brokers usually take the opposite side of traders’ trades. They make money through spreads and by providing liquidity by themselves. What is meant is that when a trader opens an order, the counterparty is the broker. If you buy one lot of EURUSD, then the broker sells you one lot of EURUSD. 

I want to tell you right away, that many Forex brokers stating on their websites that they are ECN Forex Broker, STP Forex Broker, are deceiving, to say the least. Probably brokers as Bloomberg or Interactive Brokers refer to ECN, but not the brokers connected with the provider of liquidity through the server, bridge… For this reason, it is important not to take into account what a broker writes on his website – this is a marketing trick.

And so let’s make it more simple but correct and divide all the brokers into three categories. 

Brokers A-Book – brokers who pass orders through the server and bridge on the liquidity provider taking from the trader only commission for the traded volume. These brokers can be brokers that allow HFT trading.

Brokers B-Book – brokers that are market makers, do not pass orders to the liquidity provider and act as a counterparty for a trader

Hybrid brokers A-Book and B-Book model.

If I say that most brokers are hybrid brokers I will probably not be mistaken. 

Then let us proceed from this and divide hybrid brokers into two categories as well.

1. Hybrid brokers which apply to deal (have DD = Dealing Desk) to B-books

2. Hybrid brokers not applying dealing to B-Book.

Dealing Desk – a team of dealers using different dealing methods or a virtual dealer (plugin) installed on the server. Also dealing issues can be solved with the broker’s consent on the liquidity provider side (usually broker and dealer share profits and risks in this case) or without the broker’s consent. I.e. the trader’s task is to find hybrid brokers not applying dealing to B-Book that has an STP liquidity provider or liquidity providers without dealing.

Types of regulators of forex brokers

There are many licenses that forex brokers use and which they list on their websites. Before you open an account you need to find out under which regulation the broker is going to open you an account and check its license. Many brokers have several regulations, for example, FCA UK and an offshore one. If you are interested you can read about all types of existing regulations here https://www.babypips.com/tools/forex-regulation. You have to realize that if you open an account under an offshore regulation you are poorly protected. But I want to note that even the FCA UK may side with the broker if the broker can prove that you violated some of its terms and conditions. From my point of view, a fairly strong regulator who almost always takes the trader’s side is ASIC AU. So I would recommend relying on the reputation of the broker on one side and would not make a large deposit if the broker is poorly regulated.

How to choose the right forex broker?

After all the above-mentioned it seems that the choice of a Forex broker is an impossible task and it is a difficult task, but solvable. So, after you have read the reviews on sites that are not IB, make yourself a list of several brokers and check what kind of regulation the broker has. 

If the broker is regulated by one reliable regulator and your citizenship allows you to open an account under that regulation, then that’s ideal. If the broker is regulated by one reliable regulator and a second offshore regulator and your citizenship only allow you to open an account under the offshore regulation, it’s still better than if the broker only has offshore regulation. If you open an account with an offshore broker involuntarily, for example for arbitrage trading, do not make a large deposit and make withdrawals of winnings regularly, i.e. do not accumulate winnings. Open accounts with several brokers you have chosen and make a small deposit. Start testing your strategy, paying attention to order execution times and slippage. Consider that the broker may at any moment apply a dealing to you or transfer you from A-Book to a B-Book, based on several factors:

1. Increase in the traded lot – the dealer may consider that the risk increases because you have increased the traded lot and taken the measures described above.
2. Increase in Deposit. For example, you made a test at the deposit of $100, and then deposit $100k. The dealer can consider that it is risky to leave this deposit in a B-book and transfer the account to an B-Book.
3. Trader’s questions like “and you allow to trade arbitrage” or “and what strategies do you allow to use”. You will immediately find yourself in a group with hard dealing and get the answer – “of course, we are happy to use any strategy”. 
4. When the trader says “I’m going to use arbitrage” to the broker’s question “what strategy are you going to use we will try to find you the best liquidity provider” – you will find yourself in a hard-dealing group with the trader asking “do you allow arbitrage trading” 😊
5. High profits. 100% a day is possible but once and most likely they won’t give it away for you to keep. 
6. Accidentally. This is also possible because the dealer is also a human being although not as good as the trader. 😉

Conclusion

This article will help both novice and experienced traders choose the right broker that allow HFT trading. for their strategy since it is written without the purpose of advertising any brokerage company, also the author has 10+ years experience of in algorithmic trading and he knows how brokerage companies are organized from the inside and not by hearsay. I will be happy to answer your questions and even to argue in cases of disagreements!

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