Articles

RATING ONLINE BROKERS FORMULA V.2.0

Introduction

Finding the right online brokerage firm is a 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 in a high extend 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.

In order to find a way to evaluate effectively the world’s online brokerage services, a rating formula was designed and now it is presented. The first and the second versions of the rating formula are applied on Online Forex Brokers. The third version is applied to Binary Option Brokers. More information about the history of the Rating Formula vesrions is found at the end of this article.

Here is the vesrion 2.0 applied on Forex Brokers, the maximum rating that a broker can perform is 100% and the minimum rating is 2%.

*The formula described below, is the version 2.0 of the Trading Center Rating Brokers Formula.

Rating World Brokers -Formula v.2.0 

-Implemented on Forex Brokers

This is the Rating Structure

Rating Formula is Revealed and Applied firstly on Forex Brokerage Services. The rating formula is build 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 really 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 is 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 to misbehave. Furthermore in developing countries market supervisors control Forex Brokerage Companies and impose them with 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 in a high extend 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 regulation, 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 in order to differentiate the results. Two popular ratings are used: Forex Peace Army ratings and Earn Forex ratings. This kind of ratings are made by users. Sometimes user-ratings are fake and that is why this particular factor receives weight of just 5% and not more.

 

FACTOR-1 ANALYSIS EXAMPLES

i) A Forex Broker based in UK that was found 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%, Grand Total of 18.5%.

ii) A Forex Broker based in British Virginia Islands that was found in 2010 and that it 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 broker (ii).

 

 

FACTOR 2) Trading Cost & Similar, Weight 30%

Table: Factor Analysis

2. TRADING COST & SIMILAR

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 charged 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 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 as 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 cost 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 as 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 a 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 offering also Live Chat and Phone support in a 24/6 base receives an additional 4.5%.  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 in 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 Availbale 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 which tries today to expand its offering services and adapt on more customer needs.

3.3 Bonus / Rebate, 8%

The higher the bonus or rebate offered, the larger the available funds. At 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 as 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 as an important trading option.

3.6 Deposit Methods, 2.5%

The wide variety of Deposit Methods makes a broker more suitable to his customers needs.

3.7 Withdrawal Methods, 2.5%

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%.  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%.  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 a long-term thinking and a customer based business philosophy.

 

FACTOR-4 ANALYSIS EXAMPLES

i) A Forex Brokerage Company which provides two trading platforms, plus MT4, who 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, who doesn’t enables 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%)

 

History:

The first and the second versions of the Rating Broker Formula were applied on Online Forex Brokers. The versions 3.0 and 3.5 of the formula were applied on Binary Option Brokers. More information here:

» Binary Option Brokers Formula -V.3.5, BinaryValue.com

» Binary Option Brokers Formula -V.3.0, BinaryValue.com

       » Forex Broker Rating Formula –V.2.0, TradingCenter.org

» Forex Broker Rating Formula –V.1.0, OnlineForex.Biz


Note: Using this formula, some Forex Brokers ratings have been published at the affiliated web-site OnlineForex.Biz.

 

Rating Results using Rating Brokers Formula v2.0:


Forex brokers Rating Results published on the affiliated OnlineForex.Biz, the ratings have been made using the version 2.0 of the rating formula that is presented above.

 

V.2  

» XEMarkets

»Rating

» Plus 500

»Rating

» FXGM

»Rating

» eToro

»Rating

» AvaFx

»Rating

 

 

Trading Center Rating Brokers Formula v2.0 (2012) 

Giorgos Protonotarios
Investment Consultant / Financial Analyst
Msc in “International Banking & Finance” 

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